General speaking, the standard path of measuring the corporate governance of a company is to look at the corporate charter and the composition of its board of directors. According to the Institutional Shareholders Services (ISS), measures in evaluating corporate governance can be distinguished into four main pillars, namely the audit pillar, the board pillar, the shareholder rights pillar and the compensation pillar.
The audit pillar refers to the financial filling manner of a company while the board pillar refers to the directors’ composition and compensation. The shareholder rights pillar means the hostile takeover restrictions. Last but not least, the compensation pillar means whether it is aligned with performance and the power of shareholders in setting it and how well it is being disclosed.
Talking about the corporate governance structure of Alibaba Group Holdings Limited, it could be first looking into the Board of Directors’ and its special “Partnership System” of Alibaba Group.
Alibaba was founded in 1999 by Former English Teacher, Jack Ma, and his associates and it is nowadays the world’s largest E-Commerce Company. According to the Wall Street Journal, the company currently handles 80% of China E-Commerce, with transactions of on its sites totaling $248 billion in 2013. * [2014 most up-to-dated figures to be inserted] By the end of third quarter of 2014, Alibaba's total sales reached $555.6 billion, with year-on-year growth of 48.7%. What is more, Alibaba's competition of international retail business is growing fast. In third quarter of 2014, the total sales from international retail business was $0.419 billion, a 17% increase compared with last second quarter.
The company operates several online marketplaces in China, including the Tmall, an Amazon-style online retailer; Taobao, an online auction site similar to eBay; and Juhuasuan, a Chinese version of Groupon. In additions, the company owns Alipay.com, the Chinese equivalent of Paypal; and has large stakes in Sina Weibo, China’s version of Twitter; and Youku Tudou, the closest Chinese equivalent to YouTube.*
One of the most significant corporate structure of Alibaba’s is its Partnership System. In the amended filing issued in June 2014, Alibaba Group Holding Limited laid out the full details on how does its partnership structure works. ** In publicly traded companies, the board members are being elected by the shareholders and normally have a say in the management of the company. However, the set-up of Alibaba partnership system has stripped even this minimal power away from shareholders. The 28-person unusual partnership structure (consisting 24 partners from Alibaba Group and 4 partners from associated companies) at Alibaba have the power to nominate a majority of the board members according to the people familiar with the structure. The Alibaba shareholders could turn down the director candidates nominated by the partnership, but then the partnership would go back to the drawing board and select new nominees for approval.*** As for minority directors, they will be elected by holders of a majority of the shares not including the shares of partners. If the partnership fails to obtain shareholder approval for its nominated candidates, it will be entitled “in its sole discretion and without the need for any additional shareholder approval” to appoint directors unilaterally, thus ensuring that its chosen directors always have a majority of board seats. ****Slightly different from dual-class structure which aims at letting small number of founders have voting right, partnership system aims at continuing the culture of Alibaba, and it shows the expectation of management on company long-term development. Rationale behind is that Alibaba can keep its controlling power by using this special partnership structure and it can help to preserve its innovative structure in a fast-growing economy and to reduce distractions from financial market...
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