Kakao Faces Internal Troubles Amid Suspicions of Corruption
Kakao, the tech company known for its focus on reform, is once again in the spotlight for internal troubles. Suspicions of corruption in a construction project have surfaced, leading to an internal audit being initiated by the founder’s long-time friend.
Internal Audit Reveals Troubling Findings
Kim Jeong-ho, the General Manager of Management Support for Kakao’s CA Council, has been assigned the core task of internal auditing. This initiative stems from founder Beomsu Kim’s desire to thoroughly investigate the entire company, including top management, and rectify any mistakes boldly. Allegations of corruption in large-scale construction projects, biased compensation, opaque work processes, and questionable corporate expenses have been brought to light.
As the judicial risks increased, founder Kim established a ‘Law Compliance and Trust Committee,’ an independent organization with the power to direct investigations and impose sanctions if compliance obligations are breached. The committee includes external experts, with General Manager Kim serving as the internal bridge between the committee and Kakao.
Revelations of Corruption Suspicions
Three main branches of internal corruption suspicions have been revealed, stemming from issues surrounding golf course memberships, welfare, and large-scale construction projects. Kakao has already taken steps to address some of these concerns, including plans to sell golf course memberships to fund employee welfare initiatives.
Controversy Surrounds Construction Projects
Controversy has also arisen regarding large-scale construction projects such as the ‘Kakao Data Center Ansan,’ ‘Seoul Arena,’ and the ‘Jeju Island Project.’ Suspicions of improper company selection and contractual irregularities have surfaced, leading to further scrutiny of these developments.
CEO Hong Eun-taek has announced the formation of an investigation team to address the doubts raised by General Manager Kim and reassured a thorough and transparent investigation process.
Kakao, which is focused on reform with its founder, is once again suffering internal troubles due to suspicions of corruption in a construction project. The fact that an internal audit had been launched led by the founder’s friend of 30 years also came to light due to the controversy over offensive language. Kakao plans to investigate ongoing reports and transparently disclose the results.
The core task of Kim Jeong-ho, general manager of management support for Kakao CA Council, is internal auditing. It was also a request from the founder Beomsu Kim. Founder Kim is said to have said that he would like to properly investigate the entire Kakao company, including the C-level (top managers in all fields), in terms of personnel and inspection, and boldly correct any mistakes. Founder Kim reported endless corruption in large-scale construction projects such as △ biased compensation towards managers or close associates, △ opaque work processes, △ problems with leisure and childcare facilities, △ golf course membership, △ corporate card and collaboration fees external, and △ IDC and performance halls He also noted problems. After several rejections, General Manager Kim landed the position of Managing Manager of Kakao last September.
As judicial risk grew larger, founder Kim set up the ‘Law Compliance and Trust Committee (hereinafter referred to as the quasi-committee)’, Kakao’s own ‘judicial body’, as an external independent organization. It includes external experts in various fields. Only General Manager Kim joined as an internal member of the committee. As an internal committee member, he served as a bridge between Kakao and the semi-organizational committee. The quasi-committee is not just an advisory body. It also has strong sanctions, including the right to direct investigations. Specifically, if a risk of breach of compliance obligations is confirmed, the company has the right to impose effective and direct sanctions, such as the right to request an internal investigation of the related company, the right to conduct a direct investigation by the committee, and’ r the right to request an emergency suspension from the key decision making organisation. There is a high possibility that the issue being reviewed by General Manager Kim will become a semi-committee agenda at any time.
There are three main branches to the revelation of internal corruption suspicions sparked by the swearing-in controversy of General Manager Kim. These are △membership of golf courses, △welfare issues, and △suspicion of corruption in large-scale construction projects. Kakao announced that it has already begun the process of selling golf course memberships, and plans to use the proceeds to increase employee welfare, including expanding recreational facilities. The problem is suspected corruption in large-scale construction projects. ‘Kakao Data Center Ansan’, ‘Seoul Arena’, and ‘Jeju Island Project’ are notable.
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According to a post posted by Manager Kim on Facebook, when Manager Kim suggested that the Kakao AI Campus construction team should be part of the ‘Jeju Island project’, an executive swore him off saying that a company had already been selected. He explained that it was a mistake in the process of criticizing the fact that the choice of a company for a construction project worth 80 billion won was made without the approval or agreement of the executive committee in charge. On the other hand, Vice President Oh Ji-hoon and 11 employees of the Asset Development Office, which oversees Kakao’s real estate development, denied that they had received approval from Bae Jae-hyun, head of investment, and others involved in ‘the Jeju island Project’. The project was due to start in January next year.
‘Kakao Data Center Ansan’ and ‘Seoul Arena’ have already been completed or construction has begun. Coincidentally, both sites were built by the Hanwha Construction Department. The total construction cost of ‘Kakao Data Center Ansan’ is KRW 424.9 billion, and the amount corresponding to the architecture/civil engineering contract with Hanwha is about KRW 143.6 billion. The construction cost of ‘Seoul Arena’ has won 300.8 billion. The construction cost of Hanwha Construction Company is 444.4 billion won. The company announced that the construction company for ‘Kakao Data Center Ansan’ has been selected through a public bidding process where a total of three construction companies participated.
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However, in the case of ‘Seoul Arena’, it was found that Kakao requested a private contract from Hanwha Construction Division. In 2019, the city of Seoul designated a company invested by Kakao as the project’s operator, but the start of construction was delayed when Daewoo Engineering & Construction, the current construction company, abandoned the project. At the time, Kakao was in a situation where it had to quickly select a construction company and submit a construction plan in order to maintain the license. Hanwha was said to have asked for a negotiated deal as the timing was tight. In April this year, Kakao asked the Seoul Metropolitan Government to extend the deadline for approving the project’s implementation plan by another year, but the city only received 6 months as the project was delayed and required for the action plan to be presented by October.
General Manager Kim is said to be currently working on confirming reports as they continue to come in. CEO Hong Eun-taek said, “We have formed an investigation team focusing on the Community Compliance Management Office and a law firm to begin an investigation regarding the construction process of Ansan Data Center, Seoul Arena, and Jeju ESG Center, as well as other doubts raised by Brandon (Kim’s General Manager).” “We will conduct a thorough investigation and share the results transparently,” he said.
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