Weekly ESG Risk Spotlight (May 20~26)

Key takeaways

• Kakao's Pervasive Controversies:

  • Kakao emerges as the most controversial company this week, dominating the Systemic Risk Management and Customer Privacy categories.

  • Kakao's frequent service disruptions and significant user data leaks have resulted in emergency government inspections and substantial fines, underscoring the severity and magnitude of these issues.

• Emerging Customer Privacy Concerns:

  • Following the 'Data Security' controversies primarily driven by recent issues from NAVER and Golfzon, the Customer Privacy category has witnessed a significant increase, surging to 8.04% from a mere 1.16% the previous week.

• Surge in Labor Practices Issues:

  • The Labor Practices category has surged to 18.88% from 8.24% the previous week.

  • This increase is driven by ongoing disputes across multiple companies, including legal setbacks faced by Kumho Tire in suits against employees, and persistent wage negotiation challenges for Samsung Electronics and Hyundai Motor.

• Competitive Behavior Spotlight:

  • HYBE is still  in the spotlight for intense legal disputes over embezzlement and management rights infringements.

  • Additionally, Samsung Electronics and SK Telecom faced legal challenges, including patent lawsuits and fines for misleading advertising.

1. Systemic Risk Management (20.9%)

• Major concerns focused on Kakao, which constitutes 74.08% of the category due to frequent service disruptions and governmental emergency inspections.

• Samsung Electronics faces issues with HBM supply to NVIDIA, affecting quality tests related to overheating .

  
  

2. Labor Practices (18.88%)

• Kumho Tire dominated this category with 73.10%, primarily due to workers' victories in wage lawsuits and ongoing disputes over unpaid bonuses.

• Samsung Electronics is dealing with labor disputes focusing on performance-based bonuses and wage negotiations, while Hyundai Motor has high turnover due to low wages and high labor intensity .

  
  

3. Competitive Behavior (16.07%)

• HYBE leads this category with 29.95% due to legal disputes over management rights and embezzlement allegations.

• Samsung Electronics also faced issues, specifically the dismissal of a patent infringement lawsuit involving confidential information.

  
  

4. Business Ethics (11.71%)

• Tongyang Life Insurance is highlighted with 40.32% for issues related to embezzlement and duty breaches by their former CEO.

• DA Technology faces additional allegations of embezzlement and stock manipulation connected to the Lime scandal .

  
  

5. Customer Privacy (8.04%)

• Kakao overwhelmingly leads this category with 97.51% due to significant fines for user data breaches and related legal disputes.

• Golfzon was fined for mishandling customer data leading to a significant breach, and NAVER faced issues over unauthorized sharing of personal information .

  
  

Kakao Faces Pressure Amid Service Disruptions, Data Security Concerns, and Ethical Challenges

In a period marked by significant challenges, Kakao Corporation finds itself at a critical juncture. Persistent service disruptions have underscored the company's urgent need to enhance service stability. This is particularly vital as competitors like NAVER position their LINE app as a more reliable alternative, threatening Kakao's market presence.

The growing emphasis on data security and customer privacy further intensifies the pressure on companies like Kakao to bolster their data management practices. As digitalization accelerates, safeguarding user information has become paramount, highlighting the necessity for robust cybersecurity measures.

Moreover, the ongoing issues related to labor practices and business ethics in South Korea underscore a broader societal demand for improved corporate responsibility. Kakao, along with other entities, faces the imperative to address these controversies head-on and implement systemic changes to foster a more ethical and responsible corporate culture.

These multifaceted challenges collectively call for a strategic response from Kakao, aimed at reinforcing its service reliability, enhancing data protection protocols, and committing to higher standards of corporate ethics and responsibility.

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