Over the weekend, the News of Gree Electric's Confession came from the United States!
On October 29, local time in the United States, the U.S. Department of Justice announced that Gree and the U.S. Department of Justice reached a deferred prosecution agreement (DPA) to reach a deferred prosecution agreement on the deliberate concealment of the defects of the humidifier in the United States in 2012-2013, and Gree Electric Appliance Co., Ltd. (Gree) and its subsidiaries in Hong Kong and the United States agreed to settle and pay a fine of $91 million on the criminal charges against them.
The original intent was: "A Chinese home appliance manufacturer and two of its subsidiaries have agreed to settle criminal charges because they failed to notify the U.S. Consumer Product Safety Commission (CPSC) of the millions of dehumidifiers they sold to U.S. consumers that were defective and could catch fire." The resolutions are the first corporate criminal enforcement action under the Consumer Product Safety Act (CPSA). ”
This matter is not complicated, according to the content of the deferred prosecution agreement, that is, gree in the United States sales of humidifiers, was found to cause a fire, Gree United States, Gree Hong Kong and Gree Zhuhai headquarters after discussion, in order not to affect the sales of Gree humidifiers, and delay the impact on the reputation of Gree products, Gree decided to inform the US regulators of the product defects and the recall postponed for 6-9 months. This deliberate failure to report product defects is a federal felony under the Consumer Product Safety Act in the United States.
From the facts attached to the DPA, we can see how serious the consequences will be if a company cannot quickly make the best business decision for the company in terms of risk control after a legal risk that is important to the business organization has occurred. Throughout Gree's decision-making process, the roles of the company's legal department and external lawyers are absent, or at least not revealed in the DPA.
Gree's business brought huge legal risks, the decision triggered the US government to pursue its criminal responsibility, after a lengthy judicial war, gree finally pleaded guilty, and the United States reached a deferred prosecution agreement, agreed to pay a total of $91 million in compensation. These included the forfeiture of $39 million in purchase money and a fine of $52 million.
And this deferred prosecution agreement doesn't look like a 100% clean solution to all liability, this DPA only addresses liability under the U.S. Consumer Product Safety Regulations. Gree may still face prosecution and conviction from other agencies in the future.
In addition, it is interesting that although Gree pleaded guilty to its business decision in 2012-2103, the two executives of Gree Usa at the time, Chief Executive Officer and Chief Administrative Officer, did not plead guilty, and those two executives will be tried in the US court in 2022. This is reminiscent of the author of the book "The American Trap." A lot of things, now can not be written too clearly, the pattern is just right. Just remember that if you do something illegal for the sake of the institution, you may be abandoned at that time.
This matter has been happening for so long, Gree and US Imperialism have also worked in court for a long time, and finally decided to admit guilt and accept punishment, which also shows that the legal risks faced by Chinese enterprises operating in the world are still very large, and once again shows the awareness of business decision makers about the legal risks of business behavior, and the importance of corporate lawyers needing to check on major business decisions, major issues and major risks.
I saw the signature of Sister Dong in the DPA. Of course, this matter is also a good thing for Gree, at least to solve a big problem, and then it is also a promotion for the production safety of its products. However, this lesson can also be considered profound, humidifiers are estimated to not sell much money, this delay in reporting product defects and recalls of business decisions, from a legal point of view, is not Make Sense, especially in countries like the United States.
One can't help but wonder, is this intentional? Fluke psychology? Opportunistic? However, it has dealt a serious blow to the reputation of the Gree brand.
At this time last year, a master's degree thesis entitled "Research on CEO Narcissism and Its Economic Consequences - Taking Gree Electric Appliances as an Example" was popular on the Internet for studying the "narcissism" of Dong Mingzhu, chairman of Gree Electric Appliances. It is understood that the thesis is the master's degree thesis of Chen Shuxin, a graduate student of accounting at Zhejiang Gongshang University, and the submission date is January 2020, and the instructor is Xie Shilei.
