LG Gets Its Fourth-Generation Heir. Who Are the Successors at South Korea's Five Biggest Chaebols?

Quite a few of them have ended up in criminal court.

At 9:52 a.m. local time on the 20th, Koo Bon-moo, the third-generation chairman of LG Group, died at the age of 73.

Yonhap News Agency does not expect Koo's death to disrupt LG Group's operations. According to sources inside the group and in the investment industry, LG has long run under a holding-company structure, so handing over management authority and moving to the next generation will not deal the group a serious blow.

The company's chief analyst, Park Geo-gon, added: "Koo Kwang-mo, LG's fourth-generation leader, has held key positions in the group for years, so I don't expect major changes to the company's structure or its strategic decisions."

Koo Kwang-mo, 40, is not Koo Bon-moo's biological son but the eldest son of Koo's younger brother, Koo Bon-neung. Following the group's tradition of passing control to the eldest son, Koo Kwang-mo was adopted in 2004 by Koo Bon-moo, who had only two daughters.

South Korea's culture of family-business succession has produced a crop of young and middle-aged billionaires over the past few years. Among the top 500 names on Forbes' 2018 global billionaires list, eight were South Korean, and five of them — 62 percent — were heirs to large conglomerates. Mainland China had 50 people on the list, only two of them heirs, or 4 percent. Worldwide in 2018, 2,208 people were worth more than a billion dollars, and 1,490 of them were self-made, which puts heirs at 32 percent. South Korea's share of heirs is higher than the global figure, and far higher than China's.

For South Korea's five biggest chaebols — Samsung, Hyundai, SK, LG, and Lotte — the past 365 days were another year of rises and falls, honor and disgrace.

Samsung

On the day Koo Bon-moo died, Samsung Electronics Vice Chairman Lee Jae-yong attended his memorial service. Lee himself had walked out of custody just three and a half months earlier.

On February 5, the Seoul High Court delivered its second-instance ruling in Lee Jae-yong's bribery case, overturning the earlier verdict and reducing his sentence to two and a half years in prison, suspended for four years. Lee was released 353 days after his arrest on February 17, 2017.

Leaving the Seoul Detention Center, Lee told reporters he wanted to go see his father, Lee Kun-hee. Lee Kun-hee is the highest-ranked South Korean on the billionaires list mentioned above, and he too is an heir. The third son of Samsung Group founder Lee Byung-chul, he became the group's second chairman. After a heart attack put him in hospital in 2014, actual control of Samsung shifted gradually to Lee Jae-yong.

A Samsung spokesperson said Lee Jae-yong would resume his post as vice chairman of Samsung Electronics. And barring surprises, once Lee Kun-hee dies, Lee Jae-yong will become the third member of the Lee family to take the Samsung chairmanship. For now he ranks just behind his father, third among the South Koreans on the billionaires list.

Lee's release came on the eve of the 2018 PyeongChang Winter Olympics, one of whose top sponsors was Samsung. The timing set off a fresh round of international questioning about the relationship between the South Korean government and the country's big conglomerates.

In August 2017, while prosecutors were asking for a 12-year sentence for Lee, South Korea's newly elected president, Moon Jae-in, said he would tighten oversight of the big conglomerates. Months later, the appellate judge threw out the first-instance verdict and Lee walked free on the lesser charge of having bribes "extorted" from him.

The Wall Street Journal quoted a statement issued after the ruling by Park Yong-jin, a lawmaker with the Democratic Party of Korea: "Today we have witnessed once again how Samsung stands above the law." Lee Kun-hee himself had twice been granted a presidential pardon.

Hyundai

The Samsung father and son are, of course, not the only ones South Korea's courts have gone easy on. In 2007, Chung Mong-koo, president of Hyundai Motor Group, the country's largest automaker, was sentenced to three years in prison, suspended for five, for embezzlement and for bribing politicians.

Prosecutors had asked for six years. The judge handed down the lightest sentence available, citing Chung's "enormous contribution to the national economy."

