Jack Ma, Pride and Shame

Jack Ma is presently a subject of criticism in Caixin. The dispute with Yahoo and Softbank may prove to be more dangerous than the legal implications for Alibaba’s founder and president. His behavior has trespassed the boundaries of law and disturbed the sanctities of ethical behavior and loyalty to his partners and shareholders.
The scale of this is so big that China Daily, Beijing’s mouthpiece, has already widely covered the issue. Other prestigious newspapers, including SCMP, the Financial Times and The New York Times, have treated the story prominently as well. It has been revealed that Jack Ma sold Alipay, the financial services unit of Alibaba which owns the technology needed to process online payments securely for Alibaba, and potentially for many others, to a company he owns personally. The price, parties and opacity of the deal permit few to imagine he was only acting hastily to comply with an expected law that would restrict foreign ownership of entities handling online payments.
Apparently, the sale was done at a steeply discounted price—a kindness arranged by Ma as CEO of Alibaba for a company he owns. The transaction took place in 2009 and 2010, but was not reported publicly until May of this year. Ma claims that the transfer was openly discussed in an Alibaba meeting in 2010 with representatives of the company’s overseas partners in attendance. This claim has not yet been supported by details as to which meeting, who was present, and data regarding the transaction itself and how it was approved. When was the sale initiated and completed? Which authorities were advised? What was paid? And not without consequence, what arrangements for Alibaba’s rights and protections as to future costs, shared technology and other business concerns were included in the deal?
Questions raised by Caixin go well beyond legal accusations. How was it possible for Ma to engineer this huge transaction without full scrutiny, without shareholder approval and without reporting full details to China’s securities bureau and Hong Kong’s SFC and HKSE? What are the broader implications of the sudden exposure of this 2009-10 large-scale financial maneuver, not widely disclosed until 2011, for China’s financial reporting reliability in the world? Apparently major shareholders, Yahoo and Softbank were not made aware of the specifics of the transaction, if not its occurrence altogether, until only recently. This poses an astonishing view of the biggest e-commerce company in China. Alibaba has been listed on the HKSE since 2007, where its IPO raised $1.7b—the second richest in the world for Internet companies after Google’s listing on Nasdaq in 2004. Questions as to disclosure and audit practices in China are being raised yet again in the financial world. Negotiations are presently ongoing with Yahoo and Softbank. The eventual result might involve legal action as well as financial compensation including the costs of reaching a settlement.
This breach of fiduciary ethics as well as financial disclosure laws reaches far beyond the dispute—a view highlighted by Caixin. No country expecting to be recognized as a magnet for financial investments can tolerate such brazen infringements of the law, and of internationally sanctioned business conduct. The Chinese government will need to reshape its regulation of online payments, and of the companies that handle them as well as their ownership. (The new law has been delayed so that it can incorporate more specifics.) Transparency and fiscal propriety are cornerstones of the country and society China is building. To respect the rules is not an obstacle so much as it is the quickest way to success with the best of aims.
Hu Shuli, Caixin’s editor, put it clearly: “A contract requires credibility and integrity. A violation leads to imbalance and weakens an enterprise. So Ma is paying a heavy price: The international business reputation that he has been building for years has been tarnished, and prospects for Alibaba’s long-term growth have been diminished.” She added, “More importantly, the asset transfer without permission created a negative spillover for the wider Chinese business community. Contracts and property rights are the cornerstones of a market economy. A breach of either would undermine trust, which in turn would raise transaction costs”.
This matter is social as well as economic. The society should intensify its focus on modernization, with a true meritocracy and the highest professional standards in all pursuits. Genuine and durable success is achieved with competition and a free market, not with opacity and cronyism, say less of such off-the-level and self-serving dealings as Ma appears to have attempted as Alibaba’s CEO.
Caixin’s experience with journalism has created an example of the longer view. Having kept credibility as a cardinal aim, the independence and authority of what it offers to readers is borrowed rather than battered by others. If investigations and analysis are appropriate, as with the Jack Ma example, other media follow the story closely as well, and important news receives the attention it merits. This helps to keep the pressure on until the whole tale is told, not just a foul-smelling smoke released with no eventual clarity as to what has happened and who shares the responsibility.
* This article was published in Italy’s leading economic news agency, Radiocor Il Sole 24 Ore

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