JD.com (JD) scored big in its public debut Thursday, rising 10% after its IPO priced above the expected range. Richard Liu, CEO and founder of China’s second-largest e-commerce site, ended the day with a net worth of $6.1 billion, according to the Bloomberg Billionaires Index.
Liu's huge haul came thanks, in part, to what JD.com called "immediately vesting restricted stock units" or what Rob Cox, editor in chief of Reuters Breakingviews, calls "a euphemism for a giveaway."
Another term is "free money," Cox says. "It's an oxymoron -- if it's 'immediately vesting' why is it 'restricted'?"
Just ahead of its IPO, JD.com on Monday announced a $849 million loss largely due to the cost of Liu's stock grant. "Such a large and unexplained act of generosity should raise red flags," wrote Breakingviews' Robyn Mak.
But it didn't, at least not in any obvious way, which Cox notes is part of a broader and "worrisome" trend.
"Right now, investors are blithely handing over rights to 'visionary CEOs'," he says, citing Alibaba's Jack Ma, Google's (GOOG) Larry Page and Facebook's (FB) Mark Zuckerberg as prime examples. "Corporate governance does matter and will matter at some point when shareholders' interests are not aligned with the people they've given up their rights to."
As reported here in April, Google's stock split marked the culmination of a two-year process designed to give founders Larry Page and Sergey Brin greater control of the search colossus. Prior to the split, Page and Brin owned 55.7% of Google B shares, which had 10 voting rights vs. 1 for A shares. After the split, owners of the A shares received new Class C shares which have zero voting rights at Google's annual shareholder meeting.
The story is slightly different with Alibaba, but the theme is familiar: founder Jack Ma and a group of insiders will control who sits on the company's board after its forthcoming IPO. (Disclosure: Our corporate parent Yahoo owns a 22.6% stake in Alibaba.)
Meanwhile, "Zuckerberg can do whatever he wants," Cox quips about the Facebook founder, who controls 20% of the company's stock but holds special class B shares that have 10 votes per share vs. 1 for regular class A shares.
But it's not just tech companies that have these types of arrangements. Using a special class of stock similar to Zuckerberg's, Ken Moelis kept control of over 95% of the voting rights after his namesake firm went public last month, Cox notes.
Meanwhile, The New York Times (NYT) has long had special class of stock that gives the Sulzberger family control over the firm's board. The recent firing of executive editor Jill Abramson is just the latest in a string of management changes at the company that have occurred under "murky and not very positive circumstances," Cox observes. "This would normally be the point where shareholders apply pressure commensurate with their economic interests, putting the chairman’s job at risk, especially given the lagging stock performance."
But that's not likely to be the case at The Times any more than the windfall for Richard Liu became an issue for JD.com's IPO.
"These are important considerations when buying stocks," Cox says. But "if you're going public today, you've got all the power -- the markets are kinda frothy - so why wouldn't you go out and say 'I got all the rights?'"
Why not, indeed...proving yet again that it's good to be the king (or queen).
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