SM Entertainment is set to terminate its production contract with founder and chief producer Lee Soo-man at the end of the year.

According to a report by Yonhap News Agency, SM Entertainment’s board of directors have decided to terminate their production contract with Like Planning, a music production company run by Lee, by December 31 – a year earlier than initially planned. SM Entertainment has been outsourcing music production to Like Planning for over 20 years.

The early termination of Lee’s contract with the agency comes off the heels of investors from Align Partners Capital Management – which owns 1.1 per cent of SM Entertainment – claiming that the ties between both companies have been “damaging shareholder value” and demanding they sever ties with Like Planning in an open shareholder letter to the company in August.

A separate report by Infostock Daily notes that Align Partners Capital Management cited the royalties that the agency paid to Like Planning have been undermining the value of shareholders. In the first half of the year alone, SM Entertainment reportedly paid the company ₩11.4 billion, which amounts to about 29.6 per cent of the ₩38.6 billion that the agency had earned in operational profits.

“Cutting ties with Like Planning is expected to increase SM Entertainment’s operating profit up to 60 percent,” a spokesperson for Align Partners Capital Management said of the request to sever ties with Like Planning, per Korea JoongAng Daily. “We expect that the move will give SM Entertainment the push it needs to break free from the one-person-oriented structure to a more stable and sustainable one.”

This isn’t the first time SM Entertainment and Like Planning’s ties have been criticised by its shareholders. In 2019, KB Asset Management, which owns 5.1 per cent of SM Entertainment, demanded an immediate merger for both companies after claiming that both companies’ practices clashed with shareholders’ interests.

At the time, SM Entertainment rejected the measure, claiming the move would undermine the company’s competitive edge.