Secret Recordings, Hidden Shares and a Family Rift at South Korea’s LG

Business|Secret Recordings, Hidden Shares and a Family Rift at South Korea’s LG

On a Thursday afternoon in June 2020, two executives from the LG finance department arrived at the hilltop home of Kim Young-shik, the widow of the company’s previous chairman, for what was supposed to be a routine review of her family’s finances.

They sat at a long wooden table near the entryway, looking out at sweeping views of Seoul and a Japanese garden tended by the former chairman, who had died two years earlier. He had built LG into one of South Korea’s most powerful chaebols, the family-run conglomerates that have dominated the country’s economy for decades.

Ms. Kim and her elder daughter spent part of the meeting discussing their monthly electricity bill and whether to buy or lease a new Chevrolet van. Then the women turned to what they really wanted to talk about. They wanted an explanation of a secret formula governing how the family’s shares in LG were divided after the death of their husband and father, Koo Bon-moo.

A top company official said the family’s assets, including its 38 percent stake in LG, were pooled and effectively controlled by a small circle of family members known as the “shareholder group.”

They said Koo Kwang-mo, LG’s chairman and Ms. Kim’s adopted son, controlled about two-thirds of the family’s stake — around 26 percent of LG shares. That’s significantly higher than the 16 percent disclosed in regulatory filings, a gap worth about $1.6 billion, suggesting that some of his shares were held in the names of other family members.

At one point in the meeting, the top official, Ha Beom-jong, now LG’s president, said Ms. Kim could start using some of her late husband’s money that was held in other relatives’ names. Because the names were “dispersed,” he said, the South Korean authorities would not find a paper trail to tax her.