Lotte Introduces Outside Director Chairperson and Senior Outside Director... Initiates Governance Innovation

Expansion of BSM Indicator Adoption
"Leading Responsible Management Centered on the Board of Directors"

Lotte is strengthening management transparency and enhancing the independence of outside directors by introducing the systems of 'Outside Director as Board Chairperson' and 'Lead Outside Director.'

On the 20th, Lotte Holdings announced that it plans to first apply the system of appointing an outside director as the board chairperson to its unlisted subsidiaries, Lotte GRS and Daehong Communications.

Shin Dong-bin, Chairman of Lotte.
[Photo by Lotte]

Although it is common for an inside director to serve as the board chairperson, the company plans to prioritize introducing this system in two affiliates to establish governance that ensures the independence of the board and a system of checks and balances.

The separation of the CEO and the board chairperson is one of the key indicators representing the independence of the board in ESG (Environmental, Social, and Governance) management. The outside director chairperson can convene and preside over board meetings just like an inside director chairperson and can monitor and supervise the CEO’s overall management activities. Lotte is considering expanding the outside director chairperson system to all its listed companies.

Additionally, Lotte will introduce the lead outside director system to 10 listed companies. The lead outside director system appoints a lead outside director to represent outside directors when an inside director serves as the board chairperson, aiming to promote balance and checks. The listed Lotte companies adopting the lead outside director system include Lotte Holdings, Lotte Wellfood, Lotte Shopping, Lotte Chemical, Lotte Rental, Lotte Chilsung, Lotte Himart, Lotte Fine Chemical, Lotte Information & Communication, and Lotte Energy Materials.

The lead outside director can independently convene meetings of the outside directors, who are composed entirely of outside directors, and acts as a mediator by requesting reports on current issues from management and providing opinions, thereby checking and supervising management.

In South Korea, the lead outside director system is mandatory in the financial sector but not for general companies. Lotte plans to proactively introduce the lead outside director system to its listed companies to reform its governance structure and will expand it to unlisted companies in the future. The lead outside directors of each listed company will be appointed through board meetings held after the shareholders’ meeting.

Lotte Shopping’s 'BSM Indicator (Board Skills Matrix),' which was introduced ahead of time in 2021, will also be expanded to 10 listed companies. BSM stands for 'Board Skills Matrix' and is a method of providing shareholders with intuitive matrix-form information on the competencies of registered directors. It visually represents the composition, skills, and diversity of registered directors in charts for multifaceted evaluation.

The BSM indicator is characterized by defining the key competencies directors should have according to each company’s characteristics and providing detailed related information to shareholders. The BSM indicator will be disclosed through corporate governance reports in the future.

Moreover, Lotte continues to focus on strengthening the diversity and expertise of its board. The diversity and expertise of outside directors are increasingly important as they can convey opinions from various sectors to the company. Compared to 2021, Lotte has increased the proportion of female outside directors and outside directors from companies with business expertise by approximately 15 percentage points each.

A Lotte official said, "We have introduced the outside director chairperson system and the lead outside director system to innovate the governance structure. We will continue to expand these systems across affiliates to enhance Lotte Group’s management transparency and establish board-centered responsible management."

This content was produced with the assistance of AI translation services.