JD.com investors frightened by "key human risk" after CEO accused of rape

HONG KONG / SHANGHAI (Reuters) – A US police investigation into an alleged rape of JD.com Inc. CEO Richard Liu has hammered the e-commerce giant's actions. from other leaders to challenge him.

Liu was arrested and released without charge in Minneapolis last week. Through his lawyers, he has denied any wrongdoing.

While the technology industry is known for the unconventional control that founders, like Liu, have over their activities, Chinese technology leaders tend to be all-powerful, exacerbating governance risks.

Liu's control over JD.com in particular has raised the company's rules, which make it virtually impossible for the board to make decisions without it.

"There is so much more hierarchy and less willingness to challenge the boss and less collective leadership around Chinese leaders," said James Robinson, general manager of APCO Worldwide PR in Shanghai.

Robinson added that it aggravated the feeling of crisis and confusion when the news broke out. JD.com's communications team stated that the police had "promptly determined" that there was no substance to the complaint against Liu while the investigation was still ongoing and took almost two days to acknowledge that she had been detained by the police during the night.

"If your top person is in a Minnesota jail, then it could be a lack of decision-making power," he said.

Liu was arrested last Friday in Minneapolis and detained by police just over 16 hours before being released. No deposit has been fixed. The police are still investigating. His lawyers said they do not expect charges to be laid.

According to Minnesota law, the maximum sentence if found guilty of first degree sexual assault is 30 years old and the minimum is 12 years old.

During the two days of trading since the arrest, JD.com has lost $ 7.2 billion, or 16% of its value in the market, also fearing that the case will divert its customers from its website.

Liu holds approximately 16% of the shares of JD.com. But his power is amplified by weighted voting rights that give him nearly 80% of the company's votes and the provision prohibiting the board from making binding decisions unless Liu is present, in person or by teleconference, as long as he is an administrator.

If he is not present, the board can only make decisions with his permission or if he is ill. The clause explicitly excludes that this be allowed during "any incarceration against his will," suggesting that he could keep control even in jail.

"We can not think of any other company with such items," said Jamie Allen, secretary general of the Asian Corporate Governance Association.

"I find it disconcerting. Liu already has weighted voting rights, so he can control the company, he is the founder. I do not think any of the board members would dare to make a decision without him, so why would he need to do it?

The JD.com board members did not respond to requests for comment. The company declined to comment on governance issues and its initial response to Liu's arrest.

WHO IS NUMBER 2?

Other critics of society pointed out the difficulties in identifying Liu's strongest lieutenants, if he was unable to continue to run the company.

"You only see Richard Liu's fingerprints throughout the company. That's why you look at the management team – who is number 2? Can you name the # 2 in JD? ", Said Wong Kok Hoi, founder and chief technology officer of APS Asset Management, who presented his case for the shortening of JD.com in Hong Kong in May.

The position of Operations Manager at JD.com has been vacant since Shen Haoyu, who held this position since 2011 and was in charge of the main business of JD Mall, left his position in 2016. He has since left the post. farm and moved to Hillhouse Capital.

Jacob Williams, director of corporate governance of the Florida State Board of Administration, which oversees pension assets, including about 158,000 JD.com shares, said Liu's tight control over the company meant he was more at risk for the company. outside investors.

"It really creates restrictions for minority shareholders in terms of available options," he said, including making it more difficult to remove the CEO or change the director.

Few things would change unless JD.com shareholders weigh more, Williams said. "It certainly helps the company to hear the shareholders. It will take more than a few shareholders to get the message across, "he said.

The funds with the largest holdings in JD.com include the Dodge & Cox International Stock Fund and Vanguard funds, including the Vanguard Emerging Markets Equity Index Fund. Representatives of both companies declined to comment on Liu's arrest or JD.com's ownership structure.

A representative from another major investor, the Canada Pension Plan Investment Board, said by email: "We will not comment beyond that as with our portfolio in general; we evaluate in a consistent way.