Alibaba Group was founded in 1999 in Hangzhou, China by Jack Ma and other 18 people. In October 1999, January 2000 and February 2004, Alibaba Group raised USD 5 million, USD 20 million and USD 82 million respectively. In September 2014 and November 2019, Alibaba Group was listed on the New York Stock Exchange and the Hong Kong Stock Exchange respectively.
Alibaba Group Holdings Limited, the main body of Alibaba’s listing, is a company limited by shares registered in the Cayman Islands under the Cayman Islands Company Law. The company’s authorized capital is US$100,000, divided into 32 billion common shares, each with a par value of US$0.000003125.
In order to “ensure the sustainable development of its mission, vision and values”, Alibaba Group established a partnership system in July 2010. From the perspective of corporate governance, Ali partners have the right to nominate and appoint a simple majority of board members under specific conditions (the nominated directors fail to be elected at the general meeting of shareholders). This is a unique and different conventional rules for the nomination and appointment of directors. The Cayman Islands company law with great freedom, the NYSE listing rules that highly respect the autonomy of companies, and the weighted voting rights structur in the Hong Kong Stock Exchange listing rules all give Alibaba a partner system. Implementation provides conditions.
The Ali partner system consists of a two-tier decision-making structure for the general partner meeting and the partner committee, all of which are based on the one-person-one-vote rule. New partners are elected every year. Existing partners nominate the partners to the partner committee. After the partners committee evaluates and decides, the final nominees are submitted to the general meeting of partners. The new partners will be elected by more than 75% of the votes. partner. The partner committee consists of 5 to 7 members, and currently has 6 people including Ma Yun, Cai Chongxin, Zhang Yong, Peng Lei, Jing Xiandong and Wang Jian. The term of office of the members of the partner committee is three years, and the term of office may be multiple. The members of the partner committee are elected once every three years. In each election, the candidates are proposed by the partner committee, but three more places are required, and a difference election is implemented.
Ali partners have the right to nominate or appoint (if the nominator is rejected by the general meeting of shareholders) a majority of directors. The decision of Ali partners to nominate candidates for directors shall be made by the Ali Partners Committee to propose candidates to the general meeting of all partners, and more than half of the general meeting of all partners agrees to elect. These candidates can be Ali partners or other qualified candidates. If the director nominated by the Ali partner is not elected at the general meeting, the Ali partner has the right to appoint another person as a transitional director until the next annual general meeting. At the next annual general meeting of shareholders, the transitional director or other alternative candidates nominated by Ali partners (not the director candidates who were previously unsuccessful) shall be elected as director candidates by the general meeting of shareholders to fill the original director seats and remaining term of the unsuccessful candidate ( The term of office of each director is three years).
The modification of the Ali partner agreement requires the consent of 75% of the partners present at the partner meeting, and such a partner meeting requires more than 75% of the partners to attend before it can be held. The purpose of the partnership system in the Ali partner agreement and the amendment to the terms of the nomination and appointment rights of Ali partners need to be approved by a majority of directors and independent directors nominated or appointed by non-Ali partners on the Alibaba board of directors. These nomination rights and nomination procedures are incorporated into Alibaba’s Articles of Association. The amendment to the relevant provisions of the Articles of Association regarding the nomination rights of Ali partners requires 95% of the shareholders’ voting rights to agree to the annual general meeting.
It takes up to 95% of the shareholders’ general meeting to agree to the percentage of votes to modify the relevant provisions of the Alibaba company’s articles of association regarding the nomination rights of Ali partners, so that the Ali partner system has a great strength to shield the long-term sustainability of the impact of the company’s shareholders and changes in the shareholding structure sex. At the same time, the directors and independent directors of Alibaba Company nominated by non-Alibaba partners have the right to approve the amendments to the terms of the Alibaba partner agreement concerning the nomination rights of directors. Its mode of operation is extremely stable, and it can even be said to be a kind of solidification, which is difficult to change. If a system works well and the actual effect is very good, long-term continuous and difficult to change is a good thing, but if the actual operation is not smooth or the effect is not good, long-term continuous and difficult to change is not a good thing.
Let’s first look at the composition of Alibaba’s board of directors and its changes under the partner system, and then further analyze the corporate governance issues under the partner system, especially its director nomination and appointment rules.
Alibaba board of directors: dual classification of nomination and tenure
According to the information on the Alibaba Group website (August 28, 2021), the board of directors of the Alibaba Group consists of 5 executive directors, 1 non-executive director and 5 independent directors, a total of 11 people. They were nominated by Ali partners, the company’s major shareholder Softbank, and the company’s board of directors’ nomination and corporate governance committee.
