A Seoul court jailed Lotte Group Chairman Shin Dong-bin for bribery. Ushering into the New Year, Lotte Group declared the first year of “New Lotte Vision Implementation.” However, the group got stuck with the Choi Soon-sil Gate that toppled South Korea’s former president. The future of Lotte Group without its head also entered “clock zero.”
Chairman Shin was sentenced to 30 months in prison on Feb. 13 after the Seoul Central District Court found him guilty of charges stemming from Lotte’s decision to give 7 billion won ($6.5 million) to a confidante of President Park Geun-hye, allegedly in exchange for government favors in providing a license to operate duty-free stores.
As Chairman Shin has become “a prisoner behind the bars” unexpectedly, the future of Lotte Group has become blurred as well. Shin now needs to worry about whether he can retain his post as CEO of Lotte Holdings in Tokyo. He is currently the co-CEO of Japan’s Lotte Holdings with president Tsukuda Takayuki. An official from the business industry said, “As far as I know, those who are sentenced to a jail time by law cannot serve as a registered president in Japan. He broke the law in South Korea but the management in Japan, which puts emphasis on ethics, can dismiss Shin through a board meeting.”
The problem is that Chairman Shin’s full grip of Lotte in both South Korea and Japan can totter when he loses his post as CEO of Japan's Lotte Holdings. In particular, Shin Dong-joo, former vice chairman of Japan-based Lotte Holdings and elder brother of Chairman Shin, is most likely to return to the group taking advantage of the absence of Chairman Shin.
Chairman Shin continuously asked Japan’s Lotte management and investors for support even while he was under prosecutor's investigation in allegations of corruption, saying, “I will faithfully commit to the trial and prove my innocence.” However, he failed to keep his promise with the management in Japan and Japan’s Lotte management can withdraw support for Shin in the process as he was sentenced to imprisonment.
After Lotte Corp. officially inaugurated in October last year, Chairman Shin has a firmer control over the groups’ food and distribution subsidiaries such as Hotel Lotte, Lotte Aluminium, Lotte Engineering & Construction and Lotte Chemical. However, Lotte Group still has a structure that its power gets weak if it cannot get a grip on Lotte in Japan.
When former Vice Chairman Shin Dong-joo rejoin the group with trust from Japan’s Lotte management, the battle over the management rights between brothers Shin Dong-joo and Shin Dong-bin can take a new turn.
Lotte Group is also highly unlikely to complete the adoption of the holding company system as scheduled. Lotte Corp. co-CEO Hwang Kag-gyu leads the procedure of the establishment of the holding company as the “right-hand man” of Chairman Shin but there are not many things that he can decide on his own as it is closely related to Shin’s stake in Lotte shares. Chairman Shin needs to play a vital role in listing Hotel Lotte, which is the last task to turn into a holding company, because he is a major shareholder of Japan’s Lotte subsidiaries.
In addition, Lotte Group is highly unlikely to come up with strategies to exit businesses that suffer a loss due to China’s retaliation over the deployment of the U.S. Terminal High Altitude Area Defense (THAAD) missile system on the Korean Peninsula. The group will also have difficulties in breaking into the markets of Vietnam and Indonesia in where Lotte is expanding investment in place of China.