Kakao’s outside director sparks conflict of interest concerns

Kim Beom-su, the founder and head of the Future Initiative Center of Kakao. [Photo by Kim Ho-young]

Amid the ongoing controversies surrounding South Korean platform giant Kakao Corp. and its subsidiaries due to their alleged involvement in illicit activities, it has been revealed that an outside director of Kakao, the major shareholder of KakaoBank Corp., is serving as a private sector member of the sanctions committee at the financial watchdog, in a conflict of interest.

According to regulatory filings on Wednesday, Kakao appointed the outside director during its regular shareholders’ meeting on March 28, 2023. This was when allegations were beginning to be raised regarding Kakao’s involvement in market manipulation during the process of acquiring SM Entertainment Co. stocks, and the Financial Supervisory Service (FSS), the South Korean financial watchdog, was indicating a potential investigation into these allegations.

Notably, the outside director was appointed as a private sector member of the watchdog’s sanctions committee in July 2022, prior to the Kakao appointment. The sanctions committee is a body that determines the level of disciplinary actions against financial companies found to have violated laws.

While investigations are still ongoing into alleged Kakao involvement in market manipulation and Kakao Mobility’s alleged fraudulent accounting, having a Kakao director serving inside the sanctions committee of the authority in charge of investigations is a potential conflict of interest.

The term for the Kakao director in question as a member of the sanctions committee runs until July 2024. “We have a system in place to exclude members from cases with a potential conflict of interest,” the financial watchdog explained, adding that it will take full precautions to prevent even minor concerns.

But concerns remain, as some critics see the engagement itself of a Kakao outside director in reviews of sanctions against other financial institutions as a conflict of interest.

Kakao has financial institutions under its umbrella, including KakaoBank, and this raises concerns about unfair reviews against competitors, such as other internet-only banks, securities firms, and payment service providers. A confidentiality issue is another concern, as internal information about competitors that comes to light during FSS investigations could potentially be shared with Kakao.

“The sanctions committee members have signed a confidentiality agreement. Violating it could be grounds for removal,” the FSS explained.