"Company" is a great institutional innovation in the history of human development. The corporate governance organization is composed of the shareholders' meeting (general meeting of shareholders), the board of directors (executive director) and the board of supervisors (supervisor). Among them, the shareholders' meeting is the authority of the company, which exercises the decision-making power of the company, decides the direction of the company's operation, and decides the selection of directors and supervisors; The board of directors shall be the executive organ of the company, exercise the management power of the company, implement the resolutions of the shareholders' meeting, and be responsible for the specific business affairs of the company; The Board of supervisors shall be the supervisory body of the company and shall exercise the supervisory power to supervise the business activities of the company, the directors and the managers. The characteristics of the corporate governance mechanism are that on the basis of the separation of ownership, management rights and supervision rights, through the design of division of labor and mutual checks and balances, the effective management and control of the enterprise can be realized, the legitimate rights and interests of shareholders, management and other parties of the company can be safeguarded, and the effective operation of the company can be maintained. In the above corporate governance institutions, the board of directors is the executive body of the company, specifically responsible for the company's business matters, which has a significant impact on the company's business. On the other hand, if the board of directors of the company is out of control, it will bring about the problem of insider control of the company's management, which will not only fail to reflect the business intention of the founder or major shareholders, but also damage the interests of shareholders or the company. From the perspective of business operation, the founder should pay attention to the governance of the board of directors, so as to ensure that the company's development can be made in accordance with the founder's will, and effective implementation. This article will be combined with Alibaba partner system, discuss the company's management rights control issues, for the reference of operators.

I. Board of directors and insider control

As mentioned above, the board of directors is the executive body of the company, exercising the management power of the company, implementing the resolutions of the shareholders' meeting, and taking charge of the specific business affairs of the company. Among them, a limited liability company shall have a board of directors, whose members shall be 3 to 13; However, a limited liability company with a small number of shareholders or a small scale may have one executive director and no board of directors. A joint stock limited company shall have a board of directors, which shall consist of five to nineteen members. When the board of directors votes on relevant issues, the system of one person, one vote shall be implemented, and relevant resolutions shall be formed in accordance with the principle of general majority. China's company law stipulates that the board of directors is responsible for the shareholders' meeting and exercises the following functions and powers: (1) to convene the shareholders' meeting and report its work to the shareholders' meeting; (2) Implement the resolutions of the shareholders' meeting; (3) to decide on the company's business plan and investment plan; (4) To formulate the company's annual financial budget plan and final accounting plan; (5) To formulate profit distribution plans and loss recovery plans of the company; (6) To formulate plans for increasing or reducing the company's registered capital and issuing company bonds; (7) formulating plans for merger, division, dissolution or change of company form; (8) Decide on the establishment of the company's internal management organization; (9) To decide on the appointment or dismissal of the company's manager and his remuneration, and on the nomination of the manager, to decide on the appointment or dismissal of the company's deputy manager and chief financial officer and their remuneration; (10) To formulate the basic management system of the company; (11) Other functions and powers stipulated in the articles of association. Accordingly, the functions and powers of the board of directors involve all aspects of the company's people, finance, materials, production, supply and marketing. The management level and operation efficiency of the board of directors directly determine the development of the company, which is of great significance to the development of the company. In the system design of the board of directors' exercise of the management right of the company, whether the board of directors can implement the resolutions of the shareholders' meeting well not only has a great impact on the development of the company, but also directly affects the interests of the shareholders of the company. Because of this, board governance issues such as board composition, director nomination right, appointed number of directors and board veto power are unavoidable issues between investors and founders in corporate equity financing. On the other hand, the imperfect governance of the board of directors will also cause the problem of insider control. The so-called insider control refers to the formation of modern enterprises under the premise of the separation of ownership and management rights. Due to the inconsistency of interests between owners and operators, operators make use of the decision-making, management, financial control and personnel appointment and removal of enterprises, and carry out self-transfer of interests in the aspects of enterprise operation plan, salary formulation and dividend distribution. Because the management rights of the company are too concentrated in the "operator", the shareholders, the company and other interested parties may suffer different degrees of damage. Therefore, building a qualified board of directors and ensuring the benign operation of the board of directors is not only a topic that must be considered to safeguard the interests of the company, but also an unavoidable issue to safeguard the interests of the shareholders of the company. In addition to paying attention to the company's shareholders' meeting, the company's managers should also pay attention to the board of directors, not only to build a professional and efficient board of directors from the perspective of operation, but also to pay attention to the benign operation of the board of directors from the perspective of board governance, so as to avoid the company's operation effect being greatly reduced.

