Miao Yinzhi/Wen The first Babytree on the mother and baby Internet is experiencing infighting.
BabyTree, which was listed on the Hong Kong Stock Exchange on April 11, suddenly announced that Xu, who had been CEO for nine years, was removed from his senior management position, and was also "removed from his position as a director" and "no longer serves as an executive director" on this basis. According to the report, on the day of his dismissal, Xu forcibly entered his office, locked himself in it, refused to hand over the company's financial seal, cheque book, and refused to change the authority of the bank's authorized signatory, and did not carry out any handover. After the struggle was fruitless, Xu turned to report that Babytree was fraudulently listed.
As a former user of BabyTree, the author was surprised to see that the company re-entered the public eye in the form of high-level drama. I have no contact with BabyTree and its major shareholder, Fumou Group, and I will only make a brief analysis of general legal issues based on publicly available information. The turmoil has caused damage to all parties in the company, so there may be lessons for all practitioners of corporate governance.
Whether there are any problems with the procedure for the dismissal of directors and officers
BabyTree removed Xu's senior management from his position as a director, a decision that will take time to test whether it is smart at the operational level. But from a legal point of view, although the process is somewhat special, there is probably no problem.
Because according to China's Company Law, the board of directors can only dismiss one person from an executive position, and the removal of a director requires a vote of the shareholders' meeting. However, the "nationality" of BabyTree Group is different from the nationality of BabyTree's directors and executives. According to the exchange announcement, BabyTree Group was registered in the Cayman Islands. The rules of the Caribbean jurisdiction apply to corporate governance matters such as the authority of the board of directors.
The Cayman Islands is an overseas territory of the United Kingdom. The main industry in Cayman, the British Virgin Islands (BVI) and other places, besides tourism, is to attract companies from all over the world to register and set up companies (without actually operating locally). They have many institutional advantages.
First of all, there is no income tax on the registered company itself, only a certain registration fee. Therefore, enterprises set up "shell" companies in Cayman and other places for capital operation, and the cost is very low. Secondly, Cayman and other places belong to the common law system, which is highly consistent with the legal system of international financial centers such as the United States and the United Kingdom, and it is easier for registered enterprises to list in the United States and Britain. In addition, these places deliberately arrange the company law to be highly flexible, giving more authority to managers such as the board of directors to attract decision-makers in the company's operation.
Currently, the latest version of the Cayman Islands Companies Law is the January 2023 version published by the local Cayman legislature. Similar to the world's mainstream company law, this law provides that directors are elected by the shareholders' meeting (S1TA43). However, its S1TA67 section provides that directors can appoint one or more executive directors.
BabyTree announced that "Article 16.18(f) of the Articles of Association provides that directors must be removed from office by at least three-quarters (or the nearest lesser of the whole number) of the directors (including themselves) who are at least three-quarters (or the nearest smaller whole if not a whole number). In other words, the BabyTree charter allows a majority of directors to remove a director.
This rule is relatively rare, but there is also a bit of inherent balance. At least it does not stipulate a majority pass, nor an ordinary supermajority (2/3), but a "supermajority" (3/4).
Given that Xu is fighting fiercely, it seems that he has not publicly questioned this process. Due to the limited information available at hand, the legality of the removal process itself can be considered not controversial until there is a statement to the contrary or evidence to the contrary.
Should there be reasons for the removal of directors?
Different legal systems have different rules for removing directors. China, the United Kingdom, France, Japan, Italy, Brazil and other countries have stipulated that shareholders' meetings can remove directors without providing reasons; Germany, for example, needs to give reasons to oust directors before their term expires. The reason is generally that the director failed to perform his duties or failed to exercise due diligence.
This time, BabyTree announced a general reason that "the reason for the dismissal is that the Company is not satisfied with Mr. Xu's performance, and the Board believes that the dismissal is in the best interests of the Company and its shareholders as a whole", and announced a specific reason, stating that the reason for removing Xu from his position as an executive director was: "Mr. Xu unreasonably suspended the payment of employee wages under sufficient funds, and refused to approve the payable payments of multiple suppliers in a timely manner during the year." Therefore, the board believes that Mr. Xu's performance is not satisfactory" (the original text of the Chinese version of the exchange announcement, there are some problems with the second sentence, satisfied is satisfactory, satisfying should be "satisfactory").
The full background of this incident is not yet known to outsiders, but it is still puzzling to say so.
