“The KakaoPay incident must be resolved by abruptly and early. The method should be the resignation of CEO Young-Jun Ryu and a public apology from the executives. Only then can we avoid controversy over the Kakao Group and Chairman Kim Beom-su.”
Jung-hyeon Wi, a professor of business administration at Chung-Ang University, posted this on Facebook on December 31, last year. This is a solution to the controversy over the stock option sale of eight Kakao Pay executives, including Kakao Pay CEO Ryu Young-joon, who was appointed as the next co-representative of the parent company, Kakao. Previously, on December 10, more than a month after the company was listed (November 3), CEO Ryu sold 230,000 shares (32%) of the 712,030 stock options granted to him, earning a profit of 45.7 billion won. Seven other executives, including Shin Won-ho, who was appointed as chief executive officer of corporate strategy, also exercised stock options by 10-40% each, earning between 1 billion won and 15 billion won. It is not illegal for the CEO and executives to collectively sell their stock in large quantities, but it is very unusual. The share price of Kakao Pay, which was around 200,000 won, plummeted 30% in just one month, to the 140,000 won level. This is because the sale of stocks by executives who know the insiders best gives the impression that the market is peaking and adversely affects investor sentiment. Institutions that believed in the future growth potential of Kakao Pay, which are currently in the red, and ‘ant’ (general small investors) also suffered large losses. The public opinion of InkakaoPay employees who were tied to the restriction (protective Jesus) that they could not sell for a year even though they received our orders also worsened.
However, there was no movement from the Kakao side other than an apology from the representative at the employee meeting (on the 4th). This exploded the anger of the ants, who had accumulated complaints from the listing of subsidiaries of companies, who suffered only losses all the time. As the controversy spread, it was only on the 10th that CEO Ryu announced his voluntary resignation as co-CEO of Kakao.
Professor Wi again posted on Facebook on the same day, “As the scandal spread, I felt like resigning reluctantly.
Professor Wi, who met with the Hankook Ilbo on the 12th, said, “Now, to resolve the situation, Shin Won-geun, the next nominee for Kakao Pay, will also resign, and the remaining 7 executives must either resign or choose one of the two options after dismissal. “, he emphasized. Professor Wei, who is a standing director of the Korean Society for Strategic Management (April 2004 – present) and was in charge of technical evaluation (May 2006 – March 2013) of the KOSDAQ listing on the Korea Stock Exchange We looked at the issue of the underlying subsidiary listing.
“Self-management and listing of subsidiaries, which are growth engines, hold back”
-What was the cause of the Kakao Pay ‘eat-out’ incident?
“First of all, Chairman Kim Bum-soo’s management style, which delegates autonomy and decision-making power to subordinates, is a double-edged sword. The leader trusts and rewards him, so it acts as a powerful tool to motivate employees to work hard with all their might. As Chairman Kim’s leadership, who sets the frame for free business, certain companies (subsidiaries, affiliates) do not run wild or fundamentally deviate from the track, but when something crosses the line, he has no choice but to leave it alone. You can’t suddenly intervene just because there is a controversy over ‘eat-and-ditch’.
Also, there is a rush to list subsidiaries. Kakao Bank, which went public in August of last year, surpassed KB Financial Group (the financial leader). As he climbed to the top of the industry at once, executives were rewarded with great rewards that changed their lives. This stimulated other affiliates, and unreasonable competition began. Even if Ryu Young-joon, CEO of Kakao Pay, was rewarded with tens of billions of won, his life changed.
As Chairman Kim’s management style and the listing of subsidiaries were intertwined, the subsidiaries jumped to each floor, and now it is a situation that cannot be controlled. Delegating to subordinates and bringing out spontaneity works very well when rapidly growing, and a ‘moral hazard’ has arisen.”
– Wasn’t the rapid expansion of affiliates to 128 (as of August 2021) also affected?
“Yes. Unlike other founders, Chairman Kim is very socially conscious. I have long memories of saying, ‘Companies can be a tool to change the world.’ ) and rapidly growing, this philosophy of Chairman Kim with good intentions is not shared. It means that the founder’s values, philosophy, and intentions cannot be accurately understood or understood by not infiltrating the culture of Kakao. If we leave a heterogeneous corporate culture through autonomous management, the subsidiary moves to break the social value of the founder even though the founder did not want it, and it becomes a significant risk. The burden and risk of managing all affiliates has become too great.”
“The next president and executives should all resign… A public apology is essential”
– How to deal with the Kakao Pay ‘eatout’ situation?
“The current situation is that the timing to put out the fire is missed, and explosives are spreading throughout the Kakao Group. The remaining executives (who sold the stock option) must either resign or dismiss their positions and serve as a white coat. This means that if they leave the company or remain with the company, they must remain as regular employees. In addition, they must apologize to the public, admitting that they made a mistake. This is because Kakao, which was respected for allowing us to use KakaoTalk, which we use in our daily life, for free, now gives the perception that it is just like any other company whose purpose is the pursuit of profit (money), so that its image as a ‘national company’ has been damaged. It was also in vain that he attended the state audit three times in October of last year and apologized, saying, ‘I will go back to my original intentions and do well.”
