[비즈한국] Kakao035720 founder and Chairman of the Management Reform Committee Kim Beom-su was arrested on the 23rd on charges of market manipulation during the acquisition of SM Entertainment. Kakao, which had even established a Management Reform Committee to drive group-wide change and innovation, now faces the crisis of having its head arrested for the first time in history. Kim, who led the first generation of domestic ventures and created the "national messenger" KakaoTalk, built Kakao into a leading platform company, but critics argue that his aggressive expansion strategy has become his poison chalice.
Character
In 2021, when Kakao's stock value soared, Kim, who was serving as chairman at the time, made headlines by gifting approximately 140 billion won worth of stock to his family. In the same year, he surpassed Samsung Electronics005930 Vice Chairman Lee Jae-yong to become the wealthiest person in South Korea, standing as a quintessential self-made entrepreneur. As the protagonist of the IT venture myth and Kakao's largest shareholder, Kim is known to have had a difficult childhood.
Kim was born in 1966 in a farming village in Damyang, South Jeolla Province, as the third of five children and the eldest son. After the family moved to Seoul for the education of the five siblings, eight family members lived together in a single room with their grandmother. Kim, who was the only one in his family to go to college despite their financial constraints, entered Seoul National University in 1986 as an industrial engineering major after a year of studying for re-admission.
Kim joined Samsung Data Systems (now Samsung SDS) in 1992. It was there that he met Naver founder Lee Hae-jin, former NHN Global Game Business Head Kim Jung-ho, and Kakao Games293490 CEO Namkoong Whon. In 1998, he decided to strike out on his own. His first business item was an internet cafe (PC bang) during the height of the StarCraft craze. Kim opened and operated a PC bang called "Mission Number One" in front of Hanyang University. He went beyond manual management, creating a program to manage usage time and fees, which he sold to other PC bang owners. The money earned at this time became the seed capital for Hangame.
Career
Kim's first ICT business was, in many ways, akin to a "gamble." Founded in November 1998, Hangame rode the popularity of PC bangs and thrived. Hangame, which allowed users to play card games like Go-Stop and Poker online, gained sensational popularity. On the other hand, it faced criticism for "gamifying" gambling. He displayed his characteristic boldness, earning him the nickname of a "gambler," by breaking through controversies through measures like the introduction of cyber money.
His meeting with Naver Chairman Lee Hae-jin, a peer from his Samsung days, is considered a masterstroke. Hangame, struggling with high traffic costs, and Navercom (the predecessor to Naver), which was struggling to find a breakthrough in the domestic portal market, merged to create NHN Corporation. Their relationship hit a turning point when Hangame continued to face gambling-related issues and Naver became capable of independent survival through services like "Knowledge iN." Kim left NHN in 2008 and introduced "KakaoTalk" two years later in 2010, opening up the domestic mobile messenger market.
Capability
KakaoTalk was an absolute hit. The number of members surpassed 1 million in just six months and grew even faster, exceeding 10 million in a year. Once again, the issue was the business model. In 2012, after years of deficits, Kim succeeded in raising a total of 92 billion won in funding, including 72 billion won from China's largest game company Tencent and 20 billion won from Wemade112040. That same year, the company succeeded in turning a profit of 7 billion won, and by 2013, it had increased its profits to the tens of billions of won.
Ten years ago, in 2014, Kakao announced its merger with Daum Communications and launched the merged entity, Daum Kakao, in October of that year. Its assets, which stood at 217.2 billion won, increased exponentially after the merger with Daum. Kakao Group continued its growth based on its messenger business. Kim pursued aggressive mergers and acquisitions (M&A) and initial public offerings (IPO) based on autonomous management. The number of Kakao affiliates, which was 63 in 2017, more than doubled to 147 by April of last year. This is the second-highest number in the business world, following the SK Group (198 affiliates).
Critical
Due to entering too many businesses in a short period relative to its vastly expanded size, Kakao soon suffered from side effects. Controversies over octopus-like expansion and monopoly practices hit the company all at once. This is the background behind criticisms that the company was only focusing on increasing its size while neglecting qualitative growth. Controversies erupted in succession, including Kakao Mobility's taxi-hailing monopoly, allegations of revenue inflation, encroachment on local commercial districts by affiliates using their platform status, and allegations of service theft and plagiarism.
In November 2021, the so-called "eat-and-run" incident, where Kakao Pay377300 executives, including then-CEO Ryu Young-jin, cashed out 88 billion won in stock options after the company's listing, brought the ethics of the management under fire. Investigations are also underway regarding allegations of breach of trust by executives related to the blockchain platform Klaytn.
Faced with constant criticism from the political sphere and falling stock prices, Kakao entered emergency management last October. Early this year, it launched the CA Council to serve as the control tower for group reform. Chairman Kim personally began reform management, including improving the group's corporate constitution and restructuring affiliates. However, with Chairman Kim's arrest in the early hours of the 23rd, this process hit a major roadblock.
Challenges
The court issued an arrest warrant for Chairman Kim regarding charges of violating the Capital Markets Act through SM Entertainment stock manipulation, citing concerns over the destruction of evidence and, exceptionally for the head of a major conglomerate, a flight risk. On the morning of the 24th, Chairman Kim responded to the prosecution's summons and underwent his first round of questioning. According to Kakao, Chairman Kim stated at a temporary group council meeting on the 18th, where CEOs of major affiliates belonging to the CA Council were present, regarding the prosecution's arrest warrant request: "As this is an ongoing matter, I cannot explain in detail, but the charges I am currently facing are not true. As I have never directed or condoned any illegal acts, I believe the truth will eventually be revealed."
With Chairman Kim's arrest and absence, the entire Kakao Group is facing a crisis. Kakao plans to continue group management without disruption, centering on Kakao CEO Chung Shin-a, who leads the CA Council alongside Chairman Kim. However, it is expected that management reform efforts will lose momentum, and difficulties are anticipated in business reorganization, such as the sale of non-core affiliates, and the promotion of new businesses requiring large-scale investment, such as artificial intelligence (AI).
If Chairman Kim is sentenced to a fine or higher, the Kakao corporation could also face a fine or higher sentence under the punishment provisions of the Capital Markets Act. The possibility of the controversy spreading to Kakao Bank's eligibility as a major shareholder cannot be overlooked. There are also predictions that other investigations related to Kakao will gain momentum. Attention is focused on how major issues tied to judicial risks, such as the Kakao Mobility call-monopolizing incident or the Klaytn embezzlement incident, will unfold in the future.