Suing SM Entertainment: The Full Story Behind Lee Soo Man’s Resignation, Lawsuit, And More

Earlier, we reported on Lee Soo Man‘s threat to sue SM Entertainment, the very same company he founded.

Netizens are not only in shock at the news but also have worries and doubts about their shares in SM Entertainment’s stock and what the possible legal battle could mean for their favorite idols.

But how did Lee Soo Man get to the point of suing the company he founded? Here is a timeline of how SM Entertainment was founded and what the company’s current CEOs hope for its future.

Pre-1985

Before Lee Soo Man founded SM Entertainment, he pursued his own musical career. He made his debut as a singer in the folk duo band April & May but left only three months later due to health problems.

Lee Soo Man then made his solo debut in 1977 with the self-titled album Lee Soo Man.

He also formed the band Lee Soo Man and The 365 Days in 1980 before leaving the entertainment industry to pursue computer engineering. While pursuing his master’s degree at California State University, Northridge, he saw first-hand the success of superstars like Michael Jackson, who were a part of the “MTV generation.”

Founding SM Entertainment

After witnessing the success of MTV superstars, Lee Soo Man returned to South Korea, planning on shaping the Korean music industry. He continued to work as a DJ in South Korea until 1989 after he had saved enough money to establish his own entertainment company.

Initially named SM Studio, Lee Soo Man’s vision for what became SM Entertainment (renamed in 1995) focused on developing an in-house system to foster all aspects of an artist’s career.

SM 1.0

SM 1.0 is considered to be the period between the founding of SM Entertainment in 1995 to 2010. During this time, SM Entertainment supported the successful debut of H.O.T. in 1996 and the debut of S.E.S. in 1997, both considered two of the first K-Pop groups. SM Entertainment later debuted other popular, talented, and influential artists like BoA, TVXQ, Super Junior, Girls’ Generation, and SHINee who would all have a substantial impact on the industry.

SM Entertainment’s work during this period is largely credited for establishing the K-Pop fans are now familiar with.

SM 2.0

The second “wave” of SM Entertainment, SM 2.0, is between 2010 and 2020. During this time, Lee Soo Man resigned from his position as a member of SM Entertainment’s board of directors. However, he maintained his involvement in the company’s direction as an executive producer through their “management and artist development” divisions.

This period of success for SM Entertainment, cementing the company as one of the most influential entertainment companies for K-Pop, was in large part thanks to Lee Soo Man’s creative direction. During this time, popular groups like EXO, Red Velvet, NCT, and aespa made their debut.

NCT and aespa, in particular, have been renowned for their innovations in K-Pop’s currently changing market. NCT functions on a unit system, allowing new members to be added to NCT and creating new exciting lineups of the talented members (along with some fixed units like NCT127, NCT DREAM, and WayV). Meanwhile, aespa are helping pioneer the integration of the metaverse in K-Pop with the members’ AI avatars.

SM 3.0

SM 3.0 is what the current SM Entertainment CEOs, Lee Sung Su and Tak Young Jun, are dubbing 2023 onward. In a recently broadcast video updating fans on SM Entertainment’s future plans, Lee Sung Su and Tak Young Jun shared that SM Entertainment hopes to “expand the Korean, Asian, and global fandom and respond to changes in the market.”

Since Lee Soo Man has always focused on innovation and making SM Entertainment a strong competitor in the K-Pop market, why is he now suing the company he founded? Here’s how the founder’s involvement in his company has changed.

Lee Soo Man decides to sell his stake in SM Entertainment

Lee Soo Man made headlines when it was reported in 2021 that he would sell his ownership of SM Entertainment. At this point, Lee Soo Man had been serving as an executive producer for over a decade. However, Lee Soo Man still was the largest shareholder of SM Entertainment, owning about 18.73% of the company—or 4,392,368 shares—as of December 2020.

The remaining 80% of shares are split into much smaller percentages. The three biggest shareholders after Lee Soo Man were:

• Asset management company Korea Investment Management – 4.45% stake
• Chinese tech conglomerate Alibaba – 3.71% stake
• Public pension fund National Pension Service – 3.68% stake

It was reported that Lee Soo Man decided to sell his shares after revealing that he did not intend to pass them down to his children. Instead, Lee Soo Man reportedly believed that a new partnership with a major corporation was necessary to further SM Entertainment’s development.

In 2021 HYBE, CJ Group (the conglomerate that houses CJ ENM, CJ Entertainment, and more companies), and Kakao were all reported to be developing plans to acquire Lee Soo Man’s shares and become the largest shareholder of SM Entertainment.

Lee Soo Man had reportedly turned down HYBE’s initial attempts because HYBE already understood how to successfully run a K-Pop agency, leaving no place for his expertise. Because of this reported reasoning, it seemed as though, despite selling his shares, Lee Soo Man still intended to remain a key figurehead in the K-Pop industry.

As of the time of this article, Lee Soo Man has still not sold his shares and remains the majority shareholder in SM Entertainment.

SM Entertainment considers early contract termination with Lee Soo Man

In September 2022, SM Entertainment released a statement on the possible early termination of its production service contract with Lee Soo Man’s company, Like Planning. According to the statement, Lee Soo Man was the one who proposed ending the contract.

We have been reviewing and discussing the production contract with executive producer Lee Soo-man from various angles. The executive producer has informed us that he wants to end the production contract early at the end of this year.

We plan to discuss with key stakeholders the impact of the early termination of the production contract with the general producer on our business and plan to make an announcement about the future direction.

