CJ Group has gone into emergency mode after Chairman Lee Jay-hyun was arrested Monday on charges of creating secret funds and evading taxes

2013-07-02 17:24

CJ put on emergency footing

By Kim Tae-jon

CJ Group has gone into emergency mode after Chairman Lee Jay-hyun was arrested Monday on charges of creating secret funds and evading taxes. The group Tuesday launched a five-member emergency management committee under the chairmanship of Lee’s uncle Sohn Kyung-shik. Sohn, who is the chairman of the Korea Chamber of Commerce and Industry (KCCI), has long served as co-chairman of CJ together with his nephew.

The five members are Sohn; CJ Group holding company CJ Corp. CEO Lee Gwan-hoon; Mi-kyung, Lee’s elder sister and vice chairwoman of CJ Entertainment & Media (CJ E&M); CJ Korea Express vice-chairman Lee Chae-wook; and CJ Cheil Jedang CEO Kim Chul-ha.

“They will make decisions for the group’s long-term development strategies and measures to enhance the reliability of the group’s management and social contribution,” an official from the group said.

The move came after the Seoul Central District Court detained Lee on charges of evading some 70 billion won in taxes by stashing secret funds and misappropriating 100 billion won in company money.

He is also accused of inflicting financial damage worth 35 billion won to the group by fraudulently purchasing two buildings in Tokyo.

Market insiders believe that Sohn will be Lee’s savior, as he previously helped his nephew secure his management power as a co-chairman after the group separated from Samsung Group in 1996.

He has served as an honorary co-chairman of the group since he was elected as KCCI chairman in 2005.

Even under an effective emergency management committee, the absence of the chairman is expected to strike a severe blow to the group, especially in its efforts toward overseas investment, merger and acquisition projects.

Lee’s influence at the group has increased since he reformed the group’s governance structure after establishing CJ Corp. in 2007.

He now owns a 42.3 percent of shares of the holding firm, which is at the center of management of all affiliates by holding a large portion of their shares.

Earlier this year, Lee said that this year will be crucial for the group’s global expansion, when announcing the “Great CJ Plan” in commemorating the group’s 60th anniversary.

Under the plan, the group said it aims to generate 100 trillion won in sales by 2020, 70 percent of which it expects will come from outside Korea. It also aims to grow at least two of its core affiliates into global leaders in their respective fields.

But the group has already faced a huge setback in its overseas projects. CJ Cheil Jedang has stopped negotiations to acquire a Chinese manufacturing firm and experienced a delay in talks for animal feed business with Chinese and Vietnamese firms. CJ Korea Express has suspended its talks for a one-trillion-won business partnership with a U.S. firm.

But despite negative factors from Lee’s arrest, stocks of most of CJ affiliates saw an increase the following day.

CJ stocks increased by 2.14 percent to close at 119,500 won. CJ Cheiljedang’s stocks jumped by 5.88 percent to close at 270,000 won, while CJ E&M increased by 2.41 percent to end at 36,050 won. In comparison, the benchmark KOSPI dropped by 0.71 percent to close at 1,855.02 that day.

Market analysts said that Lee’s arrest actually eased uncertainty at the group, which boosted the value of the group’s affiliates’ stocks

“Lee’s role can be important at the group, especially in making key decisions, but he is not the only one who can run the group,” Hyundai Securities analyst Jeon Yong-gi said. “Instead, the arrestment can help the group secure transparency.”