These 11 directors are divided into three groups due to the nomination of Ali partners, major shareholder Softbank and the company’s board of directors nomination and corporate governance committee, etc., and are also divided into three groups according to the beginning and ending time of each term of office. Group. The directors nominated by each of the three nominating parties are roughly evenly distributed among the three groups with staggered tenure. The three groups of directors are the same except for the beginning and ending time of their terms. They are all three years as a term. They will be re-elected at the annual general meeting when their terms have expired to start a new three-year term.
Staggering the term of office of directors is a more common type of classified director arrangement, and the Alibaba Group website also indicates that it is a classified board (Classified Board). Due to the partnership system, Alibaba’s director nomination rights are directly allocated to the three aspects of Ali partners, major shareholder Softbank, and the Board’s Nomination and Corporate Governance Committee. We can regard this as a unique allocation of director nomination rights. The classification board.
Composition of Alibaba’s Board of Directors (2017/2021)
Note: Those with / after the name are in office in 2017 and resignation in 2021. Those with / in front of their name are not in office in 2017 and in office in 2021. Those with no mark before and after the name / are in office for both years. The post and term columns in the table are also marked in the same way, that is, the post title / indicates that the position was held in 2017, the mark / before the title name indicates that the post will be held in 2020, and the absence of / indicates that the post will be held in both years. Source: Alibaba Group website information compilation, September 6, 2017 and August 28, 2021.
Compared with 2017, the main change in the composition of Alibaba’s board of directors is that both Sun Zhengyi and Ma Yun withdrew from the board of directors of Alibaba. Sun Zhengyi’s directorship was taken over by Kabir Misra. Ma Yun’s three positions on the Alibaba Board of Directors, Chairman of the Board, and Chairman of the Nomination and Governance Committee of the Board of Directors were taken over by Wu Wei, Zhang Yong and Cai Chongxin respectively. Jack Ma is also a partner of Alibaba and a member of the Partner Committee (Alibaba Group website information, August 28, 2021).
The Ali partner system has been established for more than ten years, and it has been 7 years since it was listed on the New York Stock Exchange in 2014. During this period, there have been 6 annual director elections of listed company shareholders, and it seems to be running smoothly. On August 10, 2021, Alibaba issued a notice to hold the 2021 Annual General Meeting of Shareholders on September 17. The No. 1 proposal is to elect 3 directors. The candidates are Cai Chongxin, Michael Evans and B? rje Ekholm, all three of them have expired at the 2021 annual general meeting of shareholders. The company’s announcement stated that the three persons were elected to serve as the company’s first group of directors. The above-mentioned persons will serve for three years or until their successors are elected or appointed and obtain appropriate qualifications. Jing Xiandong, who also expired at the 2021 Annual General Meeting of Shareholders, did not appear on the list of candidates. The number of board members will be reduced by one, and thus the number of independent directors will account for half.
Alibaba’s partner system and director nomination rules
In an internal e-mail to Alibaba employees on September 10, 2013, Jack Ma said: “Since 2010, the group has begun to pilot the’partner’ system within the management team, and new partners are selected to join each year. Partners As the company’s operator, business builder, cultural inheritor, and shareholder at the same time, it is most likely to adhere to the company’s mission and long-term interests and create long-term value for customers, employees and shareholders… The emergence of Alibaba partners Must be based on “worked at Alibaba for more than five years, have excellent leadership skills, highly identify with the company’s culture, and have a positive contribution to the company’s development, and be willing to do their best for the company’s culture and mission inheritance… The person who controls this company must be A partner who adheres to and inherits Alibaba’s mission culture. “It can be clearly learned from this that Alibaba must be controlled by these “partners.” An important means to achieve this goal is to nominate more than half of the directors by
Alibaba partners. Alibaba said, “Alibaba partner system Unlike the dual share system where high-voting shares are concentrated in several founders, the partners of the Ali partner system can be dynamically adjusted to include a larger management group. Taking into account the fact that the founder always retires, this approach can maintain the company culture shaped by the founder for a long time. “From the perspective of the core content of the Alibaba partner system, this approach can indeed reflect the will of a wider range of management groups than the dual share system.
In order to make the partner system implement the corporate governance rules, Alibaba The company’s articles of association stipulate a set of special director nomination rules. The company’s articles of association stipulate that Ali partners have the right to nominate more than half of the directors, and that such directors shall be distributed as far as possible among the groups of directors with different tenures. In the partnership by Ali If the directors nominated by the person do not account for the majority of the board of directors, the Ali partners have the right to nominate new director candidates so that the directors nominated by the Ali partners on the board of directors account for the majority.
As a listed company, the nomination of independent directors has a set of corporate governance rules that must be followed. Ali partners belong to the management group of the company. Non-Executive Director). In US listed companies, ordinary non-executive directors are few in number, and independent directors usually have a majority of the board of directors. This makes Ali partners have the right to nominate a majority of directors in the company’s articles of incorporation. They must be fully in place and account for the majority. They are faced with the problem of irregular corporate governance practices, which will damage the company’s image.
