Governance Improvement in Full Swing… KT Faces Inevitable Management Gap

On the 31st, shareholders are entering the meeting hall at the KT shareholders' meeting held at the KT Research and Development Center in Seocho-gu, Seoul. Photo by Dongju Yoon doso7@

As the prolonged management vacuum at KT becomes inevitable, it is expected that not only the company's ongoing projects but also its performance will suffer significant setbacks. The sustainability of the Digico (digital business transformation) strategy, which had been regarded as successful under CEO Koo Hyun-mo's leadership, is also uncertain.

On the 5th, financial information provider FnGuide and major securities firms estimated KT's operating profit for the first quarter at 581.5 billion KRW, a 7.20% decrease compared to the same period last year.

This appears to be influenced by the CEO appointment issues that have persisted since December last year. The failure of former CEO Koo Hyun-mo's reappointment and the subsequent failure to appoint Yoon Kyung-rim, head of KT Group's Transformation Division, as CEO have caused disruptions within KT's internal management.

Under the previous CEO Koo's leadership, KT sought to transform from a traditional telecommunications company ('Telco') into a 'Digico.' The company focused on finding future growth engines based on its so-called ABC capabilities?AI, Big Data, and Cloud. The results were positive. Since its listing last year, KT entered the era of 25 trillion KRW in sales for the first time, and its consolidated operating profit exceeded 1.6 trillion KRW for two consecutive years.

However, KT's current strategic direction is significantly shaken. In particular, since former CEO Koo's inauguration, KT had been expanding partnerships in new business sectors as part of the Digico strategy, but due to the management vacuum, project progress has become uncertain, causing new investments and construction orders to virtually come to a halt.

Since it is expected to take about five months to normalize management, this suspension of business activities is likely to continue for some time. An industry insider said, "For the time being, budget execution and new investments will be cautious and conservative, and the company will likely focus only on maintaining existing businesses."

There are also doubts about whether the continuity of the Digico strategy can be guaranteed under the new CEO system. Given the strong pressure from the ruling party regarding the CEO appointment, there is a possibility that the achievements of the previous CEO Koo's administration, which was formed under the former government, may be erased. An Jae-min, a researcher at NH Investment & Securities, analyzed, "If an external figure or a non-telecommunications expert is appointed as CEO, the continuity of KT's existing management will inevitably be disrupted." Hwang Sung-jin, a researcher at Heungkuk Securities, also said, "Considering the likely appointment of an external figure due to the successive failures of internal candidates, it is difficult to guarantee the continuity of the Digico policy, which had been successfully implemented so far."

For now, KT plans to focus on early transition to a normal management system amid the current crisis. KT has begun actively forming a 'New Governance Establishment Task Force (TF)' to review the CEO and outside director appointment procedures and the role of the board of directors, and to prepare governance improvement measures that will be trusted externally. KT plans to recruit governance experts to participate in the TF. To this end, KT has sent official letters requesting expert recommendations to major domestic and international shareholders holding more than 1% of shares.

Shareholder recommendations will be accepted until the 12th, with up to two nominees per shareholder allowed. The qualifications for external experts participating in the TF include academic experts in corporate governance (such as professors), professionals with experience in governance-related institutions (such as research institute heads, research fellows, or proxy advisory firms), and experts in global standard governance. KT plans to finalize about five external experts to participate in the TF through the board of directors based on the pool of candidates recommended by shareholders.

The TF is scheduled to operate for about five months until August. It will review KT's CEO and outside director appointment procedures and the role of the board of directors. Additionally, it will propose directions for the development of KT's governance. Park Jong-wook, acting CEO, stated, "We will promptly decide on major management and business issues centered on the Emergency Management Committee to ensure that there are no disruptions to the company's management."

This content was produced with the assistance of AI translation services.