Shin Young-ja, the eldest daughter of Lotte founder Shin Kyuk-ho from his first marriage, has reportedly been taking sides with her youngest brother, the chairman. She supported his claim over control of the group during an ugly family feud last year.

The chairman demoted his aging father who had handpicked Shin Dong-joo, his eldest son, as the legitimate successor of his empire.

After the bitter battle, the chairman stripped Dong-joo of all executive positions in Lotte’s operations in Korea. He has been pushing a series of aggressive reform measures to improve the transparency of the group’s shady governance structure and to consolidate his power over Lotte’s operations in Korea and Japan.

The planned listing of Hotel Lotte -- the de facto parent company of the group’s operations in Korea -- on the nation’s main bourse is at the center of his reform drive.

Industry watchers say Lotte will have no choice but to delay its stock market debut on June 29, considering the negative impact of the prosecution’s probe into the chairman’s sister on market capitalization. Shin is suspected of receiving kickbacks from a Korean cosmetic firm’s head in exchange for a space at its duty free-stores -- a major income source for the retailer’s hotel unit.

Both Lotte Group and Shin Young-ja denied the allegation.

But the chairman’s sister is likely to lose all of her board seats in Lotte affiliates if the prosecution secures any evidence proving her involvement in the scandal. Shin currently serves as the chairwoman of Lotte Foundation and a registered boardroom member of eight Lotte affiliates including Hotel Lotte in Seoul and Busan, Lotte Shopping and Lotte Construction.

The widening probe will push the chairman to make a decision on his sister’s fate, according to industry watchers, saying that the case is a test for him to prove that he is consistent with his reform pledge.

The chairman could persuade his sister to voluntarily step down or hold board meetings to put her fate to a vote, they added.

His repeated pledge that he will separate family issues from the management is the basis of his leadership and also the principle that incapacitated his father’s claim that his elder brother is the successor of the group, said Lotte Group officials.

“Suspicions are still unclear, however, the possibility is high for (the chairman) to apply that same rule to the case involving Shin Young-ja, chairwoman of Lotte Foundation,” an official told Yonhap News agency.

By Cho Chung-un (christory@heraldcorp.com)