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Alibaba’s 36 partners form the foundation that lets Jack Ma spend time on the beach

11/9 2018 14:30

The company co-founded by Jack Ma, the most recognised name among Chinese entrepreneurs, was never meant as a one-man show. His first step in walking away shows his confidence in the collective he has built

Jack Ma’s year-long plan for handing over Alibaba Group Holding’s chairmanship to his protégé Daniel Zhang has put the e-commerce group’s unorthodox succession strategy into focus, casting itself as a stark contrast to the one-man power structure that pervades many of Asia’s businesses.

Less known, to many people, is the structure at the very core of the US$420 billion company, with more than 86,000 employees in businesses that stretch from cashless payment to cloud computing, e-commerce, sports and Hollywood movies.

The Alibaba Partnership, established almost a decade ago, was the foundation that gave Ma the confidence to announce his 12-month succession plan this week.

It began with a question that Ma - known to his colleagues as Teacher Ma - posed to senior executives 10 years ago: What would Alibaba do without Jack Ma?

“A sustainable Alibaba would have to be built on sound governance, culture-centric philosophy, and consistency in developing talent,” Ma said in a letter this week to all employees. “No company can rely solely on its founders. Because of physical limits on one’s ability and energy, no one can shoulder the responsibilities of chairman and CEO forever.”

The partnership comprises 36 partners, six of whom are among Alibaba’s 18 co-founders, including Ma and vice-chairman Joe Tsai. The remaining partners are executives who have worked for at least five years at Alibaba, or its affiliates like Ant Financial, each with a proven track record of contributing to the group’s business.

They are elected into the partnership by their peers. One in three partners is a woman, and the group admits up to four new members every year, while retiring up to two from the partnership.

The process of admission is rigorous: years of vetting by peers, where they must be nominated by three existing partners, and need to muster 75 per cent of the votes of all existing partners.

Over the years, new partners include chief executive officer and chairman-designate Zhang, Ant Financial’s president Eric Jing, Alibaba’s chief technology officer Jeff Zhang and Alibaba Cloud’s president Simon Hu, according to the company’s governance disclosure. Ma is a permanent member of the partnership.

The partners have the exclusive right to nominate a simple majority of Alibaba’s board of directors, subject to shareholders’ approval during the annual general meeting.

That means at any one time, the company’s senior executives can hand pick the majority of Alibaba’s board of directors.

Five of the 11 directors on the company’s current board are nominated by the partnership. The remaining five independent directors include Hong Kong’s first Chief Executive Tung Chee-hwa and Yahoo!’s co-founder Jerry Yang. Softbank’s founder Masayoshi Son is deemed a non-independent director because of the holding conglomerate’s 29 per cent stake in Alibaba.

This reduces the risk of hostile takeovers in the board, and ensures the execution of corporate plans according to Alibaba’s vision, said associate professor Lawrence Loh, director of the Centre for Governance, Institutions & Organisations at the National University of Singapore.

“The last thing they want is to subject the company to offers by other companies, which might turn things topsy-turvy,” Loh said. “The internet business is so fluid and the direction and trends change [so often] that you don’t want another firm coming in and trying to turn your company into a different animal.”

The partnership does more than just nominate directors. Partners must also have “a high standard of personal character and embody the mission, vision and values of the firm,” according to its governance statement, which means every nominee must personify the company’s corporate culture to even qualify.

It is this unique combination of corporate structure, talent development and cultural sustenance that has enabled Ma, the youngest among Asia’s three wealthiest men, at 54, to walk away from a business empire that is barely out of its teens.

“There’s a saying in Chinese, that wealth cannot be passed to the third generation,” said Joseph Fan, co-director of the Institute of Economics and Finance at the Chinese University of Hong Kong. “This problem may be prevalent among wealthy families all over the world, but is particularly serious in Asia.”

The success of many Asian companies depend on whom the leaders are, more so than other regions, said Fan, who co-authored The Family Business Map: Assets and Roadblocks in Long Term Planning.

“In other words, this is a culture of relationships, or guanxi,” Fan said. “Whether an investor wants to put money in your company, or whether a partner wants to do business with you, depends on who your leader is.”

This culture was thrown into sharp relief with the August 31 arrest in Minneapolis of JD.com’s founder and chief executive Richard Liu Qiangdong. Although released from police custody and back at work in Beijing by September 4, his brief detention raised questions over whether one of China’s largest e-commerce company could effectively function without him.

According to the company’s by-laws, Liu “has considerable influence over matters such as electing directors and approving material mergers, acquisitions or other business combination transactions.”

Moreover, under the current rules of JD.com, “the board of directors will not be able to form a quorum without Liu for so long as Liu remains a director.”

That would be the kind of concentration of power and influence that Alibaba, the first Asian company to surpass US$500 billion in market capitalisation, tries to avoid.

“We wanted to make sure that the company would not rely on one or two persons, or on its founders,” Ma said in a weekend interview with the South China Morning Post, wholly owned by the Hangzhou-based company. “Alibaba should build a system, cultivate a culture and lay down a succession plan. I told the team we should start to plan when the company is still young, to create a long term plan for Alibaba’s growth.”

To be sure, the partnership - and its unique ability to nominate directors - did not sit well with everybody, not least the One Share, One Vote principle in Hong Kong.

As a result, Alibaba eschewed Hong Kong for its US$25 billion initial public offering in 2014, instead picking New York as the market for raising funds. That IPO still holds the record as the largest in global finance.

Subsequently, Hong Kong’s securities regulator and stock market operator last year pushed through the biggest regulatory reform in the city’s financial system in three decades to enable Alibaba and other technology companies to raise capital.

“Internally, the Alibaba Partnership gives the company a stronger voice, but it could also be said that shareholders have limited influence over the partners,” said David Lee, a senior lecturer at the Faculty of Business and Economics at the University of Hong Kong. “The partnership mechanism is not unique in organisations, but it is unique in listed companies” like Alibaba, he said.