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'Key Man Risk' Fears Among Investors Sees JD.Com Shares Taking A Hit After CEO Arrest

'Key Man Risk' Fears Among Investors Sees JD.Com Shares Taking A Hit After CEO Arrest
The shares of Chinese e-commerce giant Inc were battered after investors were spooked by a U.S. police investigation into an allegation of rape against the firm’s CEO Richard Liu. Investors are also worried about the strong grip that the CEO has on the company without the existence of a second layer of leade5rhsip in the company who can challenge the CEO.
Last week, the police of US city of Minneapolis arrested Liu and later released on allegations of rape. The CEO has denied the charges through his lawyers.
Founders of tech companies and startups are known to have tight grip on their companies in a manner that Liu has over his company, for Chinese tech companies this grip is far tighter which enhance governance risks of such companies.
The rules at are frame din such a manner that the company board can virtually take no decisions without the presence of Liu and this revelation has spooked investors.
“There is so much more hierarchy and less willingness to challenge the boss and less collective leadership around Chinese iconic leaders,” said James Robinson, managing director in Shanghai for public relations firm APCO Worldwide.
The sense of crisis and confusion in the company had been compounded by this after the news first came to light, Robinson added. The media communications team at was quick to state that the US police had been able to “quickly determined” that the charge of rape against Liu did not have much support in terms of evidence despite the fact that the investigations had just begun. Later the company conceded that the CEO had been held overnight at the police station.
“If your top person is in a jail in Minnesota, then it could be a question of a lack of decision-making authority,” he said.
Liu had bene kept in police custody for a little over 16 hours last Friday in Minneapolis before he was released. No bail was set and the police are still investigating the case. His lawyers have said that they do not expect charges to be laid.
If under the state laws of Minnesota, an individual would be subjected to a maximum of 30 tears and a minimum of 12 years of imprisonment if found guilt of first degree sexual assault.
There was a loss of 16 per cent or about $7.2 billion of its market value for in two days of trading since the arrest of Liu. The fall was also fueled by fears that customers would be driven away from the website by the case.
About 16 percent of’s shares are owned by Liu. But the real power and control of Liu comes from the weighted voting rights rules of the company which gives the founder about 80 per cent of the votes of the company and rules of the company that no binding decision can be taken by the board without the presence of Liu. The CEO has to be present either in person to through teleconference for as long as he remains a director of the company.
Decisions are made by the company’s board only with his permission or if he is sick in case Liu is not present in such meetings. The rules of the company also stipulate that the clause for decision making by the board in absence of Liu would not be applicable if he was faced with “any confinement against his will” which essentially means that he can even control the company even when he is in jail.
“We can’t think of any other company that has such articles,” said Jamie Allen, general secretary of the Asian Corporate Governance Association.
“I find it baffling. Liu already has weighted voting rights, so he can control the company, he is the founder. I don’t think any of the board would dare make a decision without him, so why would he need to do this?” said Allen.
No comments from was available on the issue.

Christopher J. Mitchell

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