Kakao released a workaround on the 13th. Executives from all affiliates are not allowed to sell stocks (including stock options exercised) for one year after listing, and the CEO has made the sale limit more stringent to two years. When an executive sells stock, the Kakao Community Alignment Center (CAC·), a crisis management agency that coordinates and supports the strategic direction of all affiliates, and the management company are required to share the quantity and period one month in advance.
-The Kakao side, which has been working to resolve the situation, does not even explain the specific circumstances of the scavenger hunt that ants are most curious about.
“The fact that 8 executives including the CEO sold the sale at the same time was practically ‘operation’. A fire spreads to the chairman, because if it is reported, such a serious breach of trust and immoral conduct (as a businessperson) has been approved, and if it is not reported in advance, it means that such a serious matter has not been managed and neglected. Everyone (Chairman Kim) has no way out.”
Ants ‘dissatisfied’ with the listing of subsidiaries, exploded with ‘cafe’ eating
As pointed out by Professor above, the reason for the spread of controversy is the issue of listing of subsidiaries. The listing of a subsidiary entails a decrease in the value (share price) of the existing parent company without its core business, leading to damage to minority shareholders. This is not just a problem with Kakao. The number of cases in which companies separate their core businesses (physical spin-off) to create subsidiaries and list them continues. SK chemicals was listed after establishing SK Bioscience through a physical spin-off of the vaccine business division, and LG Energy, a subsidiary of LG Chem, established through a physical spin-off of the battery business, also went public at the end of this month through general subscription (18-19). ahead
The Kakao Group had frequent listings of its subsidiaries. Recently, several subsidiaries including Kakao Games (September 2020), Kakao Bank (August 2021), and Kakao Pay (November 2021) were listed. In the first half of this year too, Kakao Entertainment and Kakao Mobility promoted IPOs in the second half of this year, but Kakao announced a policy of “reviewing from the beginning” in a setback plan announced on the 13th.
Politicians and authorities are discussing ways to protect shareholders, such as granting preferential subscription rights to shareholders of the parent company, as the issue of division of subsidiaries and listings grows.
-How should we view the subsequent listing of subsidiaries?
“If a subsidiary receives a lot of external investment, interests are intertwined. It is necessary to compensate investors who have to recover profits to a certain extent, even if it is not a jackpot, but there is currently no way other than an IPO. In particular, Kakao Mobility pushed for a carpooling business, but faced strong resistance and friction from existing industries such as the taxi industry, and expanded to beauty salons, flower delivery, etc. It can be controversial.”
-Why is listing a subsidiary such a problem these days?
“If the (subsidiary) size is small, there is no problem, but the corporate value is too large. It is a future industry with growth potential, so there is no benefit at all for existing shareholders as the parent company becomes a ‘steamed bun’. LG Energy Solutions, which is valued at over 100 trillion won, is a really big issue.”
“If a listed shareholder of a subsidiary suffers damage, it should be compensated through a class action”
-Is the simultaneous listing of a parent company and a subsidiary common in other countries?
“No. In the United States, it is common not to list subsidiaries separately even after a physical spin-off. Alphabet has about 100 promising subsidiaries such as Google and YouTube, but Alphabet is the only listed company. There has never been a case in which this investor has had such a big problem because of a class action (which has to compensate the entire investor if the investor files a lawsuit and wins).”
This contrasts with the reality that in Korea, physical division and listing of subsidiaries do not fall under the scope of securities-related class action lawsuits, so even if damages occur to minority shareholders, it is impossible to file a lawsuit, and there is no way to receive compensation for damages. When asked why this is, Professor Wi said, “Korea is a company-centered society, not consumer-oriented,” and answered, “The stock market is centered on foreigners and institutional investors, not general investors, so the rights and interests of ‘ant’ are not protected.” I’m back.
– Please explain in detail
“Companies are different from American companies, where the concept of shareholder ownership is entrenched. In the United States, shareholders are perceived as appointing and hiring the CEO, but in Korea, shareholders do not think that they are the owners, but merely make a profit and leave. For example, if you look at the general meeting of shareholders, you can see that Warren Buffett, the “god of investment”, the CEO of Berkshire Hathaway, gathers tens of thousands of shareholders and holds a meeting for two days and one night, explaining in detail to shareholders’ questions. Security guards wait to silence shareholders who do it, and sometimes it’s over in 10 minutes. It’s unimaginable in the United States.”
-Then, what alternatives are needed to protect shareholders’ rights and interests in case of stock option controversy or listing of subsidiaries?
“We have no choice but to do this by law. First, there is a plan to protect stock options from being sold for a certain period after listing. The issue will be how long the stocks will be banned from selling, but such a discussion itself is a sad story. The most realistic alternative for the division and listing of subsidiaries is to create a class action system to compensate shareholders who have suffered losses.”
Park Min-sik reporter [email protected]
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