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Lotte’s existential challenge

Published: 21 Aug. 2015, 07:07

As many had expected, Shin Dong-bin beat his older brother in a much-publicized sibling contest to get full control over the Lotte corporate empire, the fifth-largest conglomerate in Korea. The younger Shin won a vote of confidence from shareholders in Korea and Japan to officially take over the helm from his father, Lotte founder Shin Kyuk-ho. It is unlikely that Shin Dong-joo, his other brother and former vice chairman of Lotte Holdings of Japan, will continue with his challenge, especially considering the tsunami of bad publicity from the family feud. A new generation in charge will also mean that Lotte will stop mixing its businesses in Korea and Japan. Can Lotte restore its reputation under a new chairman?

Lotte could turn itself around. The younger Shin is portrayed as wiser and progressive. The eldest son - typically in a powerful family or under a strong father - can fall prey to the so-called Cain complex, named for the figure in the Old Testament who killed his brother Abel out of jealousy. The older son could be unstable, grappling with extreme envy and even hatred for the younger brother to win affection or recognition from their father. Those born second tend to be more relaxed and adventurous. He knows he will have to earn his position in the family and at the same time can be more creative.

There are a number of CEOs among large Korean family businesses that are not firstborns. AmorePacific Corp. CEO Suh Kyung-bae, who has made the company one of the largest cosmetic companies in Asia, is second-born. The chairman of SPC, the country’s largest confectionary and bakery group, is Hur Young-in, who is also not the eldest. Samsung Group Chairman Lee Kun-hee was not the first son in the family.

Among nomad tribes like Mongols, it was the youngest child that inherited the ruler’s titles. A company in today’s world must be nomadic, roaming around the world in incessant pursuit of new opportunity. According to Frank Sulloway, a professor at the Massachusetts Institute of Technology, firstborns tend to be defensive of their position while younger siblings are ready to challenge authority and rebel. The victory of the younger Shin therefore was foreseeable.

Shin Dong-bin looked like the obvious winner from the beginning of the contest. First, he knew how to play a hard game. He was in Japan when his older brother, who was dismissed from a senior position without clear reason, suddenly declared war on his younger brother on July 27. He did not immediately move to win favor from his ailing father. Instead, he stayed in Tokyo for about 10 days to build support. He obviously was aware of the war strategy.

Second, he was resolute. He didn’t let any family sentiment get in the way when it came to power. He replaced anyone who took his brother’s side, including relatives.

Third, he made the right move at the right moment. He announced the end of a cross-shareholding tradition when Lotte Group came under fire for its complicated governance structure that allowed a small holding company in Japan to wield power over Lotte’s operations in Korea. He declared that Lotte was a Korean company and not Japanese. He knew exactly with whom he needed to score points.

Fourth, he knew both his enemy and himself. Shin made several public apologies for the scandal and controversies Lotte stirred up. In an interview, he spoke in fluent Korean. He set himself in contrast with his elder brother, who mostly spoke in Japanese or broken Korean. He used his strength to counter his brother’s weaknesses. The image he creates was that he was better suited to lead the Lotte empire.

Korea Inc. is in crisis. There is much hope placed in the new Lotte head. Shin declared that family and business are two different things. Many anticipate he could be a model for a new type of CEO personality in family-run conglomerates. It could take millions of dollars to clean up the intricate web of cross-shareholdings. How will he lead the Lotte group under a new governing structure and how can he cut ties with the operations in Japan? These questions point far into the future.

Shin has a Japanese wife and his only son, now 29, was educated in Japan and got married to a Japanese woman in March. He obviously did not serve in the Korean military. He is now studying for an MBA at Columbia University in the U.S. and will begin his career in a non-Lotte company before he embarks on a grooming process at Lotte under the family tradition.

Shin has already passed 60. He must have succession in mind. The siblings’ war came about because the elder Shin was not deliberately clear about his heir. Lotte must be clear about its future and identity. Is Lotte a Korea company? More importantly, can Lotte stay a Korean company in the future under a leader who is a Japanese citizen?

In a globalized world, the original nationality of a corporation should not matter. But Lotte is different. Shin, the founder, may have gone back and forth between Korea and Japan, but the name Lotte grew with the patronage of the Korean government and support by Korean consumers. Lotte Department Store was given the best site in the downtown shopping district and a state-run bank, Korea Development Bank, had to move to make way for the department store to expand. The Air Force had to change its flight paths to clear the skyline for Lotte to build the tallest skyscraper in southern Seoul. Lotte runs four duty-free shops in Seoul, licensed by the government.

No other retailer has enjoyed such privileges.

These prerogatives were bestowed on Lotte because it was conceived as a Korean entity. It must surrender the advantages if it is not. Lotte owes it to the people of Korea to remain a Korean corporate name.

JoongAng Ilbo, Oct. 20, Page 30

*The author is an editorial writer of the JoongAng Ilbo.

by Yi Jung-jae