Caixin
Sep 11, 2018 07:01 PM
BUSINESS & TECH

Alibaba’s Partnership Structure Keeps Jack Ma in Picture Past 2019

Alibaba founder Jack Ma attends an award ceremony for rural teachers in the southern city of Sanya on Jan. 21. Photo: VCG
Alibaba founder Jack Ma attends an award ceremony for rural teachers in the southern city of Sanya on Jan. 21. Photo: VCG

* Alibaba’s partnership structure awards voting rights to a large group of management partners

* The system enables the company’s 38 partners, which include Ma, to collaborate and override bureaucracy and hierarchy

(Beijing) — Control of e-commerce giant Alibaba will fall to a broader group of partners that hold a majority of the company’s voting power, giving Jack Ma, a key partner, a continued say even after his retirement next year.

Ma has been saying he will leave Alibaba next year on Sept. 10 — his 55th birthday — letting a newer, younger generation take control of China’s most valuable internet company. But some doubt his larger-than-life presence will ever be completely gone from the company he founded in 1999.

The succession plan announced on Monday has been 10 years in the works, according to Ma, Alibaba Group Holding Ltd.’s founder and one of China’s wealthiest men and most recognizable entrepreneurs.

He will give over his current chairman’s position to current CEO Daniel Zhang, in a year that marks the 20th anniversary of Alibaba’s founding, Ma revealed in an open letter.

Ma will stay on as a member of Alibaba’s board until its annual general meeting in 2020, the company said.

In a letter detailing his decision, Ma explained his commitment to transforming Alibaba from “a company that relies on individuals, to one built on systems of organizational excellence and a culture of talent development.”

He was referring to a mechanism dubbed the Alibaba Partnership, launched in July 2010.

Unlike traditional dual-class ownership structures that concentrate a high proportion of voting shares in the hands of a few founders, the Alibaba Partnership awards such rights to a large group of management partners. It is meant to enable senior managers to collaborate and override bureaucracy and hierarchy, according to the company website.

The partnership system became a major source of controversy before Alibaba’s 2014 initial public offering (IPO) due to its awarding of control of the company’s management to a small group of partners, disproportionate to their actual shareholdings. Alibaba originally wanted to list in Hong Kong, but ultimately chose New York because the former British colony forbade listings of companies with such partnerships.

“The partnership system we developed is a creative solution to good governance and sustainability, as it overcomes several challenges faced by companies of scale: continuous innovation, leadership succession, accountability and cultural continuity,” Ma wrote.

While the website states that there are currently 36 partners in the group, Caixin has learned that the latest number is actually 38. One of those is Ma, and each is equal within the partnership with just a single vote, according to Alibaba’s website.

But many of those partners, as well as Alibaba’s board members, will still feel Ma’s influence even after he officially leaves as chairman, said an official at a major global hedge fund, speaking on condition that his name not be used. “Jack Ma’s significance to Alibaba has long surpassed his position. How could the new chairman not listen to him?”

According to Caixin’s research, current Alibaba partners include managers from affiliates Cainiao Smart Logistics Network Ltd. and Ant Financial Services Group, as well as UCWeb, a mobile browser developer acquired by Alibaba in 2014.

It shows that the partnership considers interests of Alibaba as a whole.

“There is only one addition to the partnership this year,” a source familiar with the Alibaba development said, speaking on condition of anonymity because of the sensitivity of the matter. This is because joining the partnership requires members to win 75% of votes from existing partners, the source added.

Criteria for joining the partnership include “a high standard of personal character and integrity; continued service with Alibaba Group or affiliates for not less than five years; a track record of contribution to the business of Alibaba Group; and being a ‘culture carrier’ who shows a consistent commitment to, and traits and actions consonant with, company’s mission, vision and values,” according to the company’s website.

The partnership is like a top governing body that decides Alibaba’s management and board decisions, according to Caixin’s understanding. Over half of the company’s board seats are decided by the partners, giving the partnership indirect control in all board decision-making.

Alibaba’s board is controlled by a combination of its top managers and partners, even though Japan’s SoftBank Group Corp. and Altaba Inc., formerly known as Yahoo Inc., hold 28.8% and 14.8%, respectively, according to an Alibaba stock exchange filing in July. By comparison, Ma holds 6.4% while Executive Vice Chairman Joseph Tsai, also a partner, has 2.3%.

Ma is convinced that the partnership model will pave the way for the company’s sustainable growth — with or without him in a formal executive position.

“To achieve long-term sustainable growth, you need the right balance among system, people and culture,” Ma wrote in his letter announcing his retirement. “I have full confidence that our partnership system and efforts to safeguard our culture will in time win over the love and support from customers, employees and shareholders.”

Contact reporter Jason Tan (jasontan@caixin.com)

To read more coverage on Jack Ma’s retirement, click here

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