Political Circles and Prosecution Shake KT... Can Yoon Kyung-rim Endure?

Prosecutors Launch Full-Scale Investigation into KT Executives
Adverse Impact on Next CEO Yoon Kyung-rim Ahead of Shareholders' Meeting
Investigation Likely to Continue Even After Passing Shareholders' Meeting Threshold
Calls to Prepare for CEO Vacancy Crisis

The prosecutorial scrutiny on KT’s current CEO and the incoming CEO is intensifying. Some voices express skepticism that even if President Yoon Kyung-rim, who has been nominated as the next CEO, takes office, she will not last long. There is a high possibility of a leadership vacuum at KT.

On the 15th, within related industries and the legal community, there have been frequent talks that a prosecutorial raid on KT is imminent. Currently, prosecutors are investigating allegations against former CEO Koo and President Yoon, including preferential treatment of KT’s facility management contractors, illegal support to CEO Koo’s brother, collusion with political circles through KT-owned hotels, and entertainment of KT’s outside directors.

Recently, as the Yoon Seok-yeol administration has shown determination to root out vested interest cartels across various sectors of society, political and legal circles are analyzing that KT will serve as a precedent. Especially since President Yoon is considered a close aide of former CEO Koo, her nomination as CEO is viewed by the current ruling party as indicative of a cartel protecting vested interests.

In fact, President Yoon himself indirectly targeted KT during the Cabinet meeting on the 7th, stating, "Since the government’s inception, we have operated the state affairs with a focus on expertise, but there is resistance from cartel forces seeking rent through unfair practices. We must eliminate such deep-rooted evils so that the lives of the people can become more comfortable and prosperous."

With the shareholders’ meeting for CEO appointment approaching, the prosecutors’ investigation could influence the voting of many shareholders. KT’s stock price has been falling continuously. It is evident that the management’s 'judicial risk' is weighing down the stock price. Shareholders who hope the stock price will not fall further are likely to oppose the appointment.

On the bright side, the support from minority shareholders and foreigners is good news for President Yoon. Currently, the combined holdings of minority shareholders and foreigners exceed 50%. Minority shareholders are gathering votes in favor of President Yoon’s CEO appointment through communities such as Naver Cafes. Glass Lewis, one of the world’s two major proxy advisory firms, has also recommended supporting President Yoon’s appointment, which is expected to influence the voting of foreign and institutional investors.

Even if President Yoon barely passes the hurdle of the regular shareholders’ meeting at the end of this month, the prosecution’s investigation is expected to continue. Since privatization in 2002, among the five CEOs, except for the inaugural CEO Lee Yong-kyung, four (Nam Joong-soo, Lee Seok-chae, Hwang Chang-gyu, and Koo Hyun-mo) have been investigated by prosecutors. President Yoon is likely to become the fifth CEO to bear this stigma.

Looking back, if the prosecution’s investigation continues, there is a high possibility that President Yoon will resign during her term. Former CEO Nam Joong-soo was arrested on charges of breach of trust and embezzlement nine months into his reappointment and stepped down, and former Chairman Lee Seok-chae also faced investigations for bribery and breach of trust before resigning in disgrace. For KT, regardless of whether President Yoon passes the shareholders’ meeting, it means preparing for a prolonged management vacuum due to a CEO vacancy.

There is also an analysis that KT’s management stabilization depends on President Yoon’s political skills. President Yoon has already attempted to place personnel aligned with the current administration but failed. During the last presidential election, Im Seung-tae, a senior economic advisor at Yoon Seok-yeol’s campaign and a legal counsel at the law firm Hwawoo, was nominated as an outside director candidate for KT, but he resigned. This was interpreted as President Yoon sending a friendly message to the ruling party, which was rejected.

Since President Yoon stated in her statement immediately after her nomination, "As a candidate, I will actively communicate and align with the government and shareholders until the shareholders’ meeting," it is expected that such persuasion efforts will continue going forward.