Lotte's case reveals governance, succession problems
"Rebellions of princes." "A dog-eat-dog struggle." These headlines have long described family feuds and sibling fights that occur almost every time control of family conglomerates changes hands. The latest corporate drama involves the Lotte Group, Korea's fifth-largest chaebol.
On Saturday, the whole Lotte family, except for Shin Dong-bin, the current group chairman and the second son of the founder, Shin Kyuk-ho, got together for an ancestral rite ― and discussed who should be the conglomerate's next leader.
This family get-together, rather than a formal shareholders' meeting, will decide the fate of the conglomerate, which started as a chewing gum maker and grew into a distribution, tourism and construction giant with assets of 83 trillion won and annual sales of more than 100 tri1lion won.
Legally, the second son represents the entire group after removing his father and elder brother from the executive board. But the senior Shin and his oldest son are reportedly moving to hit back by mobilizing a majority stake with the equities of other family members at an extraordinary shareholders' meeting. So far, it appears to be a duel between the current chairman and most of the other family members.
The two sons are telling totally different stories on why the feud broke out last year, who can mobilize larger equity, and the wheelchair-bound founder's health and ability of judgment.
We hope the succession battle in the corporate dynasty ends with a compromise instead of producing more ugly scenes of backbiting and mudslinging among family members. Koreans are sick and tired of these internecine fights when the managerial control of a chaebol moves between generations. Six of the nation's 10 largest chaebol ― Samsung, Hyundai, Hanjin, Doosan, Hanwha and now Lotte ― have shown similar processes, causing cynics to say, "Money is thicker than blood."
Little wonder people are asking how long they should endure watching this seemingly endless repetition of third-rate soap opera.
It is long past time for Korean conglomerates to learn from their foreign counterparts ― such as Ford Motor in the United States, the Wallenberg family of Sweden, Miele of Germany and Toyota Motor of Japan ― all of which have shown examples of what management succession should be like. Family members either refrained from management but indirectly owned these companies through a board of directors, or trained capable family members through harsh competition and a strict verification process before allowing them to take part in management. The successors are never those born with silver spoons in their mouths.
Enabling chaebol owners to decide their corporate fate as if it is simply a family matter only happens because of outdated corporate governance structure, which permits families to dominate the whole group with a fraction of the equity through cross-investment.
Chaebol must change by reforming their governance and succession systems if for no other reason than avoiding extinction through incompetent third or fourth-generation managers or popular antipathy. This notwithstanding, it beats us which are more pitiable ― between the anachronistic and laggard corporate behemoths and the rest of the nation that dares not reform chaebol but instead depends on them for survival in this ever-toughening global economy.
"Rebellions of princes." "A dog-eat-dog struggle." These headlines have long described family feuds and sibling fights that occur almost every time control of family conglomerates changes hands. The latest corporate drama involves the Lotte Group, Korea's fifth-largest chaebol.
On Saturday, the whole Lotte family, except for Shin Dong-bin, the current group chairman and the second son of the founder, Shin Kyuk-ho, got together for an ancestral rite ― and discussed who should be the conglomerate's next leader.
This family get-together, rather than a formal shareholders' meeting, will decide the fate of the conglomerate, which started as a chewing gum maker and grew into a distribution, tourism and construction giant with assets of 83 trillion won and annual sales of more than 100 tri1lion won.
Legally, the second son represents the entire group after removing his father and elder brother from the executive board. But the senior Shin and his oldest son are reportedly moving to hit back by mobilizing a majority stake with the equities of other family members at an extraordinary shareholders' meeting. So far, it appears to be a duel between the current chairman and most of the other family members.
The two sons are telling totally different stories on why the feud broke out last year, who can mobilize larger equity, and the wheelchair-bound founder's health and ability of judgment.
We hope the succession battle in the corporate dynasty ends with a compromise instead of producing more ugly scenes of backbiting and mudslinging among family members. Koreans are sick and tired of these internecine fights when the managerial control of a chaebol moves between generations. Six of the nation's 10 largest chaebol ― Samsung, Hyundai, Hanjin, Doosan, Hanwha and now Lotte ― have shown similar processes, causing cynics to say, "Money is thicker than blood."
Little wonder people are asking how long they should endure watching this seemingly endless repetition of third-rate soap opera.
It is long past time for Korean conglomerates to learn from their foreign counterparts ― such as Ford Motor in the United States, the Wallenberg family of Sweden, Miele of Germany and Toyota Motor of Japan ― all of which have shown examples of what management succession should be like. Family members either refrained from management but indirectly owned these companies through a board of directors, or trained capable family members through harsh competition and a strict verification process before allowing them to take part in management. The successors are never those born with silver spoons in their mouths.
Enabling chaebol owners to decide their corporate fate as if it is simply a family matter only happens because of outdated corporate governance structure, which permits families to dominate the whole group with a fraction of the equity through cross-investment.
Chaebol must change by reforming their governance and succession systems if for no other reason than avoiding extinction through incompetent third or fourth-generation managers or popular antipathy. This notwithstanding, it beats us which are more pitiable ― between the anachronistic and laggard corporate behemoths and the rest of the nation that dares not reform chaebol but instead depends on them for survival in this ever-toughening global economy.
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