[Eyes On] Tradition-laden LG braces for junior Koo

Over the past seven decades, what has prevented feuds among the owner family members of LG Group, South Korea’s fourth-biggest conglomerate, has been the outdated yet strict adherence to the tradition that only the chairman’s eldest son takes over the management.

Considered “LG norm,” the same type of arrangement was long anticipated before the death of late Chairman Koo Bon-moo, the third generation of the founding family, on May 20.

But whether the transition will be as smooth as in the preceding generations remains in question.

Late Chairman Koo’s eldest adopted son Koo Kwang-mo, currently senior vice president at LG Electronics, is set to debut as an executive director of the board of LG Corp. -- the holding company and de facto control tower of all LG affiliates -- on Friday at a shareholders meeting. Koo Kwang-mo’s biological father is late Koo’s brother Koo Bon-neung, chairman of Heesung Group. Koo Kwang-mo was adopted by late Koo, who was without a son, in accordance with the family rule of inhering the control only to the eldest son.

Less certain, however, is when or how his uncle Koo Bon-joon, vice chairman of the group, will move over for his nephew, who is still young at the age of 40.

According to the family tradition, the most predictable scenario is for the junior Koo to take helm of the group, while the vice chairman, late Koo Bon-moo’s brother, leaves his post and establishes a new business group out of some of the LG affiliates. It has also been dubbed by watchers the group’s “tradition” for members of the owner family to recede from management once they turn 70.

But the scenario does not seem feasible in the immediate future, due to the junior Koo’s lack of managerial experience and financial limits of the separation.

One of the most plausible plans, instead, for stability of the group is to buy time for the junior Koo.

“While it’s been set that the junior Koo will start taking responsibilities for the group’s overall management as a board member along with six other vice chairmen, what will be the exact position and title of the heir apparent are yet unknown,” said an industry insider.

Being the third-largest shareholder of LG Corp. with a 6.24 percent stake, the heir will be given the rights to nominate chief executive officers of all LG affiliates, and to push for new businesses.

“Vice Chairman Koo Bon-joon is highly likely to remain taking care of the electronics unit for the time being, and he won’t engage in the junior Koo’s management,” the source added.

Some industry watchers are paying more attention to what the older Koo will take ownership of.

If the vice chairman decides to stick to tradition, he will soon announce independence and set up a new group on his own.

“Since the vice chairman has spent most of his time at the electronics and display units, he has a special love for the two companies,” said an industry source. “He would want to take one of the LG affiliates that he had worked for.”

Koo Bon-joon had served as CEO of the former LG Semicon (currently part of SK hynix), LG LCD (currently LG Display), LG International and LG Electronics. He led the creation of the vehicle components business within the electronics affiliate in 2013, shifting the focus of the group from business-to-consumer to business-to-business products.

“Such a scenario seems difficult to be put in place considering financial issues,” said an LG official. “Separation of one of the mentioned affiliates will cost the vice chairman a huge fortune, while exposing him to risks of breach of trust.”

Koo Bon-joon’s major assets include a 7.72 percent stake in LG Corp., worth around 950 billion won.

“Taking into account such financial limits, smaller affiliates are more likely to be separated,” said a market analyst. “LG Innotek, LG International and LG CNS could be realistic choices for Koo.” 

By Song Su-hyun
(song@heraldcorp.com)