[THE INVESTOR] When Kim Li-na first heard about the prosecution’s probe into Lotte on the alleged creation of slush funds and embezzlement, she was anything but surprised.

“At this point, I doubt anyone expected anything less from them,” she said. “After the whole fiasco last year, I think Lotte’s image has pretty much hit rock bottom.”

She was referring to the mudslinging between the Lotte founder’s two sons Shin Dong-bin and Shin Dong-joo, who attacked each other publicly to gain controlling power over the group’s operations in Japan and Korea. 

The drawn-out fight provoked public ire toward the self-serving nature of family-owned conglomerates here, including how these large companies had built governance structures that gave them immense control.

“Right now, Lotte is accused of doing all the worst things that a company can do,” said Lee Byoung-hoon, a sociologist at Chung-Ang University in Seoul.

“It’s not just Lotte, but all big companies. The public felt disappointment in their behavior, and then anger, and now they’re just sick and tired of it. People say that the society is rotten in so many places.”

Lee noted that the public is growing increasingly fatigued by the misbehavior of the wealthy and powerful, especially in the wake of the recent outcry over Oxy Reckitt Benckiser, which is accused of selling toxic dehumidifier sterilizers linked to the deaths of over a hundred consumers in Korea. 

“It’s another case of a company that has a high level of interaction with consumers on an everyday basis letting consumers down,” Lee said.

The public’s anger toward Lotte Group is also amplified because of uncertainty over the company’s national identity.

The family feud last year brought the history and corporate governance structure of Lotte into the spotlight.

The disclosure of Lotte’s roots and its controlling power in Japan surprised many, as the retail giant makes most of its profits here today.

“When it became known that Lotte in Korea was in fact controlled by Japanese companies such as Koyunsya and Lotte Holdings, there were some who questioned whether Lotte is really a Korean company,” the civic group Solidarity for Economic Reform said in a statement.

Lotte’s image as a Japanese company was only strengthened by public appearances from Shin Dong-joo and Shin Dong-bin.

When Shin Dong-joo went on a Korean TV network to give an interview, in a bid to turn public opinion to his favor, his efforts backfired due to the interview being conducted in Japanese.

Although he claimed Lotte is a Korean company, Lotte Group chairman Shin Dong-bin’s spoken Korean at a press conference also sparked debate.

“When I saw that press conference, he seemed like a Japanese person to me,” said Kim Eun-ju, a 24-year-old student living in Busan, the southern port city where Lotte owns professional baseball team Lotte Giants. “I already had a bad image of Lotte because of their public fighting, but seeing him made it even worse.”

Kim was not the only one who felt that Lotte’s claim of being a Korean company was half-hearted.

Critics point to the fact that both Shin Dong-joo and Shin Dong-bin had held dual Korean-Japanese citizenship until the 1990s, and that their children remain Japanese nationals.

Up until 2014, it was an accepted custom that high-ranking Japanese government officials, including the prime minister, would stay at Lotte Hotel on visits to Seoul.

That tradition only stopped in 2014 when Hotel Lotte made plans to host an annual celebration commemorating the 60th anniversary of Japanese self-defense forces.

After public outrage over insensitivity to Korean history and then-icy bilateral relations between the two countries, Hotel Lotte canceled the event -- thus offending the Japanese.

“Lotte has done so many things that shows it identifies with Japan,” said 36-year-old accountant Bae Jin-seok. “I don’t know why they’re even trying to convince people that they are a Korean company.”
 

Various efforts by the group to improve its image -- including displaying a giant Korean flag on the Lotte World Tower skyscraper -- appeared hypocritical and opportunistic to Bae.

Still, some say that Lotte was correct to try to quell criticism against the group.

According to Yeo Jun-sang, a business professor at Dongguk University, Shin Dong-bin’s promises to increase corporate social responsibility and pursue a public listing in Korea were appropriate.

“People may not have reacted with applause or joyous welcome to these promises,” Yeo said. “But it was important to show that the company showed it understood what the public was angry about, and made moves to try to remedy the situation.”

Those moves may prove futile, however, with prosecutors doggedly going after Lotte’s owner family for their deeds and questions of ethics and morality -- beyond simple misconduct.

“Lotte as a corporation may still be saved yet,” said sociologist Lee from Chung-Ang University.

“But it will take big changes in the behavior of the owners for the company to win back that trust. And history tells us that the owners of these big companies are rarely willing to make those changes.”

By Won Ho-jung (hjwon@heraldcorp.com)