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LG Group's outsider CEOs turn fresh perspectives into profits

Career executives offer alternative path to success for South Korean companies

A sales associate promotes Whoo products at a department store in Shanghai. Whoo was the top-selling Asian beauty brand in China's Singles Day sale this year.

SEOUL -- LG Group is tearing up corporate South Korea's playbook with the help of career executives from outside who are unencumbered by tradition and office politics, and whose fresh approach to management has helped turned its makeup and chemical units into the group's new crown jewels.

LG Household & Health Care's Whoo skin care and makeup brand was one of the biggest winners of this year's Singles Day sale in China, clocking in as Asia's best-selling beauty brand and fourth globally.

The brand, which features ingredients used in traditional medicine, is usually marketed toward wealthy customers at high-end department stores in China. But it took a different tack ahead of Singles Day this year, tapping Viya, China's so-called livestream queen, to promote its products instead.

LG H&H's overseas sales jumped 32% on the year to 1.79 trillion won ($1.65 billion) in the January-September period, growing rapidly even in the midst of the COVID-19 pandemic. It also overtook rival Amorepacific Group, whose overseas revenue fell 16% to 1.36 trillion won, for the first time.

Behind LG H&H's success is CEO Cha Suk-yong, a career executive who has led the company since late 2004.

Cha Suk-yong, CEO of LG Household & Health Care.

Known for his expertise in branding and in mergers and acquisitions, Cha previously served as president at Procter & Gamble's South Korean arm as well as a local snack maker. At LG H&H, he spearheaded the purchase of Coca-Cola Korea Bottling, turning beverages into a third pillar of the company, after cosmetics and household goods.

"Tricycles are steadier than bicycles," he had said at the time.

Cha has led more than 20 acquisitions since becoming CEO, many of them overseas. The list includes the 2012 deal to purchase Ginza Stefany Cosmetics, a Japanese mail-order cosmetics company, and the 2019 deal to buy U.S.-based New Avon for $125 million.

The strategy appears to be paying off. LG H&H's earnings have grown every year for the last 15 years under Cha, with sales increasing eight times and operating profit 20 times since he took office. The company is expected to keep up the trend in 2020 as well and could soon replace Amorepacific as the face of the South Korean cosmetics industry.

Cha "is extremely familiar with global branding strategies and has scored big successes from effective M&As," said Park Jong-dae of Hana Financial Investment.

LG Chem is another LG unit that has flourished under a career executive. In 2019, it appointed Shin Hak-cheol, a former vice chair and executive vice president at 3M, as CEO.

Shin has been tasked with advancing LG Chem's electric-vehicle-battery business. He has managed to score a series of contracts with such automakers as Tesla, and LG Chem says it now has orders for 150 trillion won of batteries.

Shin Hak-cheol, CEO of LG Chem.

As an outsider unfettered by internal politics, Shin is also quick to ax businesses that are losing steam. LG Chem announced in June that it would sell its liquid crystal display panel polarizer business to a Chinese player for more than $1 billion. With fellow group unit LG Display downsizing LCD operations, LG Chem is instead shifting resources toward boosting automotive battery production.

Investors are responding positively to Cha's and Shin's leadership. LG H&H boasted a recent market capitalization of about 25 trillion won, ahead of LG Electronics' roughly 15 trillion won despite the latter company ringing up eight times the sales. LG Chem's market cap reached around 57 trillion won, thanks to high hopes for its auto battery business.

Of 13 publicly traded LG units, LG Chem and LG H&H recently ranked first and second in terms of market cap and accounted for more than 60% of the groupwide total.

South Korean companies have been criticized as often ending up full of like-minded individuals, since many hire new graduates based largely on their alma maters or hometowns then mold them to fit each company's culture. Big conglomerates like Samsung and Hyundai Motor also tend to be controlled by longtime aides to the founding families.

In contrast, LG is aggressively recruiting talent from outside the group in hopes that diverse viewpoints can help the group adapt to a rapidly changing world. The success at LG H&H and LG Chem could inspire South Korean companies suffering from the pandemic to chart new paths for their futures.

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