JD.com shares have fallen sharply since news of Liu's alleged rape broke, underscoring pressure on the company to explain what would have happened without the man in charge.
When JD.com (JD.com) released its third-quarter results last month, the Chinese e-commerce giant made no mention of what would be the biggest news of the quarter for many investors: JD.com founder, chairman and chief executive Liu QiangDong (Richard Liu) was charged with rape in late August.
Liu Qiangdong, 45, was arrested after attending a dinner party in Minnesota involving a schoolgirl.He denied the rape allegation and was released without criminal charges before returning to China.
But JD.com shares have lost a third of their value since the news broke, while rival Alibaba has fallen 11 per cent over the same period.
The stock sell-off reflects a life-and-death conundrum plaguing JD.com: A demand for JD.com to explain what a future without Mr. Liu might look like.As this pressure mounts, JD.com finds itself unable to get Liu Qiangdong out of office.
Among other things, the U.S. allegations have heightened awareness of just how much control (Liu Qiangdong) has over the company, said Mark bull; Natkin, managing director of Marbridge Consulting in Beijing.)explain.The worry is that if something happens to Liu Qiangdong, everything will have to stop.This increases the risk for investors.
Mr. Liu owns just 15 per cent of JD.com, but he controls 80 per cent of the voting power, according to Credit Suisse.Such arrangements, common among large tech companies in both China and the United States, mean any debate about his leadership is theoretical.
The board isn't really strong, says one longtime investor, it's full of his brothers.In fact, according to an appendix to JD.com's IPO prospectus filed with the US Securities and Exchange Commission (SEC), JD.com's board would not even be able to meet without Liu Qiangdong's presence.
The U.S. also has looser listing rules for foreign companies.A Hong Kong-based lawyer at a major U.S. law firm noted that while U.S. companies must disclose certain legal proceedings against their directors, the requirement does not apply to foreign companies.
The lawyer said: Jingdong seems to have determined that this matter has not reached the disclosure threshold.He added that securities laws also do not require individuals to step down as a result of such charges or even convictions.
Liu Qiangdong did hint in a conference call with analysts after the quarterly report that he might start to take a step back.Personally, I would focus more on new business, he said.Mature business can be handed over to the team.
A JD.com spokesperson added: "As the company grows, it is natural and healthy for our management team to evolve, and the responsibilities of our capable existing management team will continue to expand.
In July -- before Liu Qiangdong's arrest -- JD.com tapped chief strategy officer Xu Lei as the new CEO of JD Mall, JD's core e-commerce business, which closed on September 9.It delivered 1.57 trillion yuan ($225 billion) of orders to 305 million customers in March.
The appointment aims to reduce JD.com's dependence on Liu Qiangdong.Liu Qiangdong has managed JD.com's core business since August 2016, when former JD.com CEO Shen Haoyu returned to Beijing-based venture capital firm Hillhouse Capital.Hillhouse Capital was one of JD.com's early investors.
One of JD.com's problems is that it doesn't have a clear No. 2, said Liu Xingliang, head of DCCI, an Internet research and consulting firm in Beijing.More than any other tech company in China, JD.com ... is completely dependent on the boss and his control, said Duncan Clark, founder of Beijing-based BDA Consulting (BDA).
An employee who left JD.com not long ago said that JD.com’s culture is dominated by male bosses, and Liu Qiangdong’s email to the whole company began with: Dear brothers, this is reflected.
But JD.com is under increasing pressure.Mr. Liu has been absent from some major government events of late, including the World AI Conference, the China International Import Expo in Shanghai and the World Internet Conference in Wuzhen.
He has also disappeared from the circle of tech giants that the CCP often hosts.He was not included in the list of the 100 Outstanding Private Entrepreneurs of the 40 Years of Reform and Opening up published by Peoples Daily, while his rivals Alibaba's Jack Ma and Suning's Zhang Jindong were included..
80 percent control means nothing if the CCP says you're screwed, Clark said.JD has an international reputation and is part of China's image, (Liu Qiangdong's arrest) embarrasses lsquo;Chinese companies rsquo;.
Meanwhile, China's e-commerce market is cooling, and JD.com's user growth is slowing, and even declined in the previous quarter, with 305.2 million active accounts, down from 313.8 million in the second quarter.JD.com's free cash flow for the first nine months of 2018 was -3.9 billion yuan ($564 million), compared with 14.6 billion yuan a year earlier.
According to public documents, in the second quarter before Liu Qiangdong was accused of the above-mentioned charges, Hillhouse Capital had reduced its holdings in JD.com, but its founder Zhang Lei did not explain the extent and reasons for the reduction.JD.com’s formidable rival, Alibaba, has ramped up its efforts in logistics and order fulfillment, according to an investor in JD.com.
Many of JD.com's businesses are facing bottlenecks.Unlike Alibaba, JD.com's structure is not optimal for innovation, said Cui Ernan, an analyst at Gavekal Dragonomics, a Beijing-based consultancy.If Liu Qiangdong stays, many decisions will still be made based on his personal style, and the overall development of JD.com will be restricted.
Translator/He Li
