Kakao mulls organizational reform, leadership change amid public criticism

[Courtesy of Kakao]

Kakao Corp. is considering a significant reshuffle of its top management amid growing woes over its alleged involvement in stock price manipulation related to its acquisition of SM Entertainment.

Several issues in the market have been traced back to Kakao’s management and human resources systems, according to people familiar with the matter on Sunday. In response, Brian Kim, who founded Kakao and currently heads the Mirae Initiative Center at the company, has shown a strong determination to initiate a comprehensive leadership overhaul.

Kim’s commitment to change was emphasized earlier in the month when he appointed former Supreme Court Justice Kim So-young as the inaugural chair of Kakao Group’s “Compliance and Trust Committee.” In a statement, he pledged to respect the committee’s decisions and take full responsibility for any non-compliant actions from the heads of Kakao subsidiaries.

Kakao’s history is deeply intertwined with Kim and many of his associates who have been with the company from its startup days. Even today, a significant number of Kakao’s major subsidiaries are headed by those who have been with the company from the beginning.

While this structure contributed to Kakao’s rapid growth and innovation thus far, it also meant that the company lacked internal control systems, in turn resulting in a string of controversies and criticisms.

One of the most notable incidents occurred at the end of 2021 when Ryu Young-joon, the then-CEO of KakaoPay, prompted an outcry from investors for selling a significant portion of his stock options immediately after KakaoPay’s listing on the Kospi. Subsequently, he resigned from his proposed position as co-CEO of Kakao in early 2022.

Despite its large annual revenue, which is estimated to be in the trillions of won according to the 2023 market outlook, Kakao has failed to establish the internal systems commensurate with its external growth. Kakao is an IT giant with nearly 4,000 employees as of this year’s semi-annual report and annual revenue of over 8 trillion won ($6.1 billion) based on this year’s market forecasts, but observers argue that it lacks the capacity to mitigate risks and maintain control, likening its internal mechanisms to that of a startup rather than a major corporation.

To address these issues, Kakao is preparing a comprehensive plan whose top priority is to resolve HR-related issues, which are closely linked to various controversies surrounding the company.

The plan is especially timely as the terms of office for key executives of Kakao’s major subsidiaries, including Kakao CEO Hong Eun-tae, are set to expire between March and April 2024.

An internal source at Kakao shared that the Compliance and Trust Committee is expected to play a crucial role in addressing Kakao’s challenges, and Kim also expressed his willingness to actively consider external opinions. The committee is intended to act as an external, independent organization that can effectively monitor and regulate Kakao’s actions, bringing the company in line with public expectations.