With mixed legacy, Lotte founder faces ungraceful exit

By Kim Eun-jung SEOUL, March 30 (Yonhap) -- If only Lotte founder Shin Kyuk-ho, 94, knew the simple art of letting go, this year would have been the perfect time for him to cherish the sweet moment of building South Korea's tallest skyscraper in Seoul with dignity and respect. His success story of starting a small confectionery firm in Japan in 1948 and later expanding his business to his home country to make it the nation's fifth-largest conglomerate somewhat resembles Korea's astronomical rise from the ashes of the Korean War to achieve the "Miracle on the Han River." With the 123-story Lotte World Tower standing next to the Han River nearing its completion later this year, however, time has come for Shin to step aside from senior posts at major affiliates, whether he likes it or not. The business mogul has lost his board seats at Lotte Confectionery Co. and Hotel Lotte Co. during two shareholders' meetings over the past week, both of which decided not to reappoint him to the respective posts, citing his health issues. It was the first time for Shin to leave a board seat since he founded the businesses more than four decades ago. His retreat, seen as forceful rather than voluntary, was the latest in a series of events showing his waning grip as his second son and Lotte's chairman, Dong-bin, is cementing his footing in the sprawling business after a bitter succession feud against his elder brother and former vice president of Tokyo-based Lotte Holdings, Dong-joo. The father sided with his elder son, who has filed a series of lawsuits against Dong-bin. In response, the founder's younger sister in December requested a Seoul court to pick her as his legal guardian, claiming her aging brother is no longer capable of making consistent decisions. "The founder has been considered unfit for senior managerial posts as a legal suit related to his legal guardian is currently pending in local court," a senior Lotte Confectionery official said. Following a court hearing appearance in a wheelchair in early February, the gaunt-looking tycoon has to go through a court-administered mental examination at Seoul National University next month. If the court accepts the guardian request, Shin is expected to leave one board after another, including Lotte Shopping, Lotte Construction and Lotte Aluminum, as his terms at the affiliates expire by next year, according to company officials. "It's a tragedy that the Lotte founder has to undergo a mental examination for all the wrong reasons. He could have avoided this kind of situation if the company selected the best qualified CEO through a transparent process," a corporate critic said. But Shin is not the only accomplished businessman faced with a bitter family feud in the twilight of their lives. There have been a series of second and third-generation scions sparring to cement their grips on lucrative corporate empires built by their fathers or grandfathers. It involves a fraternal rivalry with a younger but more ambitious sibling and the hardy founder who built a corporate giant from scratch, bearing the typical elements of succession feuds that erupted at such Korean conglomerates over the past decade. But what sets Lotte apart from other family-controlled businesses, known as chaebol in South Korea, is its roots that trace back to postwar Japan and still remain an integral part of its corporate identity. Unlike its peers that were mostly established in the 1930s and 1940s when the country was still under Japanese colonial rule or starting to recover from that atrocious period, Lotte was built on Japanese soil. At the age of 20, Kyuk-ho, born in the southern port city of Ulsan, left for imperial Japan which ruled Korea from 1910. The businessman, who also goes by his Japanese name Takeo Shigemitsu, launched the confectionery Lotte in 1948 and expanded into his home country after diplomatic ties between Seoul and Tokyo were normalized in 1967. Lotte is now a multinational corporate giant with a sprawling business empire that owns 74 affiliates in 20 countries and an annual revenue reaching more than 80 trillion won (US$69.4 billion) as of 2014. Though the entrepreneur deserves much credit for the achievement, he has come under criticism for letting his two sons fall into a power struggle, which hurt the company's brand image and cost it actual business. The prolonged battle shed light on the murky corporate governance linked through a complex cross-shareholding structure last year. The fact that Seoul-based Lotte Group is controlled by Japan-based Lotte Holdings via a few unlisted Japanese companies has shocked many Koreans, who have long considered Lotte an iconic Korean company with loose ties to Japan. As a result, in November Lotte lost out on its bid to renew the duty-free operating license of Lotte World Tower to Doosan, a heavy engineering and construction conglomerate with no expertise in the sector, a shocking result for industry watchers. While the duty-free store faces closure in May, Lotte has been campaigning to maintain it ahead of Lotte World Tower's grand opening and the upcoming listing of Hotel Lotte on the Seoul bourse. Its retail business has also suffered over the past three years due to a global economic slowdown and sluggish demand. Last month, Fitch Ratings downgraded the outlook on Lotte Shopping Co. to "negative," expecting a slow recovery from last year's tepid earnings due to tougher competition at home and abroad. "Lingering weakness in consumer sentiment, rising rental expenses and competition from other retail formats are likely to continue to put pressure on its profitability, especially its domestic hypermarket and Chinese retail operations," Pak Jeong-min, a senior analyst at Fitch Ratings Korean operation, said in the February report. Market watchers call for the new leadership to venture into the new growth driver in sync with the fast-changing consumption trend and float unlisted units on the local bourse to boost corporate value and improve transparency. "The Lotte chairman has a lot on his shoulders, as the retail business has shown sluggish performance due to losses in China and lingering uncertainties in the corporate structure," Ahn Ji-young, an analyst at IBK Investment & Securities, said. "As the prolonged succession feud has virtually come to an end, shares of its key affiliates in the retail and food sectors have rebounded. To continue the momentum beyond improved sentiment, Lotte has to turn around its sluggish performance and additionally list its affiliates this year." ejkim@yna.co.kr (END)