Oriental Selection: The Transformation from Management Thinking to Governance Thinking

We may use Dongfang Selection and Yu Minhong to start to use new governance thinking to deal with the crises and challenges faced by e-commerce live broadcast platforms in the Internet era, to understand the business logic behind them.

After the small essay incident, Dongfang Selection did not fade out of the public eye because of the removal of Sun Dongxu as CEO and the promotion of Dong Yuhui to senior partner, and then the resolution of the governance crisis.

The next series of operations of Dongfang Selection have continued to attract the attention of the media and the public for some time.

On December 18, 2023, New Oriental Education Technology (Group) Co., Ltd. issued a notice to appoint Dong Yuhui as the cultural assistant to the chairman of New Oriental Education Technology Group and the vice president of New Oriental Cultural Tourism Group. Teacher Yu Minhong forwarded this and said, "Congratulations to Yuhui, go through the wind and rain!".

On December 25, 2023, Youhui Walk (Beijing) Technology Co., Ltd. was established with a registered capital of 10 million yuan, Dong Yuhui is the legal representative, executive director and manager, and Mr. Yu serves as the supervisor. The company's business scope includes wholesale of daily necessities, Internet information services, publication retail, performance brokerage, commercial performances, tourism business, etc., and is 100% owned by Beijing New Oriental Xuncheng Network Technology Co., Ltd.

On December 27, 2023, Oriental Selection issued an announcement to sell its education business to its parent company, New Oriental, at a total consideration of 1.5 billion yuan.

Even Mr. Yu led the Oriental Selection anchor to build a ski team in Chongli during Christmas......

So, how to interpret the business logic behind Dongfang Selection and Mr. Yu's launch of the above series of measures?

Perhaps we can summarize it with Dongfang Selection and Mr. Yu starting to use a new governance thinking to deal with the crises and challenges faced by e-commerce live broadcast platforms in the Internet era.

After the outbreak of the small essay incident, in the comments of many scholars with management backgrounds, it is obvious that the development of any business model cannot rely on individual people, so "de-Dong Yuhui" is almost an inevitable choice for Dongfang Selection in their opinion. When many people are influenced by the comments of these management scholars and stay in the above-mentioned management thinking understanding, I have observed that Mr. Yu has gradually jumped out of management thinking since he was a child, or even earlier, and has begun to use the governance thinking of a win-win platform built by relying on the shareholding structure. As a practitioner of solving practical problems, I suspect that Mr. Yu may not be aware of this himself.

Replacing the management thinking of avoiding channel simplification with win-win cooperation and win-win governance thinking is reflected in the following aspects in the series of measures of Oriental Selection.

First, Dong Yuhui was promoted to senior partner, and then Dong Yuhui was appointed as the cultural assistant to the chairman of New Oriental Education and Technology Group, and concurrently served as the vice president of New Oriental Cultural Tourism Group.

The senior partners here are clearly different from the partners under the partnership system used by legal and accounting firms. Although we do not know the specific details of the rights and obligations of the "senior partners" in Dongfang Selection, and the specific details of the relevant system design, from the current limited information disclosure, I understand that the core logic is to transform the previous short-term employment relationship between Dongfang Selection and Dong Yuhui into a long-term partnership in the future. This is somewhat similar to Alibaba's "partnership system" in which entrepreneurial team members engage in equal dialogue and negotiation in order to avoid the inevitable bureaucratic cultural drawbacks of organizational and bureaucratic operation.

The senior partners selected by Dongfang are not only the beneficiaries of the equity incentive plan, but also the core backbone of the entrepreneurial and management team, and also the honorary employees who deserve the respect and respect of every employee in the construction of corporate culture. I understand that the subsequent appointment of Dong Yuhui as the cultural assistant to the chairman of New Oriental Education and Technology Group, and concurrently serving as the vice president of New Oriental Cultural Tourism Group is just one of the phased realization forms of the senior partner. As for the unique system design of Dongfang's selection of future senior partners (system), it remains to be further observed in the future.

Second, Dongfang selected and established Dong Yuhui as the legal representative, executive director and manager, Yu Minhong as the supervisor, and a wholly-owned subsidiary with a registered capital of 10 million yuan - Youhui Walk (Beijing) Technology Co., Ltd.

The company's business scope includes daily necessities wholesale, Internet information services, publication retail, performance brokerage, commercial performances, tourism business, etc., and the new company is 100% owned by Beijing New Oriental Xuncheng Network Technology Co., Ltd. Sun Dongxu, who was dismissed not long ago, is still the legal representative of the company called Beijing New Oriental Xuncheng Network Technology Co., Ltd. Previously, Mr. Yu mentioned during the live broadcast that he would set up a personal studio for Dong Yuhui. In order to show that he has not separated from Dongfang Selection, Dong Yuhui emphasized that his personal studio is still 100% controlled by Dongfang Selection, and the GMV of the new account will be included in Dongfang Selection's financial report.

