After stepping down as chair of South Korean Internet giant Kakao nearly two years ago, Kakao founder Kim Beom-su has re-emerged to lead the comprehensive restructuring of the company. "As the founder and majority shareholder, I will return to my original role and take the lead in overcoming the crisis," said Kim.
Kim, who currently serves as the head of the company's Future Initiative Center, recently hosted two emergency meetings with Kakao executives and established an internal management reform committee, as well as a compliance and trust committee that will serve as an external watchdog.
The root cause of Kakao's trouble is that public sentiment towards the company is becoming more negative, said Hong Ki-Hoon, a management professor at Hongik University. Kakao has been facing increasing scrutiny by the government over its apparent monopoly in the platform industry.
"To earn the trust of shareholders, the company needs to boost performance, but as expansion is proving to be a challenge, the company has no choice but to raise profits by cutting costs," said Hong.
Kim Beom-su to lead the restructuring of Kakao
Kim has assumed leadership of the management reform committee, tasked with driving change and innovation throughout Kakao. The Corporate Alignment (CA) Council, launched in 2021, failed to fulfill its role, prompting Kim's return to steer the ship.
Former Supreme Court Justice Kim So-young has been appointed to lead the compliance and trust committee, which is responsible for monitoring the excessive listing of affiliates, antitrust violations, consumer rights, and ensuring compliance with laws and regulations.
Experts believe that Kim's hands-on approach and commitment to implementing change may help steer the company in the right direction. "He's the only person who can fundamentally solve the problems Kakao is facing," said Yoo Byung-jun, a professor of management at Seoul National University.
Kim's mission: Fix Kakao's troubled HR system
Kakao's human resources management has long been criticized for favoring the so-called "Kim Beom-su clique." Hiring and promoting people close to the founder worked when the company was a start-up, but now that the company has grown into an internet conglomerate, experts argue that a more transparent and competitive HR system is required to attract talent who can manage the organization effectively.
"We are well aware that the current management system is no longer sustainable, and we will reassess all of (Kakao's) services and businesses until the company can meet the public's expectations," Kim said ahead of an emergency meeting held earlier on Monday.
Unlike its rival Naver, which has a centralized decision-making structure based in headquarters, Kakao has maintained a culture of granting autonomy to its affiliates and organizations. This distinction has been under scrutiny as Kakao seeks to rectify its management issues.
"It's not Kakao's business expansion but the mismanagement of the organization, along with catering to major shareholders' cronies, that led to the recent crisis," said Kim Kwang-seok, head of economy research at the Institute for Korea Economy& Industry.
"Kakao should withdraw from local businesses"
Experts say Kakao needs to streamline its non-core affiliates by shutting down some of its businesses. The company pledged last year to reduce the number of its affiliates from 153 to 40, but the acquisition of SM Entertainment this year has reversely notched up the number of affiliates to 166.
"Kakao expanded its business like an octopus spreading its arms," said Kim Yeon-hak, a professor at Sogang University's Graduate School of Management of Technology. "A change in strategy, including withdrawal from non-essential industries and a global expansion blueprint, could help restore trust."
Hwang Yong-sik, a professor at the School of Business at Sejong University also suggested that "to survive as a platform company, Kakao should prioritize core businesses such as AI and cloud services."
Despite ongoing restructuring and voluntary retirements within Kakao's affiliates like Kakao Enterprise and Kakao Entertainment, the company's performance remains uncertain. Kakao's operating profit for the third quarter of this year dropped 7 percent compared with the same period last year to 140.3 billion won.
Concerns have been raised about excessive welfare benefits for Kakao employees, totaling 219.7 billion won in expenses last year. While comparable to Naver's expenditure of 245 billion won, Kakao's operating profit is only half that of Naver.
Addressing potential internal challenges stemming from cost-cutting measures, Yoo emphasized the importance of transparent communication and crisis-sharing within the organization.
This article was originally published on Nov. 13, 2023.