Alibaba only listed in New York because Hong Kong Stock Exchange, a more natural home, insists that shareholders have a say over management in keeping with their stake. The firm’s owners, who balked at this notion, took their business to a more pliable venue. Technically, every Alibaba share has equal rights, but they are circumscribed ones. A pre-defined cabal of 30 managers of Alibaba or related companies, including the firm’s chairman, Jack Ma (pictured above), will control nominations to a majority of seats on the board. According to Alibaba’s prospectus, this group “may make decisions with which you [the shareholder] disagree, including decisions on important topics such as compensation, management succession, acquisition strategy, and our business and financial strategy”. ... There are good grounds for such misgivings. In addition to the risks that potentially lucrative takeovers may be prevented and poorly performing managers might prove impossible to dislodge, there is also the danger that those controlling a firm will make decisions that benefit them, at the expense of other shareholders. A study published in 2012 by the Investor Responsibility Research Centre Institute, a think-tank, concluded that American companies that diverge from the principle of one-share-one-vote suffer from lower returns, higher share-price volatility and various other ills including weak accounting controls and damaging transactions with related parties. Much other research corroborates these findings. It does not help that Alibaba does not own the websites that generate its revenues (it could not list in New York if it did, since Chinese law bars foreigners from owning local websites). Instead, the listed firm owns the rights to those revenues, under a type of contract that it believes to be valid but, its prospectus admits, is the subject of “substantial uncertainties” under Chinese law. economist/news/finance-and-economics/21618889-more-worlds-big-stockmarkets-are-allowing-firms-alibaba-sideline
Posted on: Thu, 25 Sep 2014 03:32:24 +0000