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Command and control


China’s tech founders mostly keep an iron grip over their firms


Jack Ma’s graceful exit from Alibaba is unusual


A WRY joke has been circulating on China’s internet. The founders of the country’s three most prominent technology firms—Jack Ma of Alibaba, Pony Ma of Tencent and Robin Li of Baidu—go for a stroll. One drowns. How would their stocks react? If it were Mr Ma of Alibaba, its shares would fall. If it were Mr Ma of Tencent (no relation), they would remain unchanged. And if it were Mr Li of Baidu, they would rise.



All of which makes for a striking contrast with events at JD.com, Alibaba’s arch-rival in e-commerce. Early this month it emerged that Richard Liu, JD.com’s founder and boss, had been briefly arrested in the American state of Minnesota on a rape allegation. His mugshot circulated and Chinese internet users swapped information on details of America’s legal process. In two days of trading JD.com’s shares fell by 16%, their biggest drop since listing on America’s Nasdaq in 2014, losing $7.2bn of market value. The police investigation is ongoing (Mr Liu has denied any wrongdoing, through his lawyers).


The two events have concentrated minds on a thorny, long-standing problem in Chinese corporate governance: “key-man risk”. Over-mighty technology bosses are a problem elsewhere, but in China opaque legal processes make it much worse, says Jamie Allen of the Asian Corporate Governance Association, based in Hong Kong. China’s global champions employ control structures, built to ensure the founder’s hold is ironclad, that attract criticism at home and abroad.



News of Mr Liu’s arrest (on a university campus, while studying for a business-administration doctorate) was a reminder of how few Chinese tech giants have clear succession plans; no one is sure who is his second-in-command. Lin Yu-Hsin, a corporate-law expert in Hong Kong, expects key-man risk to worsen in the next 15 years as tech-firm founders, now in their 40s and 50s, come closer to retirement.


Doing it Ma’s way


Against this backdrop, Mr Ma has handled his own transition with aplomb. Duncan Clark, author of a book, “Alibaba: The House That Jack Ma Built”, says it wanted to show it was different early on. To last at least 102 years (to span three centuries from its founding in 1999), it planned to build a culture that did not rely on a founder. The firm has partly achieved that. Mr Ma began to pull back in 2013, when he stepped down as chief executive. (By contrast, Mr Ma of Tencent, and Messrs Li and Liu, remain chief executives and chairmen of their firms.) He is the first founder of a big Chinese internet firm to announce his exit.



For the cleanest of the bunch, say corporate-governance experts, look to Tencent. It has VIEs, but the company has had a one-share-one-vote structure since it listed in Hong Kong in 2004. One account claims that Pony Ma chose Hong Kong’s exchange, which only allowed dual-class shares in April, because he wanted his internet firm to stand out as able to meet its stricter corporate-governance requirements at the time. Mr Ma has lowered his economic and voting rights since 2007, from 13% to 9%.


Amid the online stir caused by JD.com, Wang Xing, the usually reserved founder of Meituan-Dianping, an online-services startup that is due to list in Hong Kong on September 20th, sent a cryptic message to his social-media followers: “Hope war does not break out or that there are other black-swan events in the next nine days.” For investors, the pressing matters are neither war nor shock events. They are more preoccupied by whether companies have VIEs, super-voting stock and a joint position for founders as chairman and chief executive. It is not reassuring for critics of governance that Meituan, China’s latest tech star, will have all three.