Loyal to a fault: Lotte probe exposes flaws of Korea Inc

Mon Aug 29, 2016 10:34am EDT
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By Joyce Lee and Hyunjoo Jin

SEOUL (Reuters) - Loyalty has been a driving force in the success of South Korea's family-run "chaebol" conglomerates, but it can also shield the failings of its corporate culture and on Friday was linked to tragedy at the Lotte Group, the subject of a sweeping criminal probe.

Hours before group vice chairman Lee In-won was to be questioned by prosecutors, he was found dead in an apparent suicide, leaving a note hailing his boss as a "great man" and denying the company operated a slush fund, reportedly one of a list of prosecutors' suspicions that includes embezzlement, tax evasion and breach of trust.

A prosecution spokesman could not immediately be reached for comment on Monday, and Lotte Group declined to comment except to say it was cooperating with prosecutors.

Prosecutors have since June been investigating about a dozen units at the retail-to-chemicals conglomerate, South Korea's fifth-largest, but it would not be the first time that Lotte and similar groups have fallen short of governance standards in Asia's fourth-largest economy.

Many of the family conglomerates that dominate the economy have been penalized over the years for conduct that is symptomatic of opaque interlocking ownership structures that can mask improper behavior, and the fierce loyalty that can allow lapses to go unchecked.

"Under a corporate culture where loyalty towards a boss and an organization is the most important criteria for evaluation, a sound corporate governance structure cannot survive," said Kim Sang-jo, a professor of economics at Hansung University.

The attachment of staff and executives to the chaebol is legendary, typically embodied in a career-long service of grueling hours.

It could explain why the penultimate act of the 69-year-old Lee was to defend his chairman Shin Dong-bin and the company he served for 43 years.   Continued...

A flag bearing the logo of Lotte Hotel flutters at a Lotte Hotel in Seoul, South Korea, March 25, 2016.  REUTERS/Kim Hong-Ji/File Photo