Caixin
Sep 12, 2018 01:03 PM
TECH TALK

Jack Ma Says He’ll Leave Alibaba, But Can He Really Cut the Cord?

Alibaba founder Jack Ma’s new retirement plan is the starting point for this week’s Tech Talk, which examines a uniquely Chinese phenomenon that I’ve seen far too many times in more than a decade of covering the nation’s high-tech scene. Ma’s plan to give up his chairmanship at the helm of Alibaba Group Holding Ltd., China’s biggest internet company, would indeed be a unique occurrence if and when it happens a year from now as Ma has said is his intent.

Readers can probably tell from how I’ve phrased that last sentence that I’m somewhat skeptical that Ma will really carry through on his promise, even if he does actually give up his chairmanship at the company he founded in 1999. That’s because Chinese tech leaders have a somewhat unusual attachment to their corporate “babies” that often leaves them highly reluctant to ever cut the cord.

I’ll recount just a few examples shortly, as well as my own take on why this particular phenomenon is so strong in China and the implications for investors.

But first let’s review the basics of the case, which saw Jack Ma say on Monday he would give up his last executive title at Alibaba in a year, the 20th anniversary year of his company’s founding. He said he plans to spend the next year grooming current CEO Daniel Zhang to take over the new chairman’s role, and that he will step aside to focus on his other interests in teaching and philanthropy.

Alibaba historians will note this isn’t the first time that Ma has announced his intent to step aside. In 2013 he made similar gestures when he relinquished his role as Alibaba CEO and stepped back to the less day-to-day role of chairman.

Anyone who lives in China knows that chairmen here are often far more involved in the day-to-day operations of their companies than their counterparts at many Western companies, and Ma was no exception. What’s more, Ma quickly grew disenchanted with his heir apparent at that time, a former executive named Jonathan Lu, and ended up pushing him out in 2015 in favor of Zhang.

Ma will stay on Alibaba’s board through 2020 even after giving up his chairman’s role, giving him some time to see how Zhang does in his first year as chairman. Even after that, Ma will no doubt continue to wield significant influence over the company through his own holdings as well as those of several other major shareholders that are loyal to him. One hedge fund manager astutely pointed out: “Jack Ma’s significance to Alibaba has long surpassed his position. How could the new chairman not listen to him?”

Unhealthy attachment

As with many things in China, the reasons for what I’ll call an “unhealthy attachment” by many founders to their companies seems to have its roots in the relatively brief period that private ownership of such firms was allowed. Let’s not forget that private ownership of companies in modern China didn’t even begin until the late 1980s. Even then, most such enterprises, known as “getihu,” were often little more than flimsy street stalls staffed by individuals hawking their wares.

The earliest of what would eventually become today’s Chinese internet giants mostly have their roots in the late 1990s, including Alibaba and top rival JD.com Inc., which lists its founding date as 1998. Another notable early e-commerce leader, Dangdang.com, lists its founding in 1999. Even then, those early companies looked far more like the getihu I’ve described above rather than anything like the modern entities we see today occupying dozens of floors in glitzy office buildings.

Nearly every Chinese internet company of note is currently dominated by its founder, who is often a large stakeholder like Ma and controls even more shares through his connections. Three of the other top firms, Tencent Holdings Ltd., Baidu Inc. and NetEase Inc., are all squarely cast in the image of their respective founders, Pony Ma, Robin Li and Ding Lei. Delving down to the realm of smaller but still sizable names, nearly all are also dominated by their founders.

Western internet firms also have some notable cases where the founder remains in charge. But many are just as often headed by more professional CEO types. Cases of the former include Facebook and Google, though the latter notably tried to go the professional route before co-founder Larry Page came back and re-took the helm. But among more-midtier Western tech companies, founders often get pushed aside at an early stage to make way for more seasoned managers.

Such transformation rarely occurs in China’s big tech firms, with the result that these companies are often run by founders with little management experience. What’s more, many of these chiefs have the voting power to make sure nobody else can ever call the shots, with the result that they refuse to step down even when their houses are burning. One classic example was Dangdang, which had the potential to become an Alibaba or JD.com, but was ultimately mismanaged into its current state of oblivion by husband-and-wife co-founders Li Guoqing and Peggy Yu.

All of that brings us back to Jack Ma, Alibaba and the lessons they offer when it comes to the role of company founders. The biggest is that people who invest in these companies should be prepared to be just that: financial backers without any say in how the company is run, even when it’s being run into the ground.

That’s not a bad thing. In Alibaba’s case, though for a company like Dangdang it could be problematic. At any rate, we’ll have to watch closely to see if Ma really steps away from Alibaba, as he’s promised, or continues to exercise big influence even after his official departure. A true departure by such a storied figure would mark a huge step forward for corporate China, showing companies are making the transition from the corporate fiefdoms of old to more professionally run operations.

Doug Young has lived in Greater China for two decades, including a 10-year stint at Reuters, where he led China corporate news coverage. Send your questions or comments to DougYoung@caixin.com

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