When SoftBank holds no less than 15% of Alibaba’s shares, it has the right to nominate one director. In 2017, Sun Zhengyi and Kabir Misra, who are currently members of the board of directors, were the directors nominated by SoftBank. Directors nominated by SoftBank have the right to receive notices and materials from all committees of the board of directors, and participate as observers in the meetings of the audit, remuneration, nomination and corporate governance committees of the board of directors, and any other committees that the board of directors may establish. This is actually giving Softbank’s directors a special right to know the board of directors.
Under normal circumstances, in accordance with the company law and corporate governance rules, all joint-stock companies, especially listed companies, must entitle small and medium shareholders who have reached a certain proportion of shares to submit proposals (including the proposal of director candidates) and propose to convene the shareholders meeting in accordance with the rules. And the right to convene an extraordinary general meeting of shareholders in accordance with the rules. According to the above-mentioned Alibaba director nomination rules, small and medium shareholders can nominate company directors only through the nomination and governance committee of the company’s board of directors. But what if the nomination and governance committee of the company’s board of directors refuses to accept it?
The arrangement of classified directors based on the nomination rights of directors under the Alibaba partner system is different from the staggered term of directors used to deal with the threat of mergers and acquisitions (Alibaba also uses this classification), and it is also different from the Classified director arrangements for shareholders or share classes (Alibaba does not implement a hierarchical share system, and only issues one kind of ordinary shares, with the same shares with the same rights). Although all Alibaba “partners” are shareholders of the company, this is only a qualification requirement. The power they have as a “partner” and as a “partner” is not directly linked to the company shares they own. The “partners” voted by individual rather than by the shares held to produce their final list of nominees for directors. In addition, the “partners” have only the right to nominate the majority of seats on the board of directors, and the director candidates nominated by them must be formally elected through the general meeting of shareholders of the company as a whole, not by those who hold the company’s shares. “Partners” (or management and employees) as a special class of shareholders can be elected separately.
Alibaba’s director appointment and dismissal rules
The usual rule for the appointment of company directors is that the company’s directors are elected by shareholders according to their voting rights at the company’s general meeting of shareholders. The right to nominate directors is jointly owned by the company’s board of directors and the company’s shareholders holding more than a certain percentage of shares. The number of nominated directors can be more than the actual number of directors to be elected by the general meeting of shareholders. The final winner is determined from the highest to the lowest among the candidates with a majority of votes.
If the company’s director nomination rules under Alibaba’s partner system are only a distribution of director nomination rights, its role in the actual company board composition decision will be very limited. The directors of the company nominated by Ali partners still have to be elected by the company’s shareholders through the company’s general meeting of shareholders. The final decision on who can become a company’s director is still in the hands of the general meeting of shareholders. In fact, in conjunction with this set of director nomination rules, Alibaba’s articles of association also stipulate a set of special director appointment and dismissal rules.
The Articles of Association of Alibaba stipulates that in the event that any one of the nominated directors does not obtain a majority of the shareholders’ general meeting, the party who nominates the director has the right to appoint a different person to be the company’s director until the next company’s annual general meeting. Such appointments take effect immediately when the nomination submits a written notice to the company, without further voting or approval by shareholders or the board of directors. In the event of a vacancy of director seats due to resignation, death or dismissal, the nominating party of such directors shall have the right to appoint new directors to be succeeded until the next annual general meeting of shareholders. This means that Alibaba shareholders can refuse to appoint a specific director nominated by a party at the general meeting of shareholders, but they cannot prevent the party from arranging other candidates to replace him as the company’s director until the next general meeting of shareholders. It can also be said that the three parties with the right to nominate (including the Ali partners of course) have the right to appoint transitional directors within the scope of their nomination rights under certain conditions (the nominated directors are rejected by the general meeting of shareholders).
Regarding the dismissal of directors, Alibaba’s articles of association stipulate that directors will be automatically dismissed under the following circumstances: 1. Death, bankruptcy or debt crisis; 2. Bad behavior; 3. Individual directors notify the company to resign in writing. In addition, directors nominated or appointed by Alibaba partners can only be dismissed by Alibaba partners; directors nominated or appointed by Softbank can only be dismissed by Softbank; directors nominated or appointed by the company’s board of directors and corporate governance committee, by the board of directors based on nomination and corporate governance The committee’s proposal shall be dismissed by a majority vote. Compared with the nomination and appointment rights of directors, in terms of director dismissal, Alibaba’s articles of association do not restrict the rights of shareholders. “Any director can be dismissed by a resolution of the general meeting of shareholders.”
