Lotte CEO Apologizes for Family Feud, Vows for Governance Reform
D-Bo , Aug. 11, 2015, 10:10 a.m.
Shin Dong-bin, the head of the country's No. 5 conglomerate, apologized Tuesday over the group's much-criticized succession feud and pledged to make the retail giant's murky governance structure more transparent. Lotte is embroiled in a bitter family fight over control of the sprawling business empire, which has reignited sentiment against family-controlled conglomerates, known as chaebol here, and prompted an all-out government probe into the group.
"This crisis happened as we failed to make great effort to improve our governance structure and bolster corporate transparency during the group's growth," said Shin in a news conference that marked his second public apology since the high-profile fight erupted late last month. "We will resolutely reform the agendas that have raised concerns among the people of Korea, the government, our shareholders, employees and contractors," he said.
Shin said he will push for the listing of Hotel Lotte, which serves as the de facto holding firm of the group's businesses in Korea. The retail mogul, however, failed to provide a clear timeline for the event, only saying that he will put in efforts to make it happen "in the near future." He also said the group will try to eliminate about 80 percent of cross-shareholding among its units, which is cited as the main reason for its complex ownership structure. A Lotte official said a crucial shareholder meeting of Lotte Holdings is scheduled for Aug. 17, where the listing and fate of the brothers involved in the feud are likely to be discussed.
Officials at Lotte Holdings were quoted as saying that the scheduled meeting will be focused on bolstering its corporate governance and compliance, adding that the shareholder meeting was not set upon the request of a certain shareholder. Lotte has been mired in the family squabble involving founder Shin Kyuk-ho and his two sons, Dong-joo and Dong-bin, who are sparring to bolster their grip on the company whose business spans from luxury hotels to amusement parks, mostly located in South Korea and Japan.
Dong-joo, with the help of his father, attempted to oust his younger brother from Lotte Holdings, the conglomerate's Tokyo-based holding firm, while Dong-bin has countered by demoting their 93-year-old father from his general chairman post, implying that the founder's old age has blurred his mental capacity. In Tuesday's apology, Shin said he "respects his father very much," but drew a line between domestic ties and business relations, saying that he is willing to talk with his father and brother on personal matters, but business agendas are a separate issue.
The family feud has expanded into one of the country's biggest family fights of all time, previously seen among scions of the country's chaebols, such as Hyundai and Kumho. Anti-chaebol sentiment has also been building up, which for Lotte translates into a possible boycott of its services and products by consumers, a substantial threat for the heavily retail-focused company.
Adding to the chaos, the company's corporate history, as well as TV footage of the family calling each other by their Japanese names, has spurred anti-Japanese sentiment against the conglomerate that was founded as a confectionery in postwar Japan. Its holding firm and the little-known investment units are also located in the neighboring country. Dong-bin reiterated his previous stance that Lotte is wholly a Korean company.
"Father has consistently reinvested profits reaped in Korea into businesses here. It has now grown into the country's fifth-largest group and its size, in terms of employment and sales, is incomparable to Lotte in Japan," he said. "Hotel Lotte is not a channel used to funnel national wealth to Japan." The public reponded cooly to the carefully devised news conference.
In a widely shared Tweet, Seongnam Mayor Lee Jae-myung wrote, "The chaebol even changed the course of the Seongnam Airpot runway to build Lotte World Mall. Is an apology enough?" The Citizens' Coalition for Economic Justice rebuked the apology as a makeshift move and called for stronger reform. "Chairman Shin Dong-bin's apology was simply aimed at patching up the issue amid (negative) sentiment. If Lotte can't do it, the government and the National Parliament should execute an all-out reform of chaebol," the civic group said in a statement.
Shares of Lotte affiliates surged on the main bourse on Tuesday on expectations the group would move to improve its governance structure. Lotte Shopping spiked 9.29 percent, while its sister companies Lotte Chemical and Lotte Confectionery rose 3.11 percent and 9.27 percent, respectively. The benchmark KOSPI shed 0.82 percent.