Ii. Alibaba's previous financing and equity institutions

In September 2014, Alibaba listed on the New York Stock Exchange in the United States, becoming the world's largest IPO. Among them, the most striking is its partnership system. When it comes to Alibaba's partnership system, we first need to know Alibaba's financing process and equity structure.

After the previous equity financing, the pre-listing shareholding structure of Alibaba is 14.6% of Alibaba directors and executives, 4.8% of employees, 34.1% of SoftBank, 22.4% of Yahoo and 24.1% of other investment institutions. From the previous financing and equity structure of Alibaba before listing, it can be seen that if Ma Yun and his management team want to continue to control the company and control the operation and management of the company, they must design a system that is in line with the maximization of interests of shareholders and management team, which is the realistic basis for the establishment of Alibaba Partnership system.

Iii. Alibaba Partnership System was established

The core of Alibaba's partnership system lies in the special provisions on the right to nominate directors in the company's articles of association. To become a director of Alibaba Group, one must go through the pre-nomination process of these "partners." If a candidate nominated by the Alibaba Partner is not approved by the shareholders' meeting, or the current director leaves the company, the Alibaba Partner has the right to appoint another person to serve as an interim Director until the next annual general meeting. Such a system design ensures that a certain proportion of directors on the board must be people approved by the "partners". In this way, the shareholders' right to elect directors is nullified by the Alibaba partnership system. The directors appointed by the Alibaba partners firmly hold more than half of the seats on the board of directors of Alibaba Group and decide the business matters of the company, without worrying about hostile takeover or the agreement between shareholders to act as a consensus, which will cause the company's management to lose control of the company. In its prospectus, Alibaba explained that since the founders of Alibaba founded the company in Jack Ma's apartment in 1999, they have operated and managed the company as partners. Alibaba's corporate culture is the cornerstone of our success and delivering long-term value to our customers. Alibaba executives see the partnership as a way to better manage Alibaba's business, allowing the company's senior managers to avoid bureaucracy and hierarchy. Alibaba Partners maintain their vitality by absorbing new partners every year to ensure the excellence, innovation and stability of the team. Unlike dual-class shares, which concentrate control of the company in the hands of a few founders with high voting rights, Alibaba's governance structure is designed to reflect the vision of a large group of partnership managers. This structure is Alibaba's solution to maintain the company culture created by the founders within Alibaba even after the founders retire. According to the introduction of Alibaba's prospectus, the rules for Alibaba partner candidates are quite flexible, giving the founding team great autonomy in selecting Alibaba partners, but it may also cause opaque information and easily form the problem of "insider control".

So, how does Alibaba keep the partnership system effective in the long run? Mainly by its temper out of the corporate culture. Alibaba's mission is to "make it easy for the world to do business", and its founders founded the company with the original intention of helping small businesses, and firmly believe that the Internet can help small businesses grow through technology and innovation, and enhance their competitive advantages in domestic and foreign markets. What guides the Alibaba team's decisions is how best to serve this mission over the long term rather than short-term profit. This arrangement allows the founding team to control the board directly by nominating a simple majority of the board's candidates and deciding on an interim director, rather than having to own a large number of shares to control the board, and the founding team to own well below the minimum number of shares required for board seats under equal rights. This not only facilitates financing, but also creates a barrier against hostile takeovers. For the securities market that insists on the same share and equal rights, such as Hong Kong, China in the early days, although this system avoids the hierarchical shareholding system with different rights of the same share, it still fails to pass the review of the Hong Kong Stock Exchange. The reason is that Alibaba partners who only hold minority shares of the company can decide the simple majority of candidates for the company's board of directors, which belongs to the situation of insider control, which not only damages the interests of major shareholders, but also damages the interests of major shareholders. It may also harm the interests of minority shareholders. In the end, Alibaba did not change the partnership system, but was willing to take risks and chose to list in the United States, a stock market with stricter supervision and more frequent lawsuits of minority shareholders, which shows that the founding team attaches importance to the company's operational control.

