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Kakao Corp to Overhaul SM Entertainment Leadership Amid Governance Concerns

Decision follows revelations of opaque investments and misconduct by current SM executives, impacting the K-pop label's integrity
k 035720.KO s 041510.KQ Blue Chip 150 K-Pop Entertainment 100 Mid and Small Cap 2000
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Kakao Corp, the South Korean mobile giant, is poised to make significant leadership changes at SM Entertainment Co., following revelations of poor corporate governance. This move comes nearly 10 months after Kakao acquired a substantial 39.87% stake in the K-pop pioneer for about $1 billion, surpassing BTS label HYBE Co.

Reports indicate that Kakao plans to dismiss several top executives at SM, including CEO Jang Cheol-hyuk, CAO Lee Sung-soo, CCO Park Jun-young, and COO Tak Young-jun. This decision is driven by concerns over questionable investments and acquisitions made by these executives, which could potentially harm Kakao’s consolidated earnings and lead to legal consequences for Kakao’s management.

These SM executives, who were instrumental in ousting the company’s founder under the guise of improving corporate governance, have been implicated in opaque transactions. Notably, the acquisition of companies like 10x Entertainment and The HUB, which have close ties to SM’s current management, raised suspicions of financial impropriety.

Kakao has initiated a thorough inspection of SM’s financial statements and executive activities through Kim & Chang, a top South Korean law firm. The audit uncovered various issues, including concerns over the executives’ decision-making processes and their impact on the company’s reputation and workforce stability. Reports suggest a lack of due diligence and consultation with Kakao in these dealings, leading to inflated spending and controversial investments.

The situation has also cast a shadow over shareholder activism in South Korea, which is still in its nascent stages. The current SM executives, along with Align Partners Capital Management, had previously pledged to enhance the company’s governance. However, their actions have reportedly led to significant staff departures and artist exits, including members of the iconic boy band Super Junior.

This leadership overhaul at SM Entertainment reflects a critical juncture for Kakao Corp in managing its investments and maintaining the integrity of its subsidiaries. The situation underscores the complexities and challenges of corporate governance in the dynamic entertainment industry, particularly in the burgeoning K-pop sector.

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