New Kakao CEO faces daunting tasks

Company has long way to go to restore public trust and investor confidence

By Baek Byung-yeul

NamKoong Whon, Kakao’s new CEO. Courtesy of Kakao

Namkoong Whon, the newly appointed chief executive of Kakao, faces a range of daunting tasks to restore the trust of its customers and shareholders, as the operator of the nation’s top mobile messenger has been grappling with the alleged abuse of its market dominance and falling stock prices after the exercise of stock options by top company managers, according to market analysts, Friday.

Although Kakao appointed a new CEO, it remains to be seen whether the company will restore the trust it has lost as a result of having continued to break its promises to shareholders and customers, despite repeated criticism, according to analysts.

“Kakao appointed Namkoong to a new chief position because there is no one else to take the job,” an IT industry official said. “There is no guarantee that Kakao will be able to resolve various criticism with this appointment, including the moral hazard resulting from the acts of the top management.”

On Thursday, Kakao announced it had appointed Namkoong, the chief of the company’s Future Initiative Center, as its new CEO. Namkoong is a member of local game company Hangame, now NHN Entertainment, and is known as a key aide to Kakao founder Kim Beom-su. He joined Kakao in 2015.

He will be eligible to work as a CEO after he gets approved in a shareholders’ meeting scheduled in March.

The appointment is interpreted as the founder’s mission to boost Kakao’s credibility, which has fallen after it was found to have abused its dominant market position to encroach upon the territories of small businesses, and the falling stock price of its subsidiary after key management officials sold a large number of shares.

“The newly appointed CEO expressed that he will strengthen governance of the company. It is because the public wants a higher level of ESG management at Kakao, due to the recent stock option exercise and the issue of invading the territory of small business owners,” a Kakao official said.

In a statement, Namkoong said, “We will devote ourselves to ESG management with a great responsibility to meet the role society expects from Kakao and restore trust.”

Kakao has been led by co-CEOs Jo Su-yong and Yeo Min-soo, but recently appointed Ryu Young-joon, CEO of Kakao’s mobile payment arm Kakao Pay, as co-CEO, after Jo had expressed his intention not to serve another term.

However, Kakao scrapped the plan, as Ryu has faced criticism that he and other management of Kakao Pay sold 87.8 billion won ($73.5 million) worth of the company’s shares by exercising their stock options in December, a month after the mobile payment service provider was listed on the stock market.

After their stock sales, the share price of Kakao Pay, which once exceeded 240,000 won per share, fell to around 120,000 won. In the face of criticism that the hasty stock sale had caused significant damage to shareholders, Ryu resigned from the CEO position of Kakao Pay. Incumbent co-CEO Yeo Min-soo also resigned from Kakao’s CEO seat.

Suspicions have additionally been raised that the appointment came a day after criticism of Kakao from politicians intensified.

A day before the appointment, Lee Jae-myung, the presidential candidate of the ruling Democratic Party of Korea, urged financial authorities to conduct “a thorough investigation into Kakao” with regards to the collective stock option sale by the management of Kakao Pay.

The presidential candidate also stated that the current regulation system should be improved to prevent a repeat of the same incident as in the Kakao Pay case.

“The management is bound to be criticized for being a moral hazard if they focus on maximizing profits from the sale rather than on protecting their shareholders,” Lee wrote on Facebook.

The company official denied such speculation, saying that the company “announced the nomination because we have to appoint a new CEO in advance before the shareholders’ meeting in March.”

Meanwhile, Kakao Pay’s stock rebounded on Friday, as it said its incoming CEO, Shin Won-keun, and other executives will repurchase the shares they sold. After the announcement, Kakao Pay shares increased as much as 11 percent. The company’s stock closed at 145,000 won, up 6.62 percent from the previous day.