Shinsegae criticized for nepotism, lack of accountability as profits worsen

Shinsegae Group Chairman Chung Yong-jin inspects E-Mart's Yeonsu branch in Incheon in this May 2023 file photo. Joint Press Corps

Shinsegae Group is facing a growing backlash as it recently promoted an heir of the owner family to the position of chairman, rather than asking him to take responsibility for the retail giant’s snowballing debts and plunging stock price, according to industry officials, Monday.

Korean Corporate Governance Forum (KCGF) Chairman Lee Nam-woo said Monday that Shinsegae Group Chairman Chung Yong-jin should apologize to shareholders of E-Mart, the group’s supermarket chain, and come up with measures to enhance its corporate value before his promotion last Friday to the group’s top position.

“There were no remarkable achievements when Chung was serving as a vice chairman,” said the head of the forum, which consists of capital market insiders and legal experts who seek to improve corporate governance in Korean companies.

Lee mentioned that E-Mart posted its first-ever annual operating loss and the group’s other affiliates also suffered deficits.

His remarks were seen as directly refuting Shinsegae Group’s explanation that Chung’s promotion is intended for him to emanate strong leadership to break out of the unfavorable management situation.

“The latest promotion will help us strengthen our group-wide capabilities in order to remain more agile in the rapidly changing market environment,” a Shinsegae Group official said after Chung’s promotion last Friday.

The KCGF pointed out that the stock price of E-Mart dropped 59 percent over the past five years, and 70 percent over the past 10 years, while the benchmark KOSPI rose 23 percent and 37 percent during the same periods.

“E-Mart’s market cap stood at 2 trillion won ($1.5 billion), one-seventh of its 14 trillion won debt,” Lee said. “Such an excessive debt prevents any increases in its market cap.”

He attributed the considerable debt to the company’s unnecessary acquisition deals, which eventually led domestic credit rating agencies to downgrade E-Mart’s credit outlook to negative from stable late last year.

“The most urgent matter for the company is to reduce its debt by selling unnecessary assets, such as wineries, golf courses, a professional baseball club and Starbucks Korea,” Lee said.

In particular, Shinsegae Group was criticized for financing cash-strapped Shinsegae E&C by selling golf courses owned by the construction firm to Josun Hotels & Resorts, an E-Mart subsidiary.

“It’s just like moving the debt from the left pocket to the right pocket,” Lee said. “Chung and management does not seem to be aware of the desperate need for a reduction in the group-wide debt.”

E-Mart headquarters in Seoul / Courtesy of E-Mart

The KCGF also urged Chung to register as a director, so that he can take responsibility for his management.

“The current crisis surrounding Shinsegae Group appears to be resulting from Chung’s attempt to avoid his responsibility while enjoying huge compensation,” Lee said.

E-Mart’s regulatory filing showed that Chung and his family members received higher compensations last year than Kang Heui-seok, CEO and board chairman of the supermarket chain, who was dismissed for worsening profitability. However, the company has yet to appoint Chung as a director.

The Shinsegae Group chairman is the oldest son of Lee Myung-hee, youngest daughter of late Samsung Group founder Lee Byung-chull. After joining Shinsegae Group in 1995 at the age of 27, he started taking de facto control of the group as vice chairman in 2006.

In particular, he has drawn public attention for his outspoken online comments on media coverage. However, he removed most of his social media posts after his recent promotion to chairman.