Actions speak louder than wordsWhile apologizing for the public display of the family feud over leadership control, Lotte Group Chairman Shin Dong-bin promised to fix the retail giant’s Byzantine cross-shareholding structure across its operations in Korea and Japan. At the same time, the group will go public with Hotel Lotte on the Korean stock exchange. In a press briefing, Shin, who beat his brother over management control in a battle that shed light on the group’s intricate, shady governance and ownership structure promised to reduce more than 80 percent of its cross-shareholdings by the end of the year.
Lotte’s cross-shareholdings extend to 416 companies. In the long run, Shin said he will completely do away with the system and realign the group’s holding company system. Cutting out cross-shareholding in 320 companies would cost the group about 7 trillion won ($5.9 billion), equivalent to two or three years of net profit. The group plans to cut back on R&D and investment in order to concentrate on the structural overhaul.
The announcement comes after civilian groups began boycotting Lotte products and services in disgust with its authoritarian and backward management. A small merchant association decided to reject accepting Lotte Card at their outlets. The government and legislature also have stepped up pressure. The Fair Trade Commission called for a probe on the group’s stakes in affiliates and the National Tax Service asked to see the tax records of the owner family. Lawmakers motioned bills to reform chaebol. Shares of Lotte companies all fell and sales have been hurt. Shin didn’t have any choice but to acquiesce to the public’s demand for a makeover.
Actions are now needed, not more words. Some think Shin has made the promises to escape a parliamentary probe and ease public criticism. Local chaebol always vow for more transparent management and social commitments after they cause controversy with a power struggle, but never actually carry them out. But all eyes will be on Lotte this time, and the group must realize it cannot survive if it loses public favor.
JoongAng Ilbo, Aug. 12, Page 34