— SM Entertainment

Like Planning is the company in charge of music consulting and producing for all of SM artists’ albums. SM Entertainment outsourced its production requirements to Like Planning and paid the company billions of dollars in royalties yearly.

SM Entertainment’s current creative direction for SM 3.0 focuses on creating internal and external labels to support SM Entertainment artists. This means that SM Entertainment would not rely exclusively on Like Planning.

During the SM 1.0 and SM 2.0, we had a sole executive producer system and produced SM artist IP under the direction of the executive producer, Soo Man Lee, while the production and core functions were concentrated in one place. In this period, we used an external publishing company for music sourcing.

The Multi ‘Production Center/Label’ system of SM 3.0 will expand the production capacity and accelerate the speed of IP production by delegating the decision-making authority to each unit leader through independent artist management and advance the SM Standard while maintaining the know-how on IP production and management accumulated from the existing system.

— SM Entertainment CEO Lee Sung Su

SM Entertainment executive criticizes the plan of a “post-Lee Soo Man” era

On February 6, 2023, the news outlet Newsis reported that the long-time SM Entertainment artist and company executive Kim Min Jong criticized the company’s plans for SM 3.0 in an email.

Reportedly, Kim Min Jong claimed that SM Entertainment’s executives and artists were shocked at the CEOs’ recently announced plans. Claiming that the plans seemed to be one-sidedly ousting Lee Soo Man from the company.

SM Entertainment needs producer Lee Soo Man’s senses, and we should respect Lee Soo Man, who has pledged his whole life to the founding and expansion of SM Entertainment.

— Kim Min Jong

However, despite Kim Min Jong’s alleged claims in his email, employees at SM Entertainment are reportedly in favor of the new plans, criticizing Kim Min Jong’s letter.

(Kim Min Jong) sounds like someone who doesn’t know what the employees go through on a daily basis. In any case, (CEOs Lee Sung Soo and Tak Young Jun) are leading (SM Entertainment) to a brighter future.

— SM Entertainment employee

Even netizens favored SM Entertainment’s announced plans, with SM Entertainment’s stock reportedly rising by 1% after the presentation.

• “Isn’t Lee soo Man an eighty-year-old grandpa? He needs to rest.”
• “They are going to re-negotiate employees’ salaries after Lee Soo Man leaves, LOL. Just this alone shows this is good news for employees.”
• “Looking at this article makes me think that SM Entertainment is doing well.”
• “(Kim Min Jong) can leave with him then! I think it’s a good thing they are raising employee salaries.”
• “Can’t (Kim Min Jong) leave with (Lee Soo Man)?”
• “I’m supporting the change, ^^. Lee Soo Man and Kim Min Jong can leave together.”
• “To be honest, (Lee Soo Man) should have left a long time ago, and it’s still late. The person talking (Kim Min Jong) is the only one who doesn’t know this.”
• “Reading this tells me Lee Sung Soo and Tak Young Jun are doing a good job.”

Kakao becomes the second largest SM Entertainment shareholder

Also on February 6, 2023, Kakao became the second-largest shareholder of SM Entertainment, having secured a 9.05% stake in the company.

Together, Kakao and SM Entertainment “hope to enhance the global status of K-Culture in the rapidly changing music and content environment.” They plan to accomplish this by using global partners of both companies and co-planning new artists through global auditions.

Through this investment and cooperation, we expect that the two companies will be of great help to each other in responding to the fierce competition in the global music and content market and targeting the global mainstream of K-Content.

— Bae Jae Hyun (CEO of Kakao Community Investment)

Lee Soo Man threatens to sue SM Entertainment

Following the announcement of Kakao’s newly obtained stake in SM Entertainment, Lee Soo Man’s legal firm Hwawoo alleged that SM Entertainment had used illegal methods to make the shares available for Kakao to purchase. Lee Soo Man’s lawyers are threatening to file an injunction to block the sale.

On January 20 of this year, SM Entertainment’s co-CEOs, Lee Sung Soo and Tak Young Jun, agreed to Align Partners’ proposal without consulting Lee Soo Man, the largest shareholder in the company. This action thus further increased the tension and management disputes between the company and the largest shareholder, Lee Soo Man.

It is clearly a violation of commercial law and the articles associated with the law for SM Entertainment’s board of directors, which is led by the co-CEOs, to issue new shares and convertible bonds to third parties at a time when there is such a dispute within the company.

As the legal firm of the largest shareholder, we will block SM Entertainment’s board of directors’ attempts at this through an injunction, banning the issuance of new shares and convertible bonds, and we will hold the directors responsible for this both civilly and criminally liable.

— Hwawoo, the legal firm representing Lee Soo Man

Netizens voiced their shock that Lee Soo Man was suing his own company and expressed concern about how this will affect SM Entertainment’s artists.

• “But I feel like if this goes to court, Lee Soo Man might win.”
• “So all we need to do is get out the popcorn and watch?”
• “Just leave… My idols’ plans are going to get screwed again. ^^.”
• “I think Kakao violated the law. Also, I’m not sure what you guys expect, but none of the labels Kakao has a significant stake in do very well.”
• “Sigh, SM Entertainment’s artists must have mixed feelings.”
• “For f@ck’s sake, my idol needs to make a comeback, ㅠ.”
• “You’ve more than reaped your share, so now leave. There are so many comebacks pushed back.”

As Lee Soo Man has become the face of SM Entertainment, having even appeared on photo cards, it is certainly jarring to see the founder suing his own company. Perhaps netizens will be able to learn even more when Prime Video‘s upcoming documentary on Lee Soo Man airs.

Prime Video To Launch Feature Documentary On SM Entertainment’s Lee Soo Man