Koreans turn cold shoulder on Lotte amid drama

When Kim Li-na first heard about the prosecution's probe into Lotte on the alleged creation of slush fund 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 give 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 behaviour, and then anger, and now they're just sick and tired of it. People say that the society is rotten in so many places."

Lotte Group struggles to keep it in the family

  • With bitterly feuding siblings, attempted boardroom coups and an act of corporate patricide, the family squabble currently engulfing one of Korea's largest conglomerates makes for compelling drama.
  • And it is very much being played to an audience, with the three main protagonists issuing almost daily threats and accusations on television - sometimes of a deeply personal nature.
  • The 92-year-old founder of the Seoul-based Lotte Group and his two sons have been tearing chunks out of each other with little or no apparent concern for the impact on the country's largest retail giant.
  • Squabbles for control of South Korea's family-run conglomerates, known as "chaebol", have long been staple plotline fare for the country's popular K-dramas, but the real-life Lotte dispute is setting new standards for in-fighting and intrigue.
  • At stake in the Lotte feud is control of a sprawling conglomerate with 80 units across Korea - spanning retail, amusement parks, hotels and chemicals - and total combined assets of around S$124 billion.
  • The company was founded in Japan in 1948 by South Korean-born Shin Kyuk-Ho and grew from a seller of chewing gum to become a confectionary giant.
  • It expanded to South Korea where its operations now dwarf the Japanese side of the business in terms of revenue. But the key to control of the group still lies with the Japan-based Lotte Holdings Co.
  • At the beginning of last week, Shin and his eldest son, Shin Dong-Joo, flew to Tokyo and sought to dismiss a group of senior Lotte Holdings executive board members, including the CEO and Shin's younger son, Shin Dong-Bin.
  • But Dong-Bin fought back and, a day later, the board not only nullified the dismissals but also removed the father as co-CEO.
  • In a statement apparently dictated by Dong-Bin, the Lotte Group suggested that the eldest son had taken advantage of his father's frailty and advancing years to try and stage a boardroom coup.
  • He took the chairman "who is aged and has difficulty in making judgements, to Japan and pushed him into making the verbal dismissal announcement," the statement said.
  • It is unclear exactly where the loyalties of the patriarch lies when it comes to his two sons.
  • After Dong-Joo was stripped of key positions with Lotte's Japan-based affiliates back in January and Dong-Bin was appointed Lotte Holdings CEO last month, it was widely assumed that the younger son was the chosen successor.
  • But in a halting statement read to Korean broadcaster SBS on Sunday, Shin Kyuk-Ho insisted he had never appointed his younger son as the Lotte heir, and added that he would never forgive being ousted from the holding company.
  • The dispute should come to a head at a Lotte Holdings shareholder meeting expected to be held in Tokyo this week, at which the eldest son has said he will call for the sacking of the entire executive board.
  • Both sons claim they have the shareholder backing to swing the vote their way.
  • The situation is further complicated by the byzantine structure of the Lotte Group, with myriad circular shareholdings that make it difficult to decipher who exactly owns and controls what.
  • "That is a feature of many chaebols, but the Lotte Group's cross-holdings dwarf the others in their number and complexity," said CGCG's Kim.
  • As far as decent corporate governance goes, the family really ought to sort things out themselves first and then win shareholder approval for whatever they decide," Kim said.
  • "But in this case, it looks like they have just skipped both steps. They failed to work things out in the family and then completely ignored shareholders as they set about ordering dismissals," he added.
  • The Lotte drama comes at a time when the issue of dynastic corporate succession is very much in the South Korean news.
  • Last month, the country's largest and wealthiest chaebol, Samsung, barely scraped through a shareholder vote on the proposed merger of two affiliates, aimed at boosting the founding Lee family's control over the conglomerate ahead of a generational power transfer.

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 favour, his intentions backfired, as the interview was 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-defence forces.

After public outrage over insensitivity to Korean history and then-icy bilateral relations between the two countries, Hotel Lotte cancelled 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 behaviour 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."