Chung Mong-koo was the second of Hyundai Group founder Chung Ju-yung's eight sons and one daughter; the eldest son died young. Chung Ju-yung died in 2001. Three months later, second son Chung Mong-koo announced that Hyundai Motor was splitting off from Hyundai Group, and sixth son Chung Mong-joon took Hyundai Heavy Industries out of the group as well. Not long after, fifth son Chung Mong-hun — the successor their father had personally chosen — jumped to his death from the Hyundai headquarters building. The family drama ended there, and Hyundai Group fell apart.

Even so, Hyundai Motor grew under Chung Mong-koo into the world's fifth-largest automaker. He is still on this year's global billionaires list, seventh among the South Koreans on it.

The 2007 case also reached Chung Mong-koo's only son, Chung Eui-sun. The Central Investigation Department of the Supreme Prosecutors' Office went as far as announcing publicly that it would indict him, but the matter came to nothing.

On August 22, 2009, Hyundai Motor and Kia Motors issued a joint statement naming Kia president Chung Eui-sun vice chairman of Hyundai Motor.

Chung Mong-koo turns 80 this year, and barring surprises, Chung Eui-sun will be Hyundai Motor's next-generation heir.

Last August, the head of South Korea's newly appointed antitrust authority said he was in talks with Hyundai Motor Group to press it into overhauling its complicated ownership structure. Critics say that structure hands chairman Chung Mong-koo's family too much power at the expense of shareholders.

In April this year, Kim Ki-sik, governor of the Financial Supervisory Service — who, along with Fair Trade Commission chairman Kim Sang-jo and presidential policy chief Jang Ha-sung, was known as one of the "three chaebol snipers" — formally resigned over a row about a taxpayer-funded trip and improper political donations, only two weeks after taking office. South Korean media wondered whether this was another setback for the chaebol overhaul President Moon Jae-in has been pushing hard.

SK

Chey Tae-won, the second-generation heir of SK Group, is the only man among the five chaebols to have been pardoned twice by a president — and also the one who has spent the longest behind bars. SK Group's holdings include 90 affiliated companies in energy, telecommunications, chemicals, and other industries.

In 2003, the Supreme Court handed Chey a final sentence of three years in prison, suspended for five, for embezzlement. In 2008, President Lee Myung-bak granted him a special pardon. Chung Mong-koo was on the same pardon list.

Later, Chey was accused of moving 46.5 billion won (about 250 million yuan) out of an SK Group subsidiary and overseas for options trading, and in February 2013 South Korea's Supreme Court sentenced him to four years. He served two, then was pardoned by then-president Park Geun-hye to mark the 70th anniversary of the Korean Peninsula's liberation. Absurdly enough, back when Lee Myung-bak was issuing pardons of every kind, Park — from his own party — had criticized him for it.

An official at South Korea's Ministry of Justice said the pardons "give them the chance to contribute to this country's economy," and expressed hope that they would "help lift the economy."

Once Chey was back, SK's shareholders needed only 20 minutes at their annual general meeting to vote him into his old job.

On New Year's Eve 2015, Chey set the country talking again. In an open letter to South Korea's Segye Ilbo, he admitted that he had a mistress and that the two of them had a daughter, then just over five years old. His relationship with his wife, Roh So-young, had kept deteriorating, he wrote; they had concluded they could not stay together, had agreed to go their separate ways, and had already discussed the terms of a divorce.

Roh So-young is the daughter of former South Korean president Roh Tae-woo. She told reporters: "I will protect my family. My husband is the victim. I failed to sense his feelings and I hurt him. I have even considered raising Chey's illegitimate daughter myself."

Roh Tae-woo had faced a corruption investigation of his own. He first appeared in court in December 1995, the first former South Korean president to stand trial in public, and in August 1996 was sentenced to 22 and a half years in prison. In early 1998, then-president Kim Dae-jung pardoned him and he walked out.

One of the charges against Roh Tae-woo was that, shortly before leaving office in 1993, he used his influence to help SK Group move into telecommunications, directly or indirectly.

