April 26, 2024

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[THE INVESTOR] Shin Dong-bin, the self-appointed successor of Lotte Group, the nation’s fifth-largest conglomerate, on Tuesday appeared before the prosecution for questioning, less than a year after he took the throne after a bitter fight with his elder brother.

Despite the drama, the chairman appears to now be facing his biggest challenge, probably more severe than last year’s ugly feud. The chairman faces the prosecution’s indictment over alleged embezzlement, breach of trust and tax evasion, and he could possibly face the trials while being placed under arrest. 

No matter how hard he worked to seize power over Lotte’s operations, in both Korea and Japan, he could lose control the moment he is put behind bars, according to industry watchers and officials within the group.

Lotte Chairman Shin Dong-bin appears at the prosecutors' office in Seoul on Sept 20. The Investor/Park Hyun-koo

Shin is the head of Lotte Holdings, a Tokyo-based company that controls Lotte’s operation in Korea.

If the prosecution indicts him with detention, board members of Lotte Holdings could oust him from the leadership post, and have a Japanese executive replace him, they said.

Having a Japanese executive leading Lotte Holdings could also put the retail giant’s Korean operations under Lotte Japan’s control. Lotte Holdings is jointly led by Shin and President Takayuki Tsukuda.

“According to Japanese business customs, Lotte Holdings could hold a board meeting and a shareholders meeting if the prosecution arrests Chairman Shin and make him leave the leadership post,” a Lotte official was quoted as saying by Yonhap News Agency.

In Japan, business criminals are arrested if their wrongdoings are clear enough to prove and in most cases are found guilty by the courts. The Korean state prosecution indicting him with detention can be viewed as Shin being convicted of a crime, according to industry sources.

“Then he could be viewed as incapable of managing the company,” an official told Yonhap.

Shin facing the charges is also expected to cause a huge management vacuum, but he has neither a close associate nor children to replace him.

Lee In-won, the group’s No. 2 man and one of his closest aides, was found dead in an apparent suicide. Hwang Gak-kyu, head of Lotte’s strategy building unit and So Jin-se, head of external affairs known as the architects of Shin’s global Lotte vision, are all on the prosecution‘s investigation list.

Shin’s vision of Lotte becoming Asia's top 10 retailer is likely to face hurdles.

The prosecution’s investigation has already suspended Lotte’s key projects, including an initial public offering of its hotel unit and a bid to acquire US-based petrochemical firm Axiall.

Questions remain as to whether the group can complete the construction of the 123-story Lotte World Tower this year, as well as Lotte’s attempt to restore its duty free operations in Jamsil. The chairman also faces growing public aversion to Lotte over the group’s dark past dealings as well as the bitter succession battle reviving amid the prosecution’s probe.

By Cho Chung-un/The Korea Herald (christory@heraldcorp.com)