When Alibaba initially disclosed its partner system, we did not see its special director appointment rules and pointed out that a deadlock might occur. Now according to its special director appointment rules, in the event that nominated director candidates have not been approved by the general meeting of shareholders, the nominating party of the director can appoint transitional directors until the next annual general meeting of shareholders. At the next annual general meeting of shareholders, the nominating party may nominate the transitional director or other candidates as director candidates, and the shareholders shall elect to become a full-fledged director, completing the remaining term of the director’s seat. To a certain extent, this solves the deadlock problem that we pointed out at the beginning of “the nomination of partners will be rejected by the shareholders’ meeting, and the partners will nominate again and the shareholders’ meeting will refuse again”. However, shareholders also have the unrestricted right to dismiss directors. “Any director can be dismissed by the resolution of the general meeting of shareholders.” If the general meeting of shareholders does not have to be the company’s annual general meeting, then if the shareholders pass an extraordinary general meeting to dismiss the nominating party The “transitional directors” of the United States may still be deadlocked.
The development of the enterprise system originated from the adjustment of the cooperative relationship between business practices and businessmen, a result of a compromise reached in a game and mutual struggle. Alibaba’s “partnership” system is essentially such a system development, although this result is not yet a balanced solution, but also unstable and unreliable.
The “partner” system as a company control mechanism
Alibaba’s “partner” system has nothing to do with the original meaning of the concept of partner. These “partners” do not assume the unlimited liability of true partners, nor do they have the statutory and inalienable management power of true partners. The true partners are the partners of the general partnership, the general or management partners in the limited partnership, and the unlimited liability shareholders of the partnership.
As a corporate governance mechanism and corporate control arrangement, Alibaba’s “partner” system has inherent flaws in corporate governance logic. Its partner is an organization whose behavior cannot be anticipated by the outside and whose personnel boundaries are also uncertain. Every year, partners can nominate and elect new partners. This is a self-perpetuating oligarchy. Shareholders, employees and other company stakeholders have no clear control and accountability path for it. This kind of organization that proclaims itself as a company’s “partner” but is not actually a true partner is “most likely to adhere to the company’s mission and long-term interests”, but it is also most likely to reject it in the name of “company’s mission and long-term interests” And ignore the interests of other stakeholders in the company. The simplest question here is who will supervise and control the possible corruption and abuse of power by this partner group, even though its power is actually not very large.
It is at this point that we say that Alibaba’s “partner” system is fundamentally different from the hierarchical share system and voting trust system. Both the hierarchical shareholding system and the voting trust system have clear contract binding mechanisms. The hierarchical share system makes it clear at the time of the IPO that the proportion of voting rights attached to the newly issued shares is lower than the shares reserved by the company’s founder team and existing shareholders. New subscribers can weigh the potential risks here before deciding whether to participate. And the voting rights here are directly granted to the corresponding class of shares, rather than directly to the relevant personnel. The relevant personnel have more voting rights because they hold the corresponding voting rights than the major shares. In addition, in any case, under the hierarchical share system, the relevant persons with more voting rights still have their voting rights directly determined by the number of shares they hold, that is, the logic of having more shares and greater voice is not fundamentally changed. In fact, we can completely regard the hierarchical shareholding system as a modern version of a two-part company. The two types of shares issued by the partnership company are unlimited liability shares and limited liability shares. The former has management power and the latter has no management power. Graded stock companies issue two types of shares: shares with a higher proportion of voting rights and shares with a lower proportion of voting rights. The former has larger shareholder voting rights and the latter has smaller shareholder voting rights. As for voting trust, it has nothing to do with the company in essence, and is entirely a contractual behavior between related parties. If you get trust or pay a certain amount of consideration, you will get the corresponding voting entrustment. If you can’t get the trust or the consideration is not paid enough, you won’t get the corresponding voting entrustment. The contractual governance of the signatories can control this power derived from voting trusts.
Due to the influence of the Alibaba partner system, many Chinese companies have implemented a variety of specific practices called the “partner system”, the main purpose of which is to maintain management’s control over the company.
Alibaba’s “partner system” is essentially a special classified director system. Through the company’s articles of association, a certain percentage of director nomination rights and directors under certain conditions are given to a management and affiliate group called a “partner” Appointment power. As a company control mechanism, compared with the standardized classified director system and hierarchical shareholding system, the special arrangement of Alibaba’s “partner” system has the artificial controllability of the adjustment of the “partner” boundary. Vanke’s “business partner” system actually only allows some company managers and employees to be more connected with the interests of the company’s shareholders through an indirect shareholding arrangement. The indirect shareholding of employees under Vanke’s “business partner” system is more conducive to the management’s actual control of the voting rights of this part of the shares than the standard employee direct shareholding.
Obviously there are standardized and clear hierarchical share system, classified director system, and employee shareholding system available for adoption. Why bother to concoct a so-called “partner system” with a confusing concept? It can be said that the preference for the rule of man, distrust of the rule of law, and insufficient understanding of modern corporate governance mechanisms have led to the emergence and prevalence of the so-called “partner system”.
