Kakao launches intense investigation of major affiliates

Kakao Group recently began conducting a companywide audit of its major affiliates, part of its determination to identify any violations of corporate rules and policies as long-standing calls for better corporate governance continue. The Compliance and Trust Committee, an independent watchdog, is also involved in the audit.

According to sources who have knowledge of the matter, the tech firm’s investigations are focused on its affiliates, including SM Entertainment Co., KakaoBank Corp., and Kakao Mobility Co. Of these, SM Entertainment is the particular target of the operation, the sources added.

Kakao’s audit watchdog conducted a forensic investigation of computers owned by key SM Entertainment executives, including Chief Executive Officer Jang Chul-hyuk, Chief A&R Officer Lee Sung-soo, and Chief Operating Officer Tak Young-joon earlier in January 2024.

Kakao has been the largest shareholder of SM Entertainment since its acquisition of the company in 2023. Some even speculated that the audit could be the first step towards a potential resale of the entertainment agency.

“In the investigation conducted by an independent law firm, investigators looked into investment proposals made by SM Entertainment without prior consultation with Kakao to determine whether the activities were legitimate,” Kakao said in response to that speculation.

Some employees at the entertainment agency raised questions about the investigation, saying independent management was one of the pledges that Kakao made during the acquisition.