According to the paper, narcissistic CEOs also have an impact on the performance of enterprises. In this case, Dong Mingzhu successfully led Gree Electric Appliances to gain a firm foothold in the air-conditioning industry in the early stage of development and became the leading boss. However, after Gree Electric Entered a mature period of stable development, due to the influence of Dong Mingzhu's narcissistic personality (preference for high risk and stubbornness), its diversified business development was hindered.
Manifestations of CEO narcissistic behavior include a desire for dominance, risk-taking decisions, and stubbornness, the paper said. The various words and deeds of Dong Mingzhu, CEO of Gree Electric Appliances, show the characteristics of narcissistic personality very strongly.
The paper measured Dong Mingzhu's narcissism with four major indicators, and found that the number of personal reports of Dong Mingzhu accounted for 33.22% of the total number of news published on Gree's official website; the frequency of using first-person in interviews and speeches was as high as 70.31%; the proportion of self-image photos posted on Weibo accounted for 32.33% of all pictures; and the ratio of compensation difference with the second largest executive was 1.74.
In addition, dong mingzhu's above data are higher than those of Midea Group CEO Fang Hongbo and Haier Group CEO Zhang Ruimin (except for undisclosed). The author believes that "Dong Mingzhu has a relatively high degree of narcissism compared to the other two CEOs in the same industry." ”
The paper said that in the early stage of the development of Gree Electric Appliances, Dong Mingzhu led Gree Electric Appliances to stand out from the fiercely competitive air conditioning market with its outstanding sales ability and bold and innovative decision-making ability.
"At that time, Gree Electric Appliances was only a small enterprise that could only do air conditioning assembly, with an annual output of about 20,000 units. After joining Gree Electric Appliances for two years, Dong Mingzhu's sales in Anhui exceeded 16 million yuan, accounting for one-eighth of the entire sales of Gree Electric Appliances. In 1993, her sales of Gree electrical appliances created the myth of sales at that time. ”
The paper said that after Dong Mingzhu became the leader of Gree, his narcissistic tendency was aggravated, and this was highlighted by the fact that the board of directors of Gree Electric Appliances became Dong Mingzhu's "hall of words", and the power of the board of directors was seriously imbalanced. As the major shareholder, zhuhai Sasacy Commission gradually lost its voice in the board of directors.
The paper pointed out that Dong Mingzhu's narcissistic personality led to insider control of Gree Electric Appliances, which had a certain impact on the performance of Gree Electric Appliances and hindered the diversification of the company.
Xiao Bei believes that many of Miss Dong's investment failures are objective facts, but attributing these to narcissism is at least insufficient evidence, and can only be determined to engage in a cult of personality, but this is not because narcissism is not necessarily, in order to rule and market in these years, many entrepreneurs have transformed themselves into religious characters to attract consumer fans!
Just on October 27, Gree handed over a slightly weak three-quarter report. In the first three quarters of 2021, the company achieved operating income of 138.1 billion yuan, an increase of 9.73% year-on-year; and net profit attributable to shareholders of listed companies was 15.644 billion yuan, an increase of 14.21% year-on-year. This growth rate is significantly lower than the semi-annual report, because it is dragged down by the single quarter in the third quarter.
In the third quarter, Gree's operating income was 47 billion yuan, down 15% year-on-year, and net profit was 6.188 billion yuan, down 15.66% year-on-year.
It is most appropriate to describe Gree with the dream back to 2017, and the net profit level of 15.6 billion yuan in the first three quarters of Gree directly returned to the same period in 2017, and the stock price level near 37 yuan also returned to 2017.
At present, the stock price of Gree Electric Appliances has fallen by nearly 40% from the highest point of 62 yuan / share at the end of January this year, and the market value has evaporated by more than 150 billion yuan.
Is Gree really not working? Is the current situation a value trap or a value depression? It depends on looking at Gree's moat and its ability to cope with difficulties.
What is the final direction of Gree, and will the negative Miss Dong leave the class?