Weakening ‘One Lotte’ Strategy
Lotte Group Chairman Shin Dong-bin has stepped down as chief executive officer (CEO) at Japan-based holding firm Lotte Holdings. Accordingly, cooperation between South Korean and Japanese Lotte units as part of “One Lotte” strategy led by Shin is expected to weaken for a while.
According to Lotte Group on Feb. 21, Japan’s Lotte Holdings held a board meeting on the same day and decided to accept Shin’s resignation as chairman at its Japan-based holding firm. Shin said he wanted to give up his representative rights following his arrest for bribery earlier this month and the board of directors agreed. Accordingly, Shin stepped down from his position in two years and seven months after he took up his post as the CEO in July 2015. However, he will retain his title of vice chairman and position on the board of Japan's Lotte Holdings.
The One Lotte strategy that puts the South Korean and Japanese Lotte units together is expected to “inevitably” weaken due to Shin’s resignation. Until now, Shin created a synergy by pushing ahead with business and collaboration between South Korean and Japanese Lotte units as head of the two but Shin’s absence is highly likely to make the two units reduce cooperation and run individual management for a while.
In addition, the holding company system, which has been adopted with the establishment of Lotte Corp., is most likely to be drifted for a while. The listing of Hotel Lotte will also be delayed further. It crucial to secure cooperation from Japanese management in order to list Hotel Lotte because the listing weakens the control of Lotte in Tokyo. However, it seems impossible without Shin. When the listing of Hotel Lotte is delayed, Lotte Group will still have a long way to complete the adoption of the holding company system.
Some say that Shin’s absence would bring about dissonance between Lotte in South Korea and Japan. This is because Japan’s Lotte Holdings dominates Hotel Lotte, which is a de facto mid holding company of Lotte in South Korea, and it can interfere in subsidiaries on which Lotte Corp. have a weak hold using Hotel Lotte. In the worst cases, Lotte in South Korea can be divided into Hotel Lotte subsidiaries and Lotte Corp. subsidiaries at the discretion of Japan’s Lotte Holdings President Takayuki Tsukuda, who leads Lotte in Japan, and Japan’s Lotte Holdings Chief Financial Officer (CFO) Masamoto Kobayashi. There are more concerns in Lotte Group over expansion of control of Japan’s management instead of the return of former Lotte Holdings Vice Chairman Shin Dong-joo.
However, many business market experts say the worst case will most unlikely to happen. Shin said to the management in Japan several times even before the ruling that he would resign when he is sentenced to imprisonment. Therefore, Shin’s resignation can be a “consensus scenario” as Japan’s Lotte management knew Shin’s intention. An official from the business industry said, “The thing is that Shin voluntarily offered to quit as chairman at Japan-based holding firm Lotte Holdings. If Lotte in Japan unilaterally made such decision, it would have caused serious repercussions. In short, Lotte Holdings will have Shin reinstated when he returns to the company with probation through appeal.” In fact, Shin resigned from CEO but he still retains his title of vice chairman and position on the board of Japan's Lotte Holdings.
Lotte Holdings Vice Chairman Shin Dong-joo will make more efforts to return to the firm. He is highly likely to call for a convocation of a general meeting of stockholders as CEO of Kohjinsha, the largest shareholder of Japan’s Lotte. Former vice chairman Shin frequently called for a convocation of shareholders meeting to get his demands so he will seek to end the battle over stakes through the shareholders meeting this time again. However, the majority of experts say that he would not be able to return to Lotte. He needs to cooperate with Japan’s management in a bid to expand his influence over Japan’s Lotte but the relations between the two are irreparable. Both Japan’s Lotte Holdings President Takayuki Tsukuda and CFO Masamoto Kobayashi didn’t recognize former vice chairman Shin’s management ability in the past four shareholders meetings and Shin also treats Japan’s management as “traitors” who took away his and his father Shin Kyuk-ho’s post as director.
An official from Lotte Group said, “Currently, Japan’s Lotte management agreed to relieve former vice chairman Shin of his post as a board member. He has already lost confidence in Lotte in Japan so he is most unlikely to return to the company.”