Richard Liu was arrested and then released without charge in the US city of Minneapolis last week. Through his lawyers, he has denied any wrongdoing.

Richard Liu, CEO and founder of China's e-commerce company JD.com.
Richard Liu, CEO and founder of China's e-commerce company JD.com. (Reuters)

A US police investigation into an allegation of rape against JD.com Inc CEO Richard Liu has hammered the e-commerce giant’s shares, with the case laying bare risks posed by his iron grip on management and the lack of other leaders to challenge him.

Liu was arrested and then released without charge in the US city of Minneapolis last week. Through his lawyers, he has denied any wrongdoing.

While the tech industry is known for the outsized control that founders like Liu have over their businesses, China’s tech leaders tend to be all-powerful, exacerbating governance risks.

Liu’s control of JD.com in particular has raised eyebrows given company rules that make it virtually impossible for the board to make decisions without him present.

“There is so much more hierarchy and less willingness to challenge the boss and less collective leadership around Chinese iconic leaders,” said James Robinson, managing director in Shanghai for public relations firm APCO Worldwide.

Robinson added this had compounded the sense of crisis and confusion when the news first broke. JD.com’s communications team had stated police had “quickly determined” there was no substance to the claim against Liu even though the investigation was still ongoing, and took almost two days to acknowledge he had been held by police overnight.

“If your top person is in a jail in Minnesota, then it could be a question of a lack of decision-making authority,” he said.

Liu was arrested late last Friday in Minneapolis and held by police for a little over 16 hours before being released. No bail was set. Police are still investigating. His lawyers have said they do not expect charges to be laid.

According to Minnesota law, the maximum penalty if found guilty of first degree sexual assault is 30 years and the minimum is 12 years.

Markets react

In the two days of trade since the arrest, JD.com has lost $7.2 billion or 16 percent of its market value, also hurt by fears that the case will turn customers away from its website.

Liu owns about 16 percent of JD.com’s stock. But his power is amplified by weighted voting rights that give him nearly 80 percent of the company’s votes and the provision that bars the board from making binding decisions unless Liu is present, either in person or by teleconference, so long as he is a director.

If he is not present, the board can make decisions only with his permission or if he is sick. The clause explicitly excludes this being allowed during “any confinement against his will,” suggesting he could maintain control even in jail.

“We can’t think of any other company that has such articles,” said Jamie Allen, general secretary of the Asian Corporate Governance Association.

“I find it baffling. Liu already has weighted voting rights, so he can control the company, he is the founder. I don’t think any of the board would dare make a decision without him, so why would he need to do this?” said Allen.

JD.com board members did not respond to requests for comment. The company declined to comment on questions concerning governance and its initial response to Liu’s arrest.

Source: Reuters