The arrest of South Korea’s leading tech entrepreneur has plunged one of the country’s most high-profile companies into turmoil, in a case that is also likely to have ramifications for the banking sector and artificial intelligence ambitions.
Kim Beom-su, founder of tech group Kakao and once South Korea’s richest person, was arrested last month on stock manipulation charges relating to a takeover battle for one of the country’s top K-pop labels.
Kakao took over K-pop powerhouse SM Entertainment last year following a dramatic bidding contest with Hybe, the agency behind K-pop group BTS. But prosecutors accuse Kim and other Kakao executives of buying Won240bn ($174mn) of SM shares to undermine Hybe’s tender offer.
Kakao’s businesses range from South Korea’s dominant messenger app to entertainment companies, fintech and a nascent AI affiliate. If convicted, Kim will be forced to relinquish control of the country’s biggest internet bank.
The crisis at Kakao has revived wider concerns about a dysfunctional relationship between business, politics and law enforcement that has often led to South Korea’s leading corporate figures ending up in jail.
“Kim’s rags-to-riches story made him the face of South Korea’s new digital economy,” said Park Sangin, professor of economics at Seoul National University. “But in the end, his company ended up perpetuating the same old problematic business practices as came before.”
As a self-made man who made his fortune building digital platforms, Kim — also known as Brian Kim — stands out in an economy dominated by second- and third-generation heirs to sprawling industrial groups.
The son of a pen factory worker and a hotel maid grew up in poverty in a deprived area of Seoul before winning a place to study engineering at one of South Korea’s most prestigious universities.
In 2010, he founded Kakao Talk, a messenger app now used by more than 90 per cent of South Koreans. That paved the way for expansion into mobile gaming, ride-hailing, online payments and banking.
Those who worked closely with Kim stressed his determination to run Kakao differently to the authoritarian, top-down management style traditionally preferred by South Korea’s leading conglomerates.
Described by associates as humble and self-effacing, he encouraged employees to launch their own start-ups under the Kakao umbrella, giving them a high degree of autonomy and the opportunity to cash in through local initial public offerings while retaining their status as Kakao affiliates.
“In Kakao, if an employee comes up with a great idea, it becomes a business in its own right,” said one longtime confidant. “Unlike conglomerate tycoons, who are usually the main talkers at company meetings, Brian mostly listens to what his employees have to say.”
But allies and critics alike agree that Kakao’s horizontal structure and the “start-ups within a start-up” model Kim encouraged ended up spiralling out of control, as key lieutenants with little high-level management experience cashed in through hurried public listings, while the group expanded to 124 affiliates.
“Brian never gets angry at anyone. He has given autonomy and freedom to his lieutenants but, because he lacks charisma and strong leadership, this ended up as a battle among executives to make money for themselves,” said Park Yong-hu, an informal adviser to the company.
Kakao’s ubiquity in daily life in South Korea also contributed to a rising tide of public hostility towards the tech group. Grievances ranged from the accusation that its digital platforms exploit small business owners to resentment about ordinary Koreans’ over-dependence on its online services. Local retail investors grew angry about chief executives of Kakao affiliates cashing in stock options soon after public listings, driving down valuations.
Those frustrations came to a head in 2022, when a fire at a data centre led to what was described in the local media as a “digital blackout” for several 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 identified because of possible political repercussions, argued that the entrepreneur’s subsequent prosecution was “clearly politically motivated”, noting that conservative politicians had long regarded the tech group as aligned with the political left.
“Kakao has been in the government’s crosshairs ever since Yoon took office [in 2022],” Kim’s ally said. “The group appears to be on the brink of being disbanded because of political ire.” Yoon’s office did not respond to multiple requests for comment.
Kim has denied the charges against him, but Seoul National University’s Park said the wider issue was that “stock manipulation and insider trading are widespread in South Korea’s financial sector because they are not properly regulated”.
“The difference with Kakao seems to be that they did not have the skill adequately to navigate the law and Korean politics,” he added.
In a statement, the tech group said it was “now intending to shift from its previous expansion-centric management strategy” and “improve its group governance structure to focus more on core businesses”.
It is unclear who will acquire Kakao Bank if Kim is forced to divest his stake due to a law barring those convicted of financial crimes from controlling more than 10 per cent of a South Korean bank.
But Wi Jong-hyun, professor of business at Chung-Ang University, said it would mean Kakao would “lose one of its key business pillars” as the group was seeking to move towards offering AI-powered digital services.
Wi noted that Kakao and rival South Korean tech group Naver were struggling to fight off competition from US giants encroaching into the country’s market. Shares in both companies have fallen by about a quarter over the past year.
“We need more ‘Made in Korea’ Davids who can fight foreign Goliaths,” said informal adviser Park. “But at a time when companies like Kakao with a lot of data need to focus on AI service development, its executives are instead focused on legal wrangling.”
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