The fight for the top of Lotte is like a bad soap

The China Post - - COMMENTARY - BY SHIN YONG- BAE

The suc­ces­sion bat­tle in Lotte Group is rock­ing the na­tion at a time of the peak sum­mer va­ca­tion pe­riod in South Korea.

This fight to take the helm of South Korea’s fifth-largest con­glom­er­ate is so bit­ter and dra­matic that some ed­i­to­ri­als com­pare it to a “mak­jang” TV soap opera with a highly sen­sa­tional and crappy plot.

The main ac­tors are the nona­ge­nar­ian founder of the Kore­anJa­panese con­glom­er­ate Shin Kyuk-ho and his two sons — Shin Dong-joo and Shin Dong-bin, both in their early 60s.

Other found­ing fam­ily mem­bers, in­clud­ing the fa­ther’s younger brother, daugh­ter and even his sec­ond ex-wife, have also joined the fray, mak­ing it dif­fi­cult to pre­dict how the Lotte drama will end.

View­ers have seen sim­i­lar power-strug­gle scenes among scions of some fam­ily-run con­glom­er­ates, or chae­bol, like Sam­sung, Hyundai, Doosan and Han­jin, just to name a few.

But this fra­ter­nal feud­ing in Lotte, the na­tion’s re­tail gi­ant with oper­a­tions from ho­tels to chem­i­cals, ap­pears to be more shock­ing.

The 93-year-old ty­coon showed his dic­ta­to­rial man­age­ment style when he ver­bally dis­missed six se­nior ex­ec­u­tives at Lotte Hold­ings in Ja­pan, in­clud­ing the sec­ond son Shin Dong-bin, last week. In re­sponse, Shin Dong-bin, CEO of the de facto hold­ing firm, de­clared the dis­missal null and void be­cause no board meet­ing took place, and sacked his fa­ther from the com­pany af­ter con­ven­ing an of­fi­cial board meet­ing. It is un­prece­dented in Korean chae­bol history for a scion to de­mote his or her founder and fa­ther.

The Coup

An­gered by the board­room “coup,” the fa­ther is seem­ingly tilt­ing to­ward his el­der son Shin Dong-joo in the com­pe­ti­tion for choos­ing the suc­ces­sor of the Lotte em­pire, whose an­nual rev­enue amounts to more than 80 tril­lion won (US$68.6 bil­lion).

The suc­ces­sor is likely to be de­cided by a share­holder vote of Lotte Hold­ings, whose largest share­holder is Ko­jyun­sya, a Ja­panese pack­ing firm, re­port­edly with a 27.65-per­cent stake. The Shin broth­ers have sim­i­larly a 20-per­cent stake each in the hold­ing com­pany, so the un­listed packer can play a cru­cial role in the vote. The two firms have not dis­closed in­for­ma­tion of their share­hold­ers, but founder Shin re­port­edly con­trols the packer with about a 50-per­cent stake.

Tech­ni­cally, the first son ap­pears to have the up­per hand in se­cur­ing a con­trol­ling stake on the strength of his fa­ther’s sup­port. But the board of di­rec­tors in the hold­ing com­pany is un­der Shin Dong-bin’s in­flu­ence and, fur­ther­more, CEOs and la­bor unions of Lotte af­fil­i­ates have re­solved to sup­port the sec­ond son, who is cur­rently chair­man of Seoul-based Lotte Group.

Re­gard­less of who will emerge as the next leader of the re­tail gi­ant, the Lotte saga is prompt­ing public up­roar as the suc­ces­sion feud is ex­pos­ing the con­glom­er­ate’s old-fash­ioned man­age­ment style char­ac­ter­ized by the owner’s despo­tism and lack of trans­par­ent gov­er­nance struc­ture.

Some civic groups are threat­en­ing to launch a public cam­paign against Lotte prod­ucts, the neg­a­tive im­age of the con­glom­er­ate is fast spread­ing and, as a re­sult, the share prices of some of its af­fil­i­ates con­tinue to slide, cre­at­ing the big­gest cri­sis yet for the group.

Un­der such a sit­u­a­tion, the fa­ther and two sons ur­gently need to end the es­ca­lat­ing fam­ily feud through rec­on­cil­i­a­tion and com­pro­mise, be­cause it could fan anti-chae­bol sen­ti­ment in Korea, stop in­vest­ment projects from be­ing pro­moted by Lotte af­fil­i­ates or ham­string their nor­mal busi­ness ac­tiv­i­ties.

Now, the se­nior Shin should an­nounce his re­tire­ment as gen­eral chair­man to pave the way for the next gen­er­a­tion’s leader, con­sid­er­ing his age and mount­ing con­tro­versy over his al­leged men­tal ca­pac­ity.

In ad­di­tion, the trio should pledge to re­vamp the cur­rently com­pli­cated and opaque cor­po­rate gov­er­nance struc­ture that has long helped them lead the Lotte em­pire in Korea and Ja­pan through a labyrinth of crossaf­fil­i­ate share­hold­ings with small stakes.

In the fu­ture, Lotte should also dis­card its much-crit­i­cized au­to­cratic man­age­ment style, in which im­por­tant de­ci­sions are made sim­ply through ver­bal in­struc­tions by a top leader.

Fi­nally, the three should agree and clar­ify whether Lotte is a Korean or Ja­panese com­pany. The fa­ther founded the Lotte con­fec­tionary firm in Ja­pan three years af­ter Korea was lib­er­ated from Ja­pan‘s colo­nial rule in 1945.

The sales of Lotte com­pa­nies in Korea reached 83 tril­lion won in 2013, while those of firms in Ja­pan posted only 5 tril­lion won. But most of the ma­jor share­hold­ers of Ho­tel Lotte in Seoul — which vir­tu­ally serves as a hold­ing com­pany for Seoul-based Lotte Group — are Ja­panese firms in­clud­ing Lotte Hold­ings and Ko­jyun­sya.

It is against this back­drop that many ne­ti­zens re­gard Lotte as a Ja­panese busi­ness group and ex­press sup­port for the cam­paign to boy­cott their prod­ucts and ser­vices on this soil, where an­tiJa­panese sen­ti­ment still per­sists.

Split­ting Lotte into two con­glom­er­ates — one in Korea led by Shin Dong-bin and the other in Ja­pan un­der Shin Dong-joo — can be a so­lu­tion to end­ing the fam­ily feud. In Korea, fam­ily striferid­den chae­bol have of­ten split into two or sev­eral groups.

Above all, it is time for founder Shin to step down from the be­hind-the-scenes stage.

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