First, it is appropriate not to give reasons for dismissal unless necessary. As the old saying goes, a gentleman can never hand over an evil voice, and the cloud "makes money with anger". Having successfully taken someone else's inside, it is not necessarily necessary to cut people's face. I am not aware of the Cayman Companies Act that requires specific reasons to remove an executive director. Therefore, it is entirely possible to directly give conclusions and simply remove him from the position of executive director.
The purpose of the announcement is to report the current status of the company to investors. Investors need to know who is responsible for what in the company now, but the reason for the personnel change is not something that must be disclosed. If it is a voluntary disclosure, it can help improve the company's image. Unnecessary blaming of executive directors for deficiencies in the performance of their duties will only cause distress for the company. At best, a company may not know anyone, or at worst, it is difficult to escape joint and several liability for the misconduct of executive directors.
Second, the reasons for removal from office should pay attention to distinguishing between legality and reasonableness. Giving negative reasons for dismissal may be unscrupulous. However, if the negative reasons given are not very negative, they will not be effective and will be soft. The CFO is a senior executive and naturally has certain authority to decide on financial matters. If the CEO's decision to refuse to pay violates the law or the articles of association and is undoubtedly wrong, the company can deal with it in accordance with the rules, clearly explain the basis for determining his violation of the law, and do not let the public guess the seriousness of the matter.
If the delay in payment is due to the discovery of a major problem in the cash flow management of the financial officer, or even a more serious situation such as a black hole of financial funds, which triggers further investigation, the company does not need to stop talking, but can not say more, the investigation is clear before announcing.
If it is only a disagreement between business strategies, such as the CFO's deliberate discretion to extend the payment period to increase the company's funds on hand under the premise of not breaking the law, then this kind of "supply chain finance" game, although worthy of the supplier's complaint, should not be denounced by the company.
After all, the money refused to pay does not go into the financial officer's own pocket, but actually benefits the company. If other directors feel that doing so seems to be "petty", it is also a family affair of the company's operators and does not need to be disclosed to the public.
Resistance of dismissed managers
The company expressed "dissatisfaction" with the removed directors, who were equally dissatisfied. An additional eye-catching episode of BabyTree's infighting this time is: after Xu was dismissed, he reacted violently, reportedly locking himself in the office with equipment, refusing to let others in, refusing to hand over the company's financial seals and cheque books, refusing to change the authority of the bank's authorized signatory, and refusing to carry out work handover.
Xu is the founding veteran of BabyTree, has served as the chief financial officer for 9 years, and was one of the bell ringers when the company went public in 2018. In late March this year, Xu published a long reflection article in the company's internal group, and the content has now flowed to the public media. In the article, Xu is deeply dissatisfied with the huge losses every year since 2019, and criticizes the new major shareholder for burning money and not knowing anyone.
The right and wrong of the parties and the responsibilities of the parties are hereby ignored. It should be pointed out that no matter what Xu's ability and virtue are, no matter how strong his feelings and indignation at the company's situation, this is not a reason for him to exercise "physical resistance".
The general principle of commercial corporate governance is the will of capital and the will of shareholders. In the real world, there are cases where a majority of shareholders or majority directors expel incompetent and unscrupulous managers, and there are also cases in which an incompetent and unscrupulous majority of shareholders or majority shareholders expel good managers.
In any case, this is a fate that must be accepted by persons who are expelled in accordance with the law and in accordance with the statute. The legal logic for electing, appointing and dismissing corporate officials does not need to be based on substantive commercial reasonableness.
Even for the outstanding entrepreneurs who are truly woody, when they are expelled from faith and doubt, loyalty and slander, they can only start a new business on a new track, such as Iacocca, who was expelled by Ford to revitalize Chrysler; Or wait for fate to return, like Steve Jobs, who was expelled by Apple.
Standing up for resistance is worthless, it is not in line with the law, it does not necessarily gain the sympathy of others, and it is even suspected of whether there is a shameful trick.
Executives report fraudulent company issuance
In addition to resistance, Xu also dropped shock bombs, accusing the company and its major shareholders of possibly using capital circulation to create so-called "structural orders" in initial public offerings (IPOs).
This is a more serious allegation. Xu said that the company's chairman Wang Moumou and other relevant institutional investors agreed that the latter would subscribe for the company's issuance quota of tens of millions of yuan, and the company would return these funds on the day of listing.
If true, this practice is a deception of investors. First, this means that not so many real market investors recognize the company, which will affect the correct valuation of the company. Second, this means that there is a gap of tens of millions of yuan in the company's fundraising. Third, such irregularities may trigger administrative penalties or even investor claims against the company, further damaging the company's value, and even the company is at risk of being forcibly delisted.
At present, the company and its major shareholders deny this. Public opinion was not in an uproar. After all, allegations of broken relationships from former employees and former collaborators are actually quite common.
But by then, the incident had developed into a dangerous gamble between former managers and companies. If the charges are upheld, it will undoubtedly be a blow to the company. Former directors and executives reporting that the company has engaged in illegal acts can also be said to be public welfare over personal friendship, not betrayal.
However, if this allegation is not substantiated, and the former director and executive attack the company with false statements, the problem may be more serious than the average outsider slandering the company. Even if the company does not pursue legal responsibility, it is not good news for the future careers of directors and executives themselves.
A lose-lose resumption
Since 2019, the market value of BabyTree has fallen by more than 90%, from a maximum of HK$8 to about 3 cents at present. The first stock of Internet mother and baby products in the past has been among the penny stocks (仙 means "cent") since August 2021.
Objectively speaking, BabyTree has become a case of "less successful after listing". In particular, the relationship between shareholders and managers will naturally become more tense. But today's situation has extended business frustration to governance crisis, which is clearly a regrettable lose-lose situation.
Obviously, shareholders do not deliberately ignore their investments and ignore their depreciation risks. However, if the decision-making chain of corporate shareholders is too long, there may be problems of agent costs, or even multiple agent costs.
This may not be the fact of the baby tree, but at least it is the narrative in Xu's eyes. He believes that the personnel sent to BabyTree by Fumou Group, which gradually increased its holdings and became the largest shareholder, not only destroyed the ecology of BabyTree, but also ruined the funds of Fumou Group.
The vast majority of managers are not malicious victims of the company's interests. Although this article has reservations about some of Xu's behavior. But I do not doubt that Xu's unconventional words and deeds this time are due to his dedication to the cause of Baby Tree.
According to reports, after the company fell into trouble from 2020 to 2021, Xu still increased his holdings by 20 million shares, ranking among the top ten shareholders of the company. For the sake of fame and profit, he has reasons to run the company well.
However, people may have limitations in their abilities. Heaven and earth work together, and heroes are not free. Today's internet market is increasingly favoring integrated large platforms rather than vertically segmented independent brands.
The decline of the baby tree may not depend entirely on human error, but on the general trend. After e-commerce platforms such as Jingdong and Tmall launched the mother and baby market, the sales of BabyTree were greatly affected. Large "grass planting" platforms such as Douyin and Xiaohongshu have swept away a large number of customers and advertising businesses of independent brand software (APP).
We have seen many corporate governance battles between the top two shareholders or new and old major shareholders, as well as the game between Huang Guangyu, a major shareholder of Gome ten years ago, and Chen Xiao, a manager, or the purge of the original management of Nangang by Baoneng a few years ago.
However, there are still few cases of directors and executives like BabyTree fighting hard after they are dismissed, and the intensity is even higher than the fight with Ge Wenyao, the former chairman and general manager of Jahwa, after Ping An Trust took over Shanghai Jahwa in 2013.
Under the framework of the corporate legal system, the directors and major shareholders as individuals are inherently an asymmetrical battle, which is a battle that is doomed to win or lose. Fumou Group has been in a lot of turmoil recently, and Baby Tree may just be a son in its chess game.
There are also many people in the online comment area who do not agree with its cross-industry active expansion policy. In any case, if this private enterprise giant can review the case, it will be very helpful, including: carefully considering the acquisition target and acquisition plan in advance; Reasonably arrange the relationship between the airborne team and the original team of the acquisition target, and reasonably arrange the cooperation between specific companies and the group's grand strategy; When deciding to remove directors and officers from their positions, measures will be taken to achieve a smooth transition and handover based on their personal characteristics.
In the context of the famous personnel website, there is also a screenshot posted by a person with the same name as Xu, showing that the official email address of the chairman of the board of directors of BabyTree mistakenly sent an email of dismissal, which was given to him who was not related; And the email seems to be cold. Although this matter is harmless even if it is true, it can be described as a small footnote to the current situation of Baby Tree governance.
As a person who believes that entrepreneurs are more valuable resources than enterprises, the author advocates that enterprise managers should take a more calm view of handling conflicts with major shareholders. Those who know the time are handsome, those who know the rules are sages, take a step back and open the sky, and there is not only one battlefield for soldiers.
(The author is a special researcher of the Management and Innovation Case Research Institute of the Economic Observer)