Chairman Shin Dong-bin of Lotte Group announces the group’s plan to invest 40 trillion won in existing and new businesses in the next five years at Lotte Hotel in downtown Seoul on Oct. 25.

(Photo: Lotte Group)

Chairman Shin Dong-bin of Lotte Group apologized to the nation for the group’s various problems that were found in the wake of a prosecutor’s investigation into the alleged irregularities committed by the group. Shin promised to initiate reforms so the group can be reborn as a big help to the nation and society at large. At a media conference held at 10:30 a.m. on Oct. 25 in Lotte Hotel, Seoul, Shin deeply apologized to the people before releasing a statement accompanied by all CEOs of the group’s 23 affiliates. In the statement, he said the group will invest some 40 trillion won over the next 5 years in various businesses undertaken by the group’s affiliates. Some 70,000 new jobs will be created.

“I am really sorry for causing grave concern to customers, business partners and Lotte employees," Shin said. "I feel responsible for Lotte being subject to the prosecution investigation. I also hold myself responsible for not being able to more actively execute all the reform measures that I previously pledged." The chairman said he will do his best to transform Lotte into a company that conforms to social values and meets high ethical standards, adding that the group will abolish its cross-shareholding structure and establish a holding company to achieve transparent governance.

This was the second time Shin issued a public apology following one on Aug. 11, 2015, when he apologized for causing controversy over an unprecedented family feud with his older brother Dong-joo.

On Oct. 19, the Seoul Central District Prosecutors' Office indicted Shin on charges of embezzling 175 billion won and breach of trust, concluding a four-month probe into Lotte Group. They also indicted Shin Kyuk-ho, the chairman's father and Lotte founder, and Dong-joo, on charges of tax evasion and embezzlement.

With Shin Young-ja, the chairman's sister, and Seo Mi-kyung, the founder's common-law wife, indicted on similar charges, a total of five members of the Lotte founding family will face trial.

In a bid to get the group back on track, the chairman pledged to set up a compliance committee, bringing in figures from outside the company to supervise the business practices of all subsidiaries.

The chairman also vowed to push ahead with the US$4.5 billion initial public offering of Hotel Lotte, the de facto holding company of Lotte Group, on the local bourse.

“By opening up the company to domestic and overseas investors, we will diversify the shareholder base to get a foothold as a global corporation,” he said. He added Lotte will beef up investments in hotel and duty-free businesses for its global expansion, hinting at acquisitions of smaller rivals overseas.

On the day, Lotte also unveiled reform plans to improve corporate transparency by creating a compliance committee directly under the chairman’s control. 

The group’s policy coordination unit that has been blamed as the source of irregularities is also likely to be downsized. One key part of the reform envisaged by the chairman is the creation of the Compliance Committee directly under the chairman of the group, which will be responsible for making sure the entire operations including new projects by the group and its affiliates are legal. 

The group may seek an outside person to take over the new committee as chairman, possibly a former judiciary official, to run the committee alone or share the responsibility with a co-chairman.

 The group also scuttled the idea of setting up a top decision-making committee so that Chairman Shin will continue to make the decisions on his own.

The group also decided to ditch the plan to boost the group’s annual sales to 200 trillion won by 2020 to be among the top 10 business groups in Asia. The group will more focus on the quality of its growth rather than quantity.