Lotte is for many South Koreans and Japanese as lamblike a brand as Disney, but behind the amusements parks and cinemas lies a Machiavellian political saga that reads more like a scene from Game of Thrones than The Aristocats.
“The tragedy at Lotte is an old story,” says Geoffrey Cain, business analyst and author of an upcoming book on Samsung. “The chaebol [large family-owned conglomerates] are not just businesses, but imperial dynasties in a modern form. Tales of drama, warfare, unholy marriages and suicides are all a part of it.”
Lotte Group vice-chairman found dead just hours before facing probe into alleged kickbacks and tax evasion
The latest chapter involves Lotte’s vice-chairman, the 69-year-old Lee In-won, whose body was found on a hiking trail on the outskirts of Seoul on August 26, hours before investigators planned to question him as part of a probe into corruption by Lotte executives. A four-page suicide note was found in his car.
The probe began in June, when about 200 investigators burst into Lotte headquarters and the homes of executives, snapping up account books to determine the extent to which senior managers had been using the company as a personal piggy bank.
“We’ve seen similar debacles at other conglomerates,” says Cain. “A huge number of them are run by convicted criminals who are so indispensable to the nation that they get presidential pardons. Hence the Korea discount.”
The so-called Korea discount is the marked-down price investors pay in South Korea because of the country’s poor corporate governance, which allows dynastic chairmen to play fast and loose with company money. And as the country’s corporate freewheeling goes, the Lotte dynasty can hang with the best of them. In fact, it’s now one of the five largest conglomerates in South Korea. And it’s unique in that its roots are Japanese.
The founder, Shin Kyuk-ho, started by selling chewing gum to children in postwar Japan, naming his company after the beautiful young Charlotte in Goethe’s The Sorrows of Young Werther. Just as Charlotte cared for her siblings following the death of their mother, Shin cared for children at a time many had lost their mothers, too. But, lest we forget, Charlotte also drove young Werther to suicide.
Despite its sins, however, Lotte is simply too big to fail. Daniel Tudor, a former Korea correspondent for The Economist, writes in his book Korea: The Impossible Country that “Lotte is probably the most ubiquitous chaebol from the perspective of the Korean consumer.”
As he describes, one can buy Lotte chocolate in a Lotte department store and eat it in a Lotte cinema before going home to one’s Lotte apartment, which is covered by Lotte insurance and stocked with groceries from LotteMart. The group also owns a fast food company, cafes, bakeries, hotels, electronics stores, construction companies and Lotte World, one of the world’s largest amusement parks. It is, to be sure, a house of incredible power.
That’s why Shin wisely decided to split the company between his two sons. His eldest, Shin Dong-joo, was handed the reins to Lotte’s holdings in Japan while the younger brother, Shin Dong-bin, would run Lotte in South Korea. But this division proved to be as effective as King Lear’s bequests.
In the middle of 2013, Dong-joo started buying stock in the Korean affiliate.
Dong-bin reacted by increasing his shares in turn, but the real retaliation came in late December 2014, when Dong-joo was summarily removed from his posts as vice-chairman of the confectionery affiliate Lotte Company, executive at Lotte Ice Cream and vice-chairman and CEO of Lotte International. The following month, a shareholders’ meeting ousted him from the vice-chairmanship of Lotte Holdings as well.
It was around this time that rumours of embezzlement came to the attention of investigators, though officially the probe would not begin until June. Dong-joo saw this as an opportunity to preach doom and gloom, blaming his brother’s leadership. He suggested Dong-bin and the company’s president, Takayuki Tsukuda, be removed and replaced by none other than himself, but the shareholders were unswayed.
According to the Korea JoongAng Daily, the probe soon threatened the group’s US$4.86 million listing of Hotel Lotte, its acquisition of the US-based chemical company Axiall was cancelled, its duty-free business lost its licence to operate at Lotte World Tower and it had to cancel its acquisition of a US-based duty-free chain. Prosecutors then raided Lotte’s duty-free stores and the home of the founder’s daughter, Shin Young-ja, who was arrested for accepting US$2.5 million in bribes from various companies including Nature Republic.
And yet, despite it all, Lotte may emerge no worse for wear. “In the long run, I think Lotte will operate as normal,” says Tudor. Most of the big chaebols have had comparable scandals and they’re doing just fine now.”
David Volodzko is the national editor at the Korea JoongAng Daily