JD.com debacle offers management lesson for Chinese technology giants
The fallout on JD.com Inc from the arrest of its founder and CEO Richard Liu Qiangdong on alleged sexual misconduct in the US reveals a risk for fastrising Chinese internet companies that have relied too much on one person, and the situation calls for corporate management changes to ensure longterm growth, analysts said on Sunday.
Following Liu’s arrest in Minneapolis in the US state of Minnesota on August 31 (US time), JD.com has seen its NASDAQ-listed shares plunge, and there are serious uncertainties for the company’s management, including the lack of a possible successor, as the investigation into allegation against Liu continues.
Although the Chinese billionaire was freed after spending 16 hours in a jail on suspicion of sexual misconduct and has returned to work in China, police in Minneapolis said the investigation remains active, according to media reports. If found guilty of first-degree sexual assault, Liu could face 12 years to 30 years in prison, according to Reuters.
The news rattled investors and caused the shares of the second-largest e-commerce company in China to lose $7.2 billion or 16 percent of their market value in the two days of trade after the arrest, Reuters reported. It has also sent a chill through internet companies in China.
“While we still have to wait until the investigation is completed to see what will happen, the fact that there is no apparent leader that could replace Liu, if it comes to that, reveals a risk for the company’s long-term growth and creates serious uncertainty for investors,” Lu Zhenwang, founder of Shanghai Wanqing Commerce Consulting, told the Global Times on Sunday.
Lu pointed out that Liu has dominated JD.com’s management and that there is no one within the company who could take over immediately.
“To groom a successor to be ready to step up at any time is a long process, but we don’t see that at JD.com. Certainly, there are a lot of executives in charge of different things, but there is not one who seems to have the full scope,” he said.
However, a Beijing-based internet industry analyst said that it is too early to worry about whether if JD.com has any succession plan in place because the investigation is ongoing and the company has not disclosed any information.
“We shouldn’t speculate,” said the analyst, who only gave his surname as Liu.
While it might be premature to predict changes at JD.com or whether changes are required, there is a lesson to be drawn from the company’s predicament for other Chinese internet giants, Lu said.
“It is very common that internet companies rely heavily on one person, and it has become increasingly apparent that many of them do not seem to have a contingency plan for immediate changes,” he said. “I think that’s alarming. Being as big as they are, these companies need to have a contingency plan.”
It is unclear how Liu’s case would be handled should there be any charges since Liu has already returned to China and there is no extradition agreement between China and the US.