In the end, Chey's dealings with South Korean presidents were not over. Last March, prosecutors questioned him again over his part in former president Park Geun-hye's corruption scandal. So far this round has not put him back in prison. Among the top 500 on this year's billionaires list, he is the last-ranked South Korean.

Lotte

The two Lotte brothers did not make the top 500 of this year's Forbes billionaires list. Compared with the other four families, their troubles were not the worst, but not trivial either — and their story is every bit as good.

Lotte Group founder Shin Kyuk-ho had two sons, Shin Dong-joo and Shin Dong-bin, and even when he retired last June at the age of 95, he had never clearly named a successor.

While grooming them, the father put his elder son, Shin Dong-joo, in charge of Lotte Japan and his younger son, Shin Dong-bin, in charge of Lotte Korea. The Korean business then took off and far outgrew the Japanese headquarters, and Shin Dong-bin's advantage became plain.

In July 2015, Shin Dong-joo flew their father, by then over 90, to the Tokyo headquarters and announced that Shin Dong-bin had been removed. The younger brother accused the elder of staging a "coup," and the next day called an emergency meeting of Lotte Japan's board, which stripped the father of his post and left him only the title of honorary chairman. Lotte Group later unveiled a major restructuring plan that simplified its management structure and tightened Shin Dong-bin's grip on the group further.

That should have been close to the end of the story, but the Park Geun-hye bribery scandal shook Lotte's leadership too. On February 13 this year, the Seoul Central District Court ruled that Shin Dong-bin had paid Park Geun-hye 7 billion won (about 41.41 million yuan) in bribes and sentenced him to two years and six months in prison.

After the conviction, his brother Shin Dong-joo demanded that he resign and take responsibility. On the 21st of that month, Shin Dong-bin stepped down as co-CEO of Lotte Holdings.

Korean Air

Finally, beyond the top five chaebols, South Korea's other heirs played some memorable supporting roles over the past year.

In March this year, Cho Hyun-min, a third-generation heir at Korean Air Group, smashed a drink bottle on the floor in front of everyone at a meeting, then threw water in the face of an employee from an advertising agency and had the employee thrown out. Earlier, her older sister, Cho Hyun-ah, had abused a flight attendant and ordered a plane to turn back, and their younger brother, Cho Won-tae, had shoved a 70-year-old woman to the ground on the street for blocking his car. All three children rose to senior positions within three to six years of joining the company.

After the scandal broke, an employee reported to prosecutors that their mother, Lee Myung-hee, and the three children had used Korean Air planes to bring luxury goods into the country without declaring them, a suspected tax dodge. South Korean customs then searched Korean Air's headquarters and the homes of their father, second-generation heir Cho Yang-ho, and of the three children.

More than 130,000 South Koreans signed a joint petition to Cheong Wa Dae, the presidential office, asking that Korean Air be barred from using a logo resembling the national flag and that the word "Korean" be dropped from its name.

The judge found Cho Hyun-ah guilty of assaulting crew members and forcing the chief flight attendant off the plane, and sentenced her to ten months in prison, suspended for two years.

According to the latest poll, released by Hangil Research on May 1, 90.7 percent of respondents said the Cho family's way of running the company was absolutely intolerable, and 69.8 percent believed that stripping his two daughters of all their posts, as second-generation heir Cho Yang-ho had done, was only a temporary measure and that they would certainly return to the company after a while. Another 77.3 percent said that for Korean Air's sake, Cho Yang-ho and his children must all step down and a professional manager be brought in to run the company.

Between 2005 and 2014, half of South Korea's ten biggest chaebol families were caught up in criminal cases, 11 cases in all. Yet, oddly, most South Korean tycoons are well educated: 78.4 percent of the core family members graduated from famous universities around the world. On top of that, 29.4 percent of South Korean tycoons hold a master's degree in business administration, the highest rate anywhere.

Cover image and photos in this article / Visual China Group