How much is an apology worth? Ge Wenyao, chairman of Shanghai Jahwa United Co, just paid more than 300 million yuan ($50 million) to make one

Argument prompts introspection

Updated: 2013-05-27 05:34

( China Daily)


How much is an apology worth? Ge Wenyao, chairman of Shanghai Jahwa United Co, just paidmore than 300 million yuan ($50 million) to make one.It was an expensive lesson for not only Shanghai Jahwa United, a leading Chinese personalcare product maker listed on the Shanghai Stock Exchange. It was also a lesson for all whohave an interest or are keen to take an interest in the Chinese capital market. The market isstill digesting the lesson.

Shanghai-based Jahwa United, one of the leading Chinese companies in the industry, was introuble when Ge was dismissed on May 11 by China Ping An Trust & Investment Co, affiliatedto Ping An Insurance (Group) Co, which owns 20 percent of Jahwa United’s stock equity. Geresponded to his sacking on May 13 by openly criticizing Ping An in a personal blog forobstructing his ambitions to develop the company.

On his personal Weibo, the Chinese version of Twitter, Ge complained about Ping An’sshortsightedness, saying it broke its promise not to interfere with the management when itbought Jahwa United’s shares.

In response, Ping An forced Ge to step down as chairman and chief executive officer ofShanghai Jahwa (Group) Co, of which Ping An owned 100 percent of the equity, for allegedmisuse of the company’s capital, claiming it had received staff reports since March that Jahwamanagement was keeping some off-the-book accounts and misusing funds. Shanghai Jahwa(Group) Co is the parent company of the listed Shanghai Jahwa United, where Ge is alsochairman.

On May 13, two days after Ping An’s announcement was made, Jahwa United’s share tumbled 8percent on the Shanghai Stock Exchange before its trading was suspended the following day.

A total of 4.89 billion yuan in Jahwa United’s market capitalization was lost as a result of thefight between the majority shareholder and the chief executive. Other shareholders raised anoutcry.

Many shareholders seemed to take the side of Ge because he had guided the company’s pastgrowth in competition with global brands and, as a result, had earned a reputation of being acapable businessman.

They criticized Ping An for being brash in its sudden decision and being arrogant towardshareholders’ interests.

At the moment, no one knows what the precise consequences are of a fight between a strong-willed chairman and a majority shareholder backed by a major financial house in China,particularly one easily irritated by anyone who dares to show less than total respect for itspower.

But many argue there is no need to worry. A capital market with Chinese characteristics has amechanism to prevent a clash of titans. And they add the government is not afraid of beinginterventionist.

The State-owned Assets Supervision and Administration Commission of Shanghai municipalgovernment (Shanghai SASAC), which used to own Shanghai Jahwa Group before ittransferred its entire holding to Ping An in 2011, stepped in.

“Shanghai SASAC has told me to keep silent,” Ge told the Guangzhou-based Time Weekly onMay 14. The newspaper also cited an anonymous insider saying that Ge had been seeking thehelp of Shanghai SASAC since the conflict flared up. However, because Ge had used harshwords against the commission on several occasions, leaders of the asset managementauthority were not inclined to treat him too kindly.

“Shanghai SASAC asked Ge to keep a low profile and the local media not to sensationalize thenews,” said the insider. Consequently, Ge, who used Weibo to broadcast his opinions, hasstopped posting messages on his account since Shanghai SASAC talked to him.

“It is the last resort to get Shanghai SASAC involved,” said a person who has been following thecommission’s response. “Because Ge holds little of Jahwa United’s stocks, he has no say infront of major shareholders. The only things he could count on are the promises made by PingAn at the point of purchase and the fact that the Shanghai government does not want to seeJahwa fail.”

On May 16, Jahwa United held a shareholders’ meeting to put an end to the dispute. At themeeting, Ge first apologized for mishandling the relation with Ping An and causing losses toshareholders. He then showed a willingness to cooperate with Ping An for the well-being ofJahwa United. “The brand is the most important thing. Anything else does not make muchdifference to me,” he said.

A representative of Ping An said at the meeting that they shared a common goal of turningJahwa United into a better company for all shareholders and would not waver from its currentstrategy. The dispute ended in reconciliation. Ge will no longer work as chairman and CEO forShanghai Jahwa Group, the parent company, but has retained his chairman position atShanghai Jahwa United, the listed subsidiary.

The reconciliation pushed Jahwa United’s stock up by 3.32 percent to 65.08 yuan by the end oftrading on May 16, adding a total of 376 million yuan to its value.

However, should a government agency that formerly owned a company’s equity step in tomediate over internal strife? What right does the government have to do so? Opinions aredivided.

Like it or not, the simple reality is that the government administrative offices sometimes do actas lawyers and courts to mediate within disputing organizations in order to protect generalorder and stability.

This time, the Shanghai SASAC performed very well by building bridges between the two sidesin the dispute and engineering their reconciliation before the company hit bigger trouble.

Other people, however, do not think Shanghai SASAC did the right thing.

Zhou Junsheng, a financial commentator, wrote in an article in Securities Times on May 20 thatthe only connection the commission has with Jahwa United is through its second largestshareholder, Shanghai Jiushi Corp, which is owned by the Shanghai municipal government,which holds just 4.9 percent of the equity.

As a result, Zhou added, Shanghai SASAC has little power to exert any significant influence onmajor shareholders and the board. The moment when the commission sold Jahwa Group toPing An in 2011, it transferred all the decision-making rights concerning the company as well asJahwa United, its subsidiary, to Ping An.

Zhou said that apparently Shanghai SASAC has used administrative power to intervene in theaffair. It seems to have been quite effective in mitigating Ge’s anger, tone down the media hypeand get everyone to sit down at the table to talk. However, the incident has strengthened thegovernment’s stance in meddling with economic affairs.

The reason for Shanghai SASAC’s interference, said Zhou, was because of its worry that if Geis kicked out, Ping An might sell Jahwa Group to a foreign-owned enterprise and ruin thenational brand. Therefore the government’s involvement was timely and justified. He said suchfears are groundless for two reasons.

First, Ping An may not find a better suited person to succeed Ge.

Second, whether Jahwa prospers or perishes depends not upon the government’s protectionbut the quality of its products and managerial expertise.

Therefore, Shanghai SASAC should leave it to the company to settle any internal disputes, saidZhou.

According to an interview given by Ge to China Entrepreneur, a Beijing magazine, in December2011, it was because of the desire to reduce governmental interference that Ge activelypushed for the deal – State ownership had put too many restrictions on his grand plan ofturning Jahwa Group into an international fashion franchise with various product lines.

Also, limitations on bonuses for managers, which then did not exceed 30 percent of annualsalary, stunted his motivation to work harder, Ge told China Entrepreneur.

An Hui, an analyst with Securities Times in Beijing, said in an article published on May 22 that itis common for major shareholders and managers to hold different opinions. However, theyeventually reach a consensus after making compromises. That happens because of theinvisible hand of the market at work to balance everyone’s interests.

The visible hand of the government, added An, only has to provide a fair and soundenvironment for the enterprises to grow and guard against monopoly without getting involved inthe competition or the internal disputes of any particular company. In other words, thegovernment should manage from a macro perspective instead of a micro one.

About bambooinnovator
Kee Koon Boon (“KB”) is the co-founder and director of HERO Investment Management which provides specialized fund management and investment advisory services to the ARCHEA Asia HERO Innovators Fund (, the only Asian SMID-cap tech-focused fund in the industry. KB is an internationally featured investor rooted in the principles of value investing for over a decade as a fund manager and analyst in the Asian capital markets who started his career at a boutique hedge fund in Singapore where he was with the firm since 2002 and was also part of the core investment committee in significantly outperforming the index in the 10-year-plus-old flagship Asian fund. He was also the portfolio manager for Asia-Pacific equities at Korea’s largest mutual fund company. Prior to setting up the H.E.R.O. Innovators Fund, KB was the Chief Investment Officer & CEO of a Singapore Registered Fund Management Company (RFMC) where he is responsible for listed Asian equity investments. KB had taught accounting at the Singapore Management University (SMU) as a faculty member and also pioneered the 15-week course on Accounting Fraud in Asia as an official module at SMU. KB remains grateful and honored to be invited by Singapore’s financial regulator Monetary Authority of Singapore (MAS) to present to their top management team about implementing a world’s first fact-based forward-looking fraud detection framework to bring about benefits for the capital markets in Singapore and for the public and investment community. KB also served the community in sharing his insights in writing articles about value investing and corporate governance in the media that include Business Times, Straits Times, Jakarta Post, Manual of Ideas, Investopedia, TedXWallStreet. He had also presented in top investment, banking and finance conferences in America, Italy, Sydney, Cape Town, HK, China. He has trained CEOs, entrepreneurs, CFOs, management executives in business strategy & business model innovation in Singapore, HK and China.

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