Iv. Interpretation of Alibaba Partner system

The Alibaba Partnership system establishes a partnership committee. The Partner Committee is responsible for managing partners, organizing partner election work and proposals, and implementing the annual bonus pool allocation for Alibaba executives. At present, the partnership committee has five members - Ma, Tsai, Lu, Peng Lei and Zeng Ming. Alibaba partners are mainly composed of permanent partners, general partners and honorary partners. The details are as follows: (1) General Partner: A partner who meets the qualifications of Alibaba and enjoys rights and obligations. To become a general partner, you must meet the specified conditions, be nominated and voted by existing partners, be supported by more than 75% of existing partners, and finally be confirmed by the partner committee to become a full partner. (2) Permanent partner: is a special partner, special in the general partner does not need to obey the automatic retirement at the age of 60 and leave Alibaba automatically exit the two terms, currently only Ma Yun and Tsai Chongxin two people in Alibaba. (3) Honorary Partner: Elected by the Partner committee among retired general partners, without the powers of a general partner, but with access to a portion of the bonus pool. Honorary partners are elected from among retired partners, following the general partner admission process.

Alibaba partner system does not have a fixed number of people, the quota will change with the change of members and there is no ceiling, except Ma Yun and Tsai Chongxin as permanent partners, the status of the remaining partners is related to their employment, once they quit the partnership. So, what are the requirements to become an Alibaba partner? According to the disclosure in Alibaba's prospectus for listing on the New York Stock Exchange, there are five eligibility requirements for Alibaba partner: (1) The partner must have served Alibaba for at least five years; (2) Partners must hold shares of the company, and limited sales requirements; (3) The incumbent partner shall nominate and recommend him to the Partner committee, and the partner Committee shall review and approve his participation in the election; (4) On the basis of one person, one vote, more than 75% of the partners vote in favor of their accession, and the election and removal of the partners need not be reviewed or approved by the general meeting. (5) Partners must also meet two flexibility criteria: positive contribution to the development of the company; Highly identified with the company culture and willing to work hard for the company's mission, vision and values.

Alibaba Partners have the right to nominate directors. The directors nominated by the partners shall account for more than half of the number of directors on the board. If for any reason less than half of the directors nominated or appointed by the partners are members of the Board, the partners shall have the right to appoint additional directors to ensure the control of more than half of the directors; If the shareholders do not agree to elect a director nominated by the Partners, the partners may appoint a new interim director until the next annual general meeting; If a Director leaves for any reason, the Partners shall be entitled to appoint an interim Director to fill the vacancy until the next Annual General Meeting. The nomination and appointment power of Ali partners can be regarded as the result of the negotiation between the founder and management of Ali and the major shareholders. Through the establishment of this mechanism, Ali partners have the right to nominate and remove directors beyond other shareholders, control the selection of directors, and then determine the operation of the company. Alibaba's prospectus sets out how the partners' bonuses will be distributed. Alibaba Group gives annual bonuses to the company's management, including its partners. The bonus is deductible before tax. This means that partners' bonus distribution rights will be distinguished from shareholders' bonus distribution rights, which will be distributed from after-tax profits, while partners' bonus distribution will be treated as an administrative expense.

V. Innovation and advantages of Alibaba's partnership system

In order to ensure the long-term and stable implementation of the partnership system, Alibaba has made the following arrangements: (1) to increase the difficulty of changing the partnership system from the perspective of rules. Changes to Alibaba's partnership system need to be approved by the Board of Directors and the vote of the general meeting of shareholders: At the board level, any amendment to the purpose of the partnership in the Alibaba Partnership Agreement and the right to nominate directors of the Alibaba Partnership Agreement must be approved by a majority of the directors, who shall be independent directors as set out in NYSE Corporate Rule 303A, and any amendment to the procedure for nominating directors in the Partnership Agreement shall be unanimously agreed by the independent directors. From the perspective of the shareholders' meeting, according to the revised articles of Association after listing, the amendment of the Alibaba partner's nomination right and the relevant provisions of the articles of Association must be approved by more than 95% of the votes held by the shareholders present at the shareholders' meeting. (2) Agreement with major shareholders to consolidate partner control. Alibaba partners reached a set of voting rights binding agreements with SoftBank and Yahoo to further consolidate the partners' control over the company. According to Alibaba's prospectus, the board of directors of the listed company has 9 members, Alibaba partners have the right to nominate a simple majority (that is, 5 people), if SoftBank holds 15% or more of