Kakao preps emergency management plan as judicial risk emerges

Kakao’s founder and head of the Future Initiative Center Kim Beom-su [Photo by Yonhap]

South Korean platform giant Kakao Corp. has entered a phase of emergency management led by the Corporate Alignment (CA) council as it faces an unprecedented crisis due to a judicial risk.

The emergency management follows the recent arrest of Kakao’s Chief Investment Officer Bae Jae-hyun, who is accused of manipulating the market during the acquisition process involving SM Entertainment Co. in February 2023.

Kim Beom-su, Kakao’s founder and head of the Future Initiative Center, is also subject to investigation.

According to multiple sources from the information technology (IT) industry on Sunday, Kakao is taking steps internally to minimize risks that could potentially affect its subsidiaries amid rising uncertainty surrounding the company.

The CA council is expected to address the crisis surrounding Kakao and play a pivotal role. Formerly known as the Corporate Alignment Center (CAC), the council is an essential internal organization within Kakao that is responsible for coordinating and supporting management strategies for the Kakao community, as well as overseeing investments and risk management.

It expanded is membership last month to include Kim Jeong-ho, chairman of the board of the Brian Impact Foundation and chief executive officer of Bear Better, Kakao Ventures chief executive officer Chung Shin-a, and Kwon Dae-yeol, head of the Kakao Policy Center, who join Kakao founder Kim, Kakao CEO Hong Eun-taek, Former Krust CEO Song Ji-ho, and Kakao CIO Bae.

Since Bae’s arrest, it has been challenging for the CA council to carry out normal operations.

“Filling the vacant position in the CA council is a simple matter,” an unnamed Kakao official said. “We are preparing for the possibility that the issue could escalate into one that involves owner risk.”

It is thus highly likely that an emergency management system will be prepared with the CA council taking the lead.

Concerns include potential disruptions in Kakao Entertainment Co.’s overseas business due to its involvement with SM Entertainment, a possible shake-up in Kakao Bank’s ownership structure, and the potential for investment setbacks and management gaps across the entire Kakao Group.

Meanwhile, the special judicial police under the Financial Supervisory Service informed Kakao founder Kim that he will be required to appear in a meeting to answer questions about key issues related to the SM Entertainment acquisition process on Monday.

The investigation revolves around allegations that Kakao collaborated with a private equity fund to manipulate SM Entertainment stocks, obstructing Hybe, a competitor in the acquisition.

Kakao, on the other hand, asserts that its stock purchases were legal and did not involve market manipulation.