If we simply summarize the above information, it will inevitably cause misunderstandings among many members of the public and the media who do not understand the practice of corporate governance. The Youhui Walk (Beijing) Technology Co., Ltd. here is obviously the new personal studio set up for Dong Yuhui as mentioned by Mr. Yu. To put it simply, if the anchor studio is the business operation model of the live broadcast e-commerce platform, then the subsidiary of Dongfang Selection is undoubtedly the business organization model supporting the business operation model.

I understand that as the business model of e-commerce live broadcast platforms matures, the establishment of holding subsidiaries for its important anchors will become an important business organization model for the expansion of the business scale of e-commerce live broadcast platforms in the future, and more and more e-commerce live broadcast platforms will set up holding subsidiaries for their excellent anchors in the future. In the above sense, we can say that Dongfang Selection has gradually explored a business organization model that is conducive to the sustainable development of the business model of the e-commerce live broadcast platform in business practice.

First, Dong Yuhui's studio, or Youhui Walk (Beijing) Technology Co., Ltd., can rely on the logistics system and supply chain system established by Dongfang Selection to quickly carry out business, without having to start anew. In fact, this is an important reason why Sun Dongxu will continue to participate in the development of Dongfang Selection although he is no longer the CEO. The honest Mr. Yu once publicly admitted that without Sun Dongxu's establishment of a complex support system such as logistics and supply chain after Sun Dongxu completed the sales contract in the live broadcast, there would be no smooth development of Dongfang Selection, "such as self-selected products, supply chain, etc., Yuhui and I can't do it at all."

Second, with the help of the reputation and existing platform that Dongfang Selection has accumulated, as one of the live broadcast channels of Dongfang Selection, rather than a new platform, it can easily complete industrial and commercial registration, raise registered capital, and realize the seamless connection and natural transition between the newly expanded business and the traditional business. As the legal representative, executive director and manager, Dong Yuhui can take advantage of the new platform to act more proactively and proactively.

Third, with regard to the issue of profit distribution, which is most misunderstood by the public, through the establishment of a subsidiary, on the one hand, Dong Yuhui, who has become the legal representative, executive director, and manager, will undoubtedly have a greater say in the "bargaining" of profit distribution with the parent company, which is currently 100% controlled; on the other hand, more importantly, the shareholding structure can be dynamically adjusted. As a manifestation of the status of a senior partner, I understand that in the future, I do not rule out the possibility that Dongfang Selection will grant Dong Yuhui a shareholding ratio that is not too small. After all, the equity business organization arrangement will provide a very convenient and smooth channel and way for the win-win cooperation between the two parties. Both parties only need to negotiate a mutually acceptable and reasonable equity ratio based on respect and recognition of each other's interests. This is where the governance thinking of win-win cooperation is higher than the management thinking of zero-sum game.

As for the sale of the education business by Oriental Selection to the parent company New Oriental, I understand that this is a necessary measure for Oriental Selection to take advantage of New Oriental's accumulated reputation and customer resources in the early stage, as well as everyone's sympathy for the rectification of education and training, to standardize the governance and avoid competition in the same industry. In fact, Oriental Selection announced on the evening of November 21 that it intends to sell its education business to the parent company New Oriental at a consideration of 1.5 billion yuan, to be paid in cash, with an estimated income of about 1.653 billion yuan.

Just as the abrupt dismissal of Sam Altman, the "father of ChatGPT", triggered a governance crisis at OpenAI, the small essay incident also triggered a governance crisis in Dongfang Selection (see Zheng Zhigang, "The Governance Crisis and Resolution of Dongfang Selection"). In the Internet era, the special operation model of e-commerce live streaming platforms allows consumers as stakeholders to have a more direct way to participate in the corporate governance of a company. This makes the governance of an e-commerce live streaming platform extremely fragile and sensitive, and the possibility of a governance crisis is greatly increased. In the above context, Mr. Yu successfully resolved a governance crisis in the shortest possible time. In addition to his unyielding spirit and his entrepreneurial spirit of continuous reflection and enterprising, the reason why Mr. Yu was able to successfully resolve this governance crisis, I understand, is partly related to the fact that he intentionally or unintentionally completed the above-mentioned transformation from management thinking to governance thinking.

The success of Dongfang Selection and Teacher Yu is not accidental. From the recent media reports on the Oriental Selection's impressive team building activities, I seem to have seen the spring of China's private economy again.