Following Samsung, Kakao Also Chooses 'Compliance Oversight Committee' as a Legal Risk Breakthrough...

Kakao, pushed to the brink due to allegations of ‘market manipulation’ related to the acquisition of SM Entertainment and controversies over taxi monopolies, has chosen to launch a ‘Compliance Oversight Committee’ as a way to overcome these risks, drawing attention from the business and legal communities.

On the 3rd, Kakao decided to establish the ‘Compliance and Trust Committee’ and appointed former Supreme Court Justice Kim So-young as its inaugural chairperson. This body will monitor whether Kakao’s affiliates comply with laws and ethical management practices. This move came as a response to the ‘shadow of investigation’ cast over Kakao, following the arrest of Bae Jae-hyun, Kakao’s Chief Investment Officer, on the 19th of last month over market manipulation allegations, and the 16-hour investigation of Kim Beom-su, Kakao’s founder and head of the Future Initiative Center, by the Financial Supervisory Service on the 21st of last month.

Kakao Pangyo Agit, Seongnam, Gyeonggi. Photo by Jinhyung Kang aymsdream@

According to the business community on the 8th, preparations for full-scale activities, including forming the committee and establishing operational rules centered around former Justice Kim, have begun. The business and legal sectors interpret this as a ‘signal’ that the Compliance Oversight Committee, previously perceived as an unfamiliar and vaguely defined entity, is becoming a new trend in the corporate world. Samsung will enter its fourth year of operating its Compliance Oversight Committee in January next year. Following Samsung, Kakao’s decision to operate such a committee is expected to encourage more companies to launch similar bodies. Even within KT, where management is facing judicial risks, voices advocating for the consideration of establishing a Compliance Oversight Committee have reportedly emerged.

Starting Amid Chaos... Smooth Landing as a ‘Watcher’

Samsung’s influence was significant in Kakao’s decision to establish the Compliance Oversight Committee. Baek Ju-seon, lead attorney at law firm Yungpyeong, said, "It can be seen that Kakao benchmarked Samsung. They seem to be operating similarly to Samsung’s Compliance Oversight Committee by appointing a former Supreme Court Justice as chairperson." Samsung appointed former Supreme Court Justice Kim Ji-hyung as the inaugural chairperson of its Compliance Oversight Committee in January 2020.

Attorney Baek added, "Although the facts of market manipulation have not been clearly revealed, with the arrest of Chief Investment Officer Bae Jae-hyun, it appears that some charges have been substantiated. Kakao proposed the Compliance Oversight Committee as a way to overcome the crisis and demonstrate the company’s commitment to compliance."

Both Samsung and Kakao share the commonality of deciding to operate their Compliance Oversight Committees amid turbulent circumstances. Samsung established its committee after Chairman Lee Jae-yong was advised by the retrial court in the ‘state affairs manipulation’ case to "establish an effective compliance system." Similarly, Kakao hastily decided to set up its committee as its management, including Kim Beom-su, came under investigation by authorities.

The business community positively evaluates Samsung’s Compliance Oversight Committee as having smoothly landed as an ‘internal watchdog.’ During its first term (January 2020 to February 2022), Samsung made innovative changes such as abandoning no-union management and giving up fourth-generation succession, following the committee’s recommendations. Internally, the committee’s reviews and training helped raise employees’ awareness of compliance management. The business sector views these achievements as one of the reasons Kakao chose to establish its own Compliance Oversight Committee.

Lee Chan-hee, Chairman of Samsung Compliance Monitoring Committee / Photo by Kang Jin-hyung aymsdream@

"The Goal Is More ‘Red Team’ Than ‘Washing’"... Challenges Like Secretariat Independence Remain

Experts diagnose that while Samsung’s Compliance Oversight Committee has passed its third year, there are still many improvements needed for such committees to become widespread in the business world.

First, it is pointed out that the initial purpose of operating the Compliance Oversight Committee must be clearly established. Otherwise, its direction may waver. Kim Woo-jin, a professor of business administration at Seoul National University and a first-term member of Samsung’s Compliance Oversight Committee, said in a 2022 activity report interview, "In a large organization, there should be a ‘red team’ that can point out issues before they become problems," adding, "If the committee’s purpose is merely ‘washing,’ it will only consume budget without providing real help."

There is also an opinion that the Compliance Oversight Committee should be given an environment where it can voice more proactive opinions. Currently, the committee is an advisory body composed of external members, and its recommendations are not mandatory for management to follow. Attorney Baek said, "It is desirable to have internal regulations or articles of incorporation that require management to follow recommendations unless there are special issues." He also advised, "The committee should not be composed of individuals who have conflicts of interest or close ties with the company."

Additionally, among Samsung employees who have observed the committee’s activities internally, there are voices calling for ensuring sufficient independence of the secretariat that assists with preliminary investigations and data collection, as well as increasing communication with management.