Kakao founder's inner circle is source of company trouble, employees say

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Kakao founder's inner circle is source of company trouble, employees say

Published: 11 Dec. 2023, 19:00 Updated: 11 Dec. 2023, 19:45

KIM JU-YEON
kim.juyeon2@joongang.co.kr

Kakao founder Kim Beom-su vowed to overhaul the company's management strategies, governance and corporate culture in a meeting of executives and staff on Monday. [KAKAO]

Kakao founder Kim Beom-su’s tight-knit circle of aides is the underlying cause of the tech company’s regulatory risks, as they overlook and forgive each other’s problems and spur office politics that rely on personal connections to Kim, according to critics.

Kim promised a complete overhaul of the Kakao's management on Monday, saying the company will focus on becoming a socially responsible firm by making internal changes to its strategies, governance, leadership and company culture.

“We will reset the [current] expansion-oriented management strategy and focus on our technology and key businesses,” said Kim through a company notice and in-person at a meeting on Monday, adding that he could go as far to “change the name of the Kakao corporation” in order to create a new Kakao.

The founder’s statement comes amid heated scrutiny of Kakao’s management following a series of blunders from the tech company’s top executives.

Many of the top positions in Kakao’s head office and affiliates are filled with people with backgrounds similar to those of Kakao founder and previous chairman Kim. They include alumni of Seoul National University (SNU) Department of Industrial Engineering and former employees of Samsung SDS, Hangame and Naver.

Kim, a graduate of SNU, began his research career at Samsung SDS, cofounded the online game portal company Hangame, and merged Hangame with Naver, Korea’s largest search engine operator, in 2000.

Kim, along with other top executives, had been at the center of Kakao’s recent troubles including allegations of stock manipulation during the company's takeover of K-pop agency SM Entertainment.

Kakao has thus been looking to improve its management following the recent debacles. The company launched an internal management reform committee and established the compliance and credibility committee, an independent external monitoring body. Kim heads the internal management reform committee, while former Supreme Court Justice Kim So-young leads the compliance arm.

But yet again, the troubleshooter brought in to resolve the problem of mismanagement has been an acquaintance of Kim’s for 30 years. Kim Jeong-ho, a member of the Kakao Corporate Alignment Council, became the center of additional controversy after he criticized company’s internal conflicts and opaque decision-making system concerning the company’s real estate projects in a social media outburst. He's also alleged to have used profanity in a company meeting.

“We said numerous times that the fundamental cause of the crisis was ‘Founder Kim Beom-su and his friends,’ and yet the solution presented [by the company] was the founder’s acquaintance of 30 years,” said a worker at Crew Union, Kakao’s labor union.

What exactly has Kakao’s board of directors been doing, until now, for the situation to reach this point? The corporation’s board of directors are supposed to “supervise the director’s performance” in line with Article 393 of the Commercial Act. This means their role is to monitor the company’s major management issues and keep in check any dogmatic decisions made by management, including those by a founder or chief executive officer (CEO). The majority of Kakao’s board members, including the chairman of its board, are outsiders.

Major decisions voted on by Kakao board of directors [LEE JEONG-MIN]

But all of the agenda items discussed by the board of directors over five years — a total of 237 topics over 77 board meetings — were unanimously passed, according to the JoongAng Ilbo’s analysis of five years’ worth of Kakao’s business reports. Those include the company's bid to take over SM Entertainment.

Similar situations played out for key subsidiaries Kakao Pay and Kakao Mobility. A total of 87 agenda items were discussed over 33 of Kakao Pay's board meetings between 2021 and the first half of 2023. Not a single dissenting vote was cast. The board of Kakao Mobility, which started showing its business reports to the public in 2022, discussed 65 items over 21 board meetings. Once again, the votes were unanimous.

“Directors who do not have special connections to Kakao and are considered to be ‘people who can properly say the truth’ must be part of the board for the board of directors to gain independence,” said Cho Myung-hyun, a business professor at Korea University.

Meanwhile, some employees who joined Kakao after it became a large corporation say the “Kakao exclusive” decision-making system contributed to enlarging the management problems.

“The company’s ‘overly democratized’ structure in its startup days was still idolized, even as the company became a large corporation,” said a Kakao employee of three years who requested anonymity.

The ambiguous decision-making resulted in former CEO Rim Ji-hoon filing a performance-based lawsuit against founder Kim Beom-su.

A source well versed in Kakao’s inner workings related to its public takeover of SM Entertainment said that “the [Financial Supervisory Service] took issue with the fact that an important decision was made by an ‘unofficial organization’ within Kakao,” adding that “Kakao’s [current] task is to properly overhaul its decision-making governance.”

BY PARK MIN-JE, KIM IN-KYOUNG, KIM NAM-YOUNG, KIM JU-YEON [kim.juyeon2@joongang.co.kr]