With Founder Fading Out, JD.com Moves to Collective Leadership

E-commerce giant’s founder Richard Liu is stepping-down as CEO, joining the ranks of Internet entrepreneurs stepping back from their companies

Key takeaways:

• JD.com’s founder Richard Liu is stepping down from his CEO role but will remain as the company’s chairman focused on long-term strategy
• Some analysts believe China internet companies face greater risk from regulation at home and abroad than from changes in their top ranks

By Ken Lo

Another strongman from the China internet realm has turned in his high-tech keys. But does it really matter?

JD.com Inc. (JD.US; 9618.HK) announced that founder Richard Liu had stepped down as the CEO of the company but will retain his chairman title to dedicate himself to developing long-term strategies and making major decisions, as well as cultivating young leaders and assisting the cause of revitalizing rural China.

The announcement added Liu would be succeeded by Xu Lei, who will also join the board as an executive director. Xu was previously JD.com’s president, and before that served in roles including CEO of JD Retail, chief marketing officer of JD.com and head of JD Wireless. His success in overseeing the company’s retail operations, which now contribute more than 90% of its revenue, bodes well for a steady transition.

Observers believe that Liu, who is in his late 40s, will follow other tech founders who also gradually relinquished their official positions and eventually resigned their chairmanships without a major impact on their companies’ operations. JD.com’s shares fell by 5.3% in the two trading days after the announcement and closed at HK$222.40 last Friday, at the lower end of their price range for the past 52 weeks.

Liu’s retirement comes as Beijing has enacted a series of policies to crack down on monopolies in e-commerce, gaming, food delivery and ride hailing marketplaces over the last two years. He joins a growing number of influential private-sector entrepreneurs who have ceded leadership of their companies and retired during and just before that period.

Jack Ma, the founder of Alibaba (BABA.US; 9988.HK), announced in 2018 that he would step down as president in September the next year. In 2020 Pinduoduo (PDD.US) founder Colin Huang also gave up his titles of CEO and president. And in May 2021, ByteDance founder Zhang Yiming announced he would relinquish his CEO title, and also gave up his chairman’s title several months later.

China’s internet companies were some of the nation’s fastest growing in the first part of the 21^st century, tapping into the country’s underserved retail market as it transformed from a planned to a market economy. Many companies’ immense success owes just as much to the characters and temperaments of their founders as it does to luck and chance. Liu’s journey from obscurity to building an e-commerce empire now worth nearly $200 billion is a widely known rags-to-riches story in his native country.

Turning 500 yuan to 1.2 trillion

Born to a poor family in rural Jiangsu province, Liu was admitted to the prestigious Renmin University in Beijing in 1992. He had just 500 yuan ($79) in cash and some eggs for food, as well as big hopes from family and relatives, when he headed off to school. Energized by new opportunities brought by China’s reform movement at that time, Liu set up his company in 2004. Breakneck growth of China’s e-commerce market would go on to turbocharge his company’s development and catapult it to its current valuation of more than $190 billion.

JD.com’s brash assault on industry titan Alibaba speaks to Liu’s tenacity and courage. But he has also faced his share of controversy. He was accused of sexual assault in the U.S. state of Minnesota in 2018, but the prosecutor ultimately dropped the case due to insufficient evidence. The scandal never really threatened his position at JD.com since the company’s dual share class structure gave him 76.9% of the company’s voting rights even though he held just 13.9% of the company’s shares.

But a civil lawsuit related to the rape allegations dragged on. He has gradually stepped back from the company’s day-to-day operations since the incident, while steering JD.com toward a more collective form of leadership.

Kenny Wen, a commentator at Everbright Sun Hung Kai Co. Ltd., said that modern corporations are frequently run by teams, regardless of whether founders like Liu stay at the helm. Francis Lun, CEO of GEO Securities said Liu shared similar concerns with other recently retired Chinese business tycoons over the impact China’s new “common prosperity” focus would have on him personally if he stayed on. Lun also concurred that Liu’s departure would not have a major impact on JD.com’s operations.

The company’s revenue grew by 27.6% last year to 951.6 billion yuan ($149 million), including 866.3 billion yuan from its retail business, representing 91% of the total. It posted an operating profit of 26.61 billion yuan. But losses from its new business operations widened from 4.72 billion yuan to 10.6 billion yuan last year, and its logistic business registered an operating loss of 1.83 billion yuan. As a result, it posted a 3.56 billion yuan net loss last year, reversing a 49.4 billion net profit in 2020.

Policy impact

JD.com has broadened its portfolio beyond its core big city e-commerce business to include smart products, e-commerce in smaller cities, overseas businesses and tech innovation. Such new operations only account for 2.7% of its total revenue, but are currently big money losers. Such losses, combined with a steady stream of recent regulatory clampdowns on Internet companies, are bigger concerns for investors than Liu’s departure.

GEO Securities’ Lun warned of the dangers of investing in internet stocks, citing the unfavorable policy environment facing these companies following the 11^th hour abortion of Ant Group’s IPO attempt in 2020. Kenny Wen pointed out that these companies are under closer scrutiny from both Chinese regulators as well as the U.S. securities regulator than companies from any other sector, which was a bigger problem than personnel changes. He suggested waiting for JD.com’s first-quarter financials before deciding on whether to invest later in the year.

Another unsettling factor for investors has been repeated Covid outbreaks in China and their adverse impact on consumption and logistics. All three e-commerce giants, Alibaba, JD.com and Pinduoduo, have seen slowing growth in their recent operating revenue and net profits. But despite recording a net loss last year, JD actually achieved a non-GAAP net profit of 17.2 billion yuan. Its price-to-earnings (P/E) ratio now stands at 37.3 times, far higher than just 11.8 times for Alibaba.

However, it’s quite debatable whether the company deserves such a high premium over Alibaba, especially when it is undergoing a management reshuffle at the top and is subject to much of the same regulatory risks as its larger rival.

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