Kakao in emergency mode under regulatory, antitrust probes

Kim Beom-soo, founder and chairman of South Korea’s largest mobile platform Kakao Corp., convened an emergency meeting with some 20 chief executives of its subsidiaries early Monday morning.

It was its second emergency gathering with the executives after the Oct. 30 meeting as the country’s top regulators and antitrust body have been stepping up their probes into Kakao over alleged violations of the Capital Markets Act and unfair business practices.

The Monday meeting was held just a few days after Kakao announced it would establish a Compliance and Trust Committee, an independent body to monitor compliance and management ethics of the companies under Kakao Corp.

The compliance body will be authorized to supervise and actively investigate any violations of obligations at Kakao units, while guiding them to make more social contributions.

IMMORAL BEHAVIOR

On Nov. 3, it appointed former Supreme Court Justice Kim So-young as chair of the compliance committee.
 
The appointment was announced two days after President Yoon Suk Yeol criticized the business practices of Kakao Mobility Co., the country's dominant taxi-hailing app, as “immoral behavior,” in a town hall meeting with small business owners in Seoul.

Yoon, a former public prosecutor general, said the government must impose sanctions on any unethical business practices, referring to Kakao Mobility’s commission charging system.

In an immediate response, Kakao's Kim told employees that he, as the top shareholder of Kakao, would be the first to respect the decision of the Compliance and Trust Committee and would hold the subsidiaries accountable for failing to follow the committee’s requests or decisions.
 

TOUGH TIMES

Kakao is undergoing the most difficult time in its 13-year history.

Since its establishment in 2010, Kakao has grown exponentially thanks to the rapid penetration of smartphones. Its businesses sprawl from mobile messaging to taxi-hailing, mobile banking, entertainment, games and healthcare. It has 146 subsidiaries, including 10 listed ones, as of the end of June.

They have leveraged the dominance of the messaging app KakaoTalk, which claims 90% of South Koreans as its users.

However, it has been criticized for poor corporate governance given its market position.

At Monday’s meeting, Kakao’s chief executives may have discussed reform measures for Kakao Mobility.

KAKAO ENTERTAINMENT

Kakao Entertainment was at the center of the government’s investigations across the mobile behemoth.

On Oct. 26, Bae Jae-hyun, chief investment officer of Kakao Corp. and its two unidentified senior investment managers were arrested for investigations in relation to the process of it buying a majority stake in K-pop pioneer SM Entertainment Co. in February this year.

The regulatory Financial Supervisory Service (FSS) has forwarded them to the public prosecutors’ office for further questioning.

The three senior managers were alleged to have joined hands with Singapore-based private equity house, One Asia Investment Partners, to push SM’s share price above the tender offer price proposed by HYBE Co., the company behind the boy band BTS.

Accordingly, HYBE failed to take control of SM.

ANTITRUST BODY'S PROBE

The FSS is also considering reporting Kakao Chairman Kim and its Chief Executive Hong Euntaek to prosecutors in relation to alleged stock price manipulation for the purchase of SM.

Meanwhile, the Korea Fair Trade Commission (KFTC) has launched an investigation into Kakao Mobility's commission charging system.

Making things worse, the antitrust agency's probe could pose an obstacle to the tie-up between Kakao Entertainment and SM Entertainment. The KFTC is reviewing the merger between Kakao and SM.

Write to Ju-Hyun Lee at 2juhyun@hankyung.com
 

Yeonhee Kim edited this article.