Rep. Shin Hak-yong of the main opposition New Politics Alliance for Democracy and 12 fellow minor party members proposed a bill expanding domestic regulations on conglomerates to their overseas businesses.
According to the bill, conglomerates would be prohibited from establishing cross-shareholding structures even in their foreign affiliates. The authorities currently tolerates the existing cyclical shareholding on enterprises with assets of more than 5 trillion won, but bans the creation of a new one.
“The bill will prevent conglomerates from seeking loopholes in cross-shareholdings through overseas affiliates,” Rep. Shin said.
The bill proposal was largely motivated by the recent revelation of Lotte Group’s governance structure, where the company’s founder and general chairman Shin Kyuk-ho has managed to control the 90 trillion won business empire in both Japan and Korea with just 0.05 percent of shares. This was made possible through more than 416 cyclical shareholding links in more than 113 affiliates across Korea and Japan.
It was revealed that the 93-year-old tycoon owns the majority of a small paper company Kojyunsya that controls Lotte Holdings in Japan, which has the lion’s share of Lotte Korea’s major businesses.
“The current law banning cross-shareholding regulations on domestic firms has only resulted in the shady governance structures abroad. The bill will also oblige business leaders to report on their shareholding status of their overseas businesses in order to get a clear picture of their governance,” Rep. Shin said.
Ruling and opposition lawmakers are also seeking to call in Shin Kyuk-ho as well as his two sons -– former Lotte Holdings vice chairman Shin Dong-joo and younger son Lotte chairman Dong-bin -– to a public hearing during the National Assembly’s annual audit starting from Sept. 4.
“Shin Kyuk-ho may evade the summons because he is too old. But his sons will be asked to explain the naked and dark truth of the enterprise -– from the alleged shady internal deals and suspicious cyclical shareholding structure among others,” Rep. Kim Ki-shik of the NPAD was quoted as telling Yonhap.
The ruling party is also scheduled to meet with the representative of the National Pension Services, which has a stake in most of Lotte’s eight publicly listed affiliates. It is reported to have more than 5 percent of stakes in Lotte Chilsung Beverage, Lotte Himart, Lotte Chemical and Lotte Food.
The Fair Trade Commission and the Financial Supervisory Service have launched an investigation into Lotte’s governance structure while the National Tax Service is studying the fiscal record of the company’s advertising arm.
Meanwhile, former Lotte Holdings vice chairman Shin Dong-joo, who is fighting his younger brother Dong-bin over control of Lotte in both Korea and Japan, left for Tokyo on Friday.
He is reportedly determined to win over the shareholders of Lotte Holdings while studying the legitimacy of Dong-bin’s control over “L” investment companies, which are also the major shareholders of Lotte Holdings, before the as yet unscheduled shareholders meeting of Lotte Holdings that will discern the leadership of the firm.
By Bae Ji-sook (email@example.com