By Robyn Mak
(The author is a Reuters Breakingviews columnist.)
HONG KONG, Nov 16 (Reuters Breakingviews) - An overhaul of JD.com's corporate governance is becoming more urgent. The $35 billion Chinese web retailer is expected to post another fall in quarterly earnings next week after having lost nearly half its market value this year. A cloud also hovers over the company following an allegation of rape against boss Richard Liu. Big backers have good reason to push him to loosen his grip.
At the same time, competition from Jack Ma'sAlibaba and the recently-listed Pinduoduo, as well as costly bets in supermarkets, artificial intelligence and such are crushing the net margin. JD's target is between 1 percent and 2 percent this year. Daiwa Capital Markets analysts expect a razor-thin 0.4 percent. Adjusted earnings in the three months through September are also forecast to halve year on year for the second consecutive quarter, China Renaissance analysts reckon.
Part of the problem is the leadership crisis hanging over Beijing-based JD. Prosecutors in Minnesota are deciding whether to bring charges against Liu, who was arrested in August on suspicion of criminal sexual misconduct and later released. The chairman and chief executive, who has denied the charges through his lawyer, wields 80 percent of the vote while JD's board is not allowed to make decisions without him.
Major shareholders include Chinese tech titan Tencent and U.S.-based Walmart. The two own a combined 28 percent economic stake in JD. Despite having only 7 percent of the vote, they can still agitate for change. Tencent's president sits on JD's board and the social media and gaming group is a valuable partner and ally.
Succession planning should be one major item on the agenda. Unlike Alibaba, whose CEO is preparing to take over for Chairman Jack Ma next year, JD lacks an obvious second in-command or successor to Liu. Having a separate and independent chairman to lead the board would be worthwhile, too. The company has already waited too long to make these changes.
- JD.com, China's second largest e-commerce company, is due to report its financial results on Nov. 19 for the three months ending Sept. 30.
- Chairman and Chief Executive Richard Liu on Aug. 31 was arrested in the state of Minnesota on suspicion of criminal sexual activity. He was released in less than a day without charges or a bail requirement.
- U.S. prosecutors are weighing whether to bring charges against Liu after the Minneapolis Police Department turned over the findings of its initial investigation into accusations of rape, according to a statement released on Sept. 21 by the Hennepin County Attorney's Office.
- JD.com wrote in a statement on Sept. 6 that Liu had "resumed his work at JD.com and there is no interruption to our day-to-day business operations." It added that he would be willing to cooperate further with law enforcement.