Alibaba’s Latest Merger: Its Top Two Roles
September 12, 2018
Alibaba’s Jack Ma has always been somewhat of a contrarian. He helped create a tech firm, even though he had no technology background. He invested in an online payment platform when people questioned whether the tech would ever be adopted. He’s said that intelligent people often need a fool to lead them—because the fool can provide different perspectives.
But the way he’s stepping away from Alibaba, one of China’s largest publicly traded firms, is similar to what other mega-sized corporations are doing. Already having relinquished the CEO role five years ago (when he was just 49), he will resign from the company’s executive board chairman role a year from now. The plan then calls for reuniting the CEO and board chairman roles under one person, current Alibaba CEO Daniel Zhang.
Experts say that it isn’t bad governance to have a combined CEO/chairman role. The important point is that the company has two strong pillars of leadership, the CEO and an independent board leader. “How each company achieves critical independent leadership should be customized to the unique characteristics and culture of each company,” says Dennis Carey, Korn Ferry vice chairman and co-leader of the firm’s Board practice.
On the surface, it may seem that Alibaba is bucking the trend. The overwhelming corporate dynamic has been to split the CEO and chairman roles. Twenty years ago, 84% of large publicly traded firms in the United States had a combined CEO/chair. Now, that number is less than 50%.
However, the script flips among the 100 largest firms by market value: Two-thirds of them have combined CEO/chair roles, only 3% fewer than five years ago. “As CEOs of global enterprises go abroad, major customers and contractors want to meet with the chairman,” Carey says. If the firms go with a combined CEO/chair role they almost inevitably appoint an independent lead director to sit on the board. Even some of the large firms that had split positions often used a former company leader as an executive chairman.
In 2016, three large U.S. firms, Duke Energy, General Motors, and United Parcel Service, combined the two roles after having the roles split for years. At the time, GM said that in an era of unprecedented industry change the firm’s board decided that combining the roles would best serve the firm’s strategic vision.
Alibaba, while perhaps not going through the same upheaval as the auto industry, does have some challenges of its own. Alibaba is an e-commerce behemoth, but its recent moves into cloud computing and other services put it up against tough competition. At the same time, the Chinese government has recently increased its scrutiny of its large tech companies.
When he announced the decision earlier this week, Ma said that he had been working on a succession plan for 10 years, identifying and developing the right talent inside Alibaba. “Teachers always want their students to exceed them, so the responsible thing ... for me and the company to do is to let younger, more talented people take over in leadership roles,” he said.