Lotte Group founder and general chairman Shin Kyuk-ho was dismissed on July 28 from the post of CEO of Lotte Holdings in Japan by his heir and second son Shin Dong-bin, sending shockwaves to business circles both in Japan and Korea.
The second son, chairman of Lotte Group in Korea, called an emergency meeting of the board of directors of the holding company in Tokyo on that day. The board of directors of Japan-based Lotte Holdings, the de facto holding company of the Lotte Group, voted on the day to dismiss the group’s founder from the top management, giving his second son control over the group.
"The founder has stepped down from his post at Lotte Holdings so that Shin Dong-bin can take full control of the group's operations in Japan," Lotte Group said, adding, "The senior Shin was named honorary chairman of Lotte Holdings, but will continue to maintain his chairmanship in Korea."
The unexpected move came one day after a failed attempt by the first son Shin Dong-joo to oust six board members, including his younger brother, from the holding company of Lotte Group through the senior Shin. Earlier, first son Shin Dong-joo had been dismissed from the position as vice chairman of Lotte Holdings, while Shin Dong-bin had been named CEO of Lotte Holdings on July 16, hinting at a change in plans of power succession from the eldest son to the second.
According to the group, Shin Dong-joo, who had been let go from the vice chairman position of Lotte Holdings by his father in January, flew to Japan with the senior Shin and several other family members. He, however, unexpectedly came to the headquarters of the holding company on the same day and ordered the dismissal.
As a counterattack against the incident, Shin Dong-bin and other board members held an emergency board meeting early on July 28, calling his elder brother’s move illegitimate. The board took the next step to sack the group founder, who allegedly supported Shin Dong-joo's attempt to take back control of the holding company. The senior Shin is known to be in a wheelchair and have some trouble speaking.
The founder reportedly holds a 28 percent stake in Lotte Holdings in Japan, which has a 19.1 percent stake in Lotte Hotel, the de facto holding company of the Lotte Group in Korea. The 37 affiliates of the Lotte Group together own a 99.28 percent stake in the Lotte Hotel. The Lotte Hotel holds an 8.8 percent share in Lotte Shopping, and 34.64 percent of Lotte International, 12.99 percent of Lotte Aluminum, 38.34 percent of Lotte Engineering and Construction, and 31.07 percent of Lotte Corporation, constituting a complicated cyclical shareholding structure. Such a governance structure made the head of Lotte Holdings control the affiliate companies in both Japan and Korea, which was generating combined sales of 90 trillion won (US$77 billion) as of 2013.
With the senior Shin stepping down, the second son Shin Dong-bin has become the apparent controller of the holding company, which virtually controls the all affiliates of the Lotte Group in Korea and Japan. The reason behind the 93-year-old tycoon’s dismissal from the throne of Lotte governance is as yet unknown. Shin Dong-bin reportedly suspects his elder brother might have planned the scheme, backing his aged father.