Lotte Group to give more authority to outside directors

Food-to-retail conglomerate Lotte will expand the authority of outside directors by separating the roles of chief executives and board chairs at its two units, while giving non-executive directors more independence to check management activities. 

Lotte Group said on Wednesday that Lotte GRS Co. and Daehong Communications Inc. will become its first subsidiaries where outside directors will chair their board, a position usually held by CEOs. It is considering expanding the system to other units under the group.

Lotte GRS manages the franchises of food companies, including fast-food maker Lotteria and the US donut brand Krispy Kreme in Korea. Daehong Communications is an advertising company.

CEOs at most  Korean conglomerates chair their boards, citing the efficiency of decision-making.

However, heads of outside directors at the two Lotte units will assume the role of chair of the board, a move expected to enhance their governance under revised environment, social and governance standards.

Their board chairs will be selected from external directors. They are authorized to convene and direct the board in the same way as the inside director head does to check top management.

Further, Lotte will introduce a senior non-executive director role to 10 listed subsidiaries, where the director chairs the board. The 10 companies include Lotte Corp., Lotte Wellfood Co., Lotte Shopping Co., and Lotte Chemical Corp.

Their non-executive senior directors can convene a plenary meeting of outside directors. They are also allowed to demand the company's report pending issues and voice opinions concerning the management of the company.

The senior non-executive director system is not mandatory for non-financial services companies in Korea. However, Lotte plans to later adopt the system for unlisted subsidiaries.

The move aimed at governance reform comes after Shin Yoo-yeol, the eldest son of Lotte Group Chairman Shin Dong-bin, has come to the front line of management, assuming an executive position at both Lotte Corp. and Lotte Biologics Co. in December of last year.

Write to Ji-Yoon Yang at yang@hankyung.com

Yeonhee Kim edited this article.