The recent fuss involving misbehavior of Daelim Group‘s Lee Hae-wook has raised the public attention to how the relatively little known third-generation scion of the family-controlled conglomerate became heir at the age of 47 last year.

Lee, vice chairman of Daelim Industrial, the flagship construction unit of the group, has exposed the group to reputation risk since his repeated abuse of personal chauffeurs was revealed last month. 


His prompt public apology for his misdeeds at the firm’s shareholders meeting on March 25 was not enough to contain fallout from the scandal. Authorities and civic groups, rather, are tightening their surveillance on Lee and Daelim, bringing the spotlight back to the dubious deal that led to Lee’s succession last year.

The eldest son of Daelim Group honorary chairman Lee Joon-yong, 78, took the helm of the group with assets of 18.8 trillion won ($16.3 billion) last July, as the junior Lee secured a 52.3 percent stake in Daelim Corp., the group’s holding company, through a merger deal between Daelim Corp. and Daelim I&S, the group’s information and technology service affiliate in which he held about 90 percent stake.

With the deal, shareholdings of the son in the group’s holding company soared to 52.3 percent, while those of his father fell to 42.7 percent.

“Nothing was wrong in the process of the deal, which gained shareholders’ approval. But the deal was apparently designed to achieve power transfer without paying any inheritance tax, not for synergic “effect for businesses,” said Lee Eun-jung, a researcher at Economic Reform Research.

“Another issue regarding the deal is an unfair business practice that Daelim I&S was involved in. The IT service provider, set up by the group heir in 1995, had grown fast backed by internal transactions.’’

It was the second time for the third generation of the group‘s founding family to use an affiliate he created to raise his stake in the holding company via a merger deal.

In 2008, Daelim H&L, a shipping arm of the group Lee set up with capital of 1 billion won in 2001, was merged into Daelim Corp. The single deal raised Lee’s stake in Daelim Corp. to 32 percent from zero without requiring any cost.

“A merger between affiliates has been one of common methods that the heir apparent of a Korean conglomerate adopts to raise his or her control in governance structure without paying tax, seen in a deal between Samsung C&T and Cheil Industries last year,” said a stock analyst, speaking on condition of anonymity.

In terms of governance, he forecast the next move of the Daelim heir is to raise his stake in Daelim Industrial to cement control over the group. Although Lee has not a single share in the group’s flagship company, he governs the firm through a 22 percent stake that Daelim Corp. holds, but he needs more stake to protect his governing power from a possible hostile takeover move by foreign investors.

The second-biggest shareholder of Daelim Industrial is the National Pension Fund with an 11 percent stake.

By Seo Jee-yeon (jyseo@heraldcorp.com)