The arrest of South Korea’s main tech entrepreneur has plunged one of many nation’s most high-profile corporations into turmoil, in a case that can also be more likely to have ramifications for the banking sector and synthetic intelligence ambitions.
Kim Beom-su, founding father of tech group Kakao and as soon as South Korea’s richest particular person, was arrested final month on stock manipulation charges regarding a takeover battle for one of many nation’s high Okay-pop labels.
Kakao took over Okay-pop powerhouse SM Leisure final 12 months following a dramatic bidding contest with Hybe, the company behind Okay-pop group BTS. However prosecutors accuse Kim and different Kakao executives of shopping for Won240bn ($174mn) of SM shares to undermine Hybe’s tender provide.
Kakao’s companies vary from South Korea’s dominant messenger app to leisure corporations, fintech and a nascent AI affiliate. If convicted, Kim shall be compelled to relinquish management of the nation’s largest web financial institution.
The disaster at Kakao has revived wider considerations a few dysfunctional relationship between enterprise, politics and regulation enforcement that has usually led to South Korea’s main company figures ending up in jail.
“Kim’s rags-to-riches story made him the face of South Korea’s new digital financial system,” mentioned Park Sangin, professor of economics at Seoul Nationwide College. “However ultimately, his firm ended up perpetuating the identical outdated problematic enterprise practices as got here earlier than.”
As a self-made man who made his fortune constructing digital platforms, Kim — also called Brian Kim — stands out in an financial system dominated by second- and third-generation heirs to sprawling industrial teams.
The son of a pen manufacturing facility employee and a resort maid grew up in poverty in a disadvantaged space of Seoul earlier than profitable a spot to check engineering at one in every of South Korea’s most prestigious universities.
In 2010, he based Kakao Discuss, a messenger app now utilized by greater than 90 per cent of South Koreans. That paved the way in which for growth into cell gaming, ride-hailing, on-line funds and banking.
Those that labored carefully with Kim harassed his willpower to run Kakao in another way to the authoritarian, top-down administration model historically most well-liked by South Korea’s main conglomerates.
Described by associates as humble and self-effacing, he inspired staff to launch their very own start-ups beneath the Kakao umbrella, giving them a excessive diploma of autonomy and the chance to money in via native preliminary public choices whereas retaining their standing as Kakao associates.
“In Kakao, if an worker comes up with an incredible concept, it turns into a enterprise in its personal proper,” mentioned one longtime confidant. “Not like conglomerate tycoons, who’re often the primary talkers at firm conferences, Brian largely listens to what his staff must say.”
However allies and critics alike agree that Kakao’s horizontal construction and the “start-ups inside a start-up” mannequin Kim inspired ended up spiralling uncontrolled, as key lieutenants with little high-level administration expertise cashed in via hurried public listings, whereas the group expanded to 124 associates.
“Brian by no means will get offended at anybody. He has given autonomy and freedom to his lieutenants however, as a result of he lacks charisma and robust management, this ended up as a battle amongst executives to generate profits for themselves,” mentioned Park Yong-hu, an off-the-cuff adviser to the corporate.
Kakao’s ubiquity in day by day life in South Korea additionally contributed to a rising tide of public hostility in direction of the tech group. Grievances ranged from the accusation that its digital platforms exploit small enterprise homeowners to resentment about peculiar Koreans’ over-dependence on its on-line companies. Native retail traders grew offended about chief executives of Kakao associates cashing in inventory choices quickly after public listings, driving down valuations.
These frustrations got here to a head in 2022, when a fire at a data centre led to what was described within the native media as a “digital blackout” for a number of hours. South Korea’s conservative president Yoon Suk Yeol, a former chief prosecutor, responded to the outage by calling for a probe into Kakao’s alleged monopolistic practices.
A Kim ally, who declined to be recognized due to doable political repercussions, argued that the entrepreneur’s subsequent prosecution was “clearly politically motivated”, noting that conservative politicians had lengthy regarded the tech group as aligned with the political left.
“Kakao has been within the authorities’s crosshairs ever since Yoon took workplace [in 2022],” Kim’s ally mentioned. “The group seems to be getting ready to being disbanded due to political ire.” Yoon’s workplace didn’t reply to a number of requests for remark.
Kim has denied the fees in opposition to him, however Seoul Nationwide College’s Park mentioned the broader challenge was that “inventory manipulation and insider buying and selling are widespread in South Korea’s monetary sector as a result of they don’t seem to be correctly regulated”.
“The distinction with Kakao appears to be that they didn’t have the ability adequately to navigate the regulation and Korean politics,” he added.
In a press release, the tech group mentioned it was “now meaning to shift from its earlier expansion-centric administration technique” and “enhance its group governance construction to focus extra on core companies”.
It’s unclear who will purchase Kakao Financial institution if Kim is compelled to divest his stake on account of a regulation barring these convicted of monetary crimes from controlling greater than 10 per cent of a South Korean financial institution.
However Wi Jong-hyun, professor of enterprise at Chung-Ang College, mentioned it could imply Kakao would “lose one in every of its key enterprise pillars” because the group was searching for to maneuver in direction of providing AI-powered digital companies.
Wi famous that Kakao and rival South Korean tech group Naver had been struggling to struggle off competitors from US giants encroaching into the nation’s market. Shares in each corporations have fallen by a few quarter over the previous 12 months.
“We want extra ‘Made in Korea’ Davids who can struggle overseas Goliaths,” mentioned casual adviser Park. “However at a time when corporations like Kakao with numerous information have to deal with AI service improvement, its executives are as an alternative targeted on authorized wrangling.”
