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South Korean Government to Reform Chaebol Management Structure After Lotte Incident
Economic Justice
South Korean Government to Reform Chaebol Management Structure After Lotte Incident
  • By Jung Min-hee
  • August 7, 2015, 06:45
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The government and the ruling party have decided to reform the ownership structure of the country's family-run conglomerates amid a public backlash over the escalating power struggle in the Lotte Group.

Presided over by Rep. Kim Jung-hoon, chief policymaker of the ruling party, the government and the ruling Saenuri Party had a meeting attended by Fair Trade Commission (FTC) Chairman Jeong Jae-chan on Aug. 6 to discuss what measures can be taken to improve the governance structure of private business groups, commonly known as chaebol and which include the Lotte Group.

In a phone interview on Aug. 5, Kim, Saenuri's chief policymaker, said, “I heard that the FTC has asked the Lotte Group to report its current governing structure by Aug. 20. After hearing the government’s investigation plan, we will discuss what legal and institutional actions can be taken to tackle the murky ownership issue.”

A day earlier, he talked on the phone with FTC Chairman Jeong Jae-chan and agreed on the need to have the urgent meeting.

FTC Chairman Jeong also said that he will get and analyze inside data from the Lotte Group to check if the group has provided all the necessary data, as its ownership structure is extended to Japan.

The meeting mainly covered the Monopoly Regulation and Fair Trade Act in a bid to reduce Lotte Group’s 416 cross-shareholding arrangements.

The country's existing fair trade law bars new cross-shareholding arrangements, but not existing ones. Kim said, “We will check how many cross-shareholding arrangements of business groups have been reduced after the fair trade law banning new cross-ownership has been passed. And, if the need arises, parliament can propose a bill that would compel chaebol to reduce existing cross-shareholding arrangements. In some cases, ownership structures of other conglomerates can be checked as well.”

In the executive meeting among senior party members, he also said, “It has been two years since the fair trade law banning new cross-ownership has been passed, so it is time for a review.”

The meeting agenda also included measures to contain an owner’s family controlling the vast business empire, even if they do not personally own a lot of shares.

For Lotte, General Chairman Shin Kyuk-ho’s stake in the conglomerate stands at only 0.05 percent, with this number rising to just 2.41 percent if stakes held by all family members are tallied.

Kim said, “The fact that owners of conglomerates control the groups with a meager stake and cross-shareholding arrangements, just like their own private companies, fails to correspond with economic justice. The Lotte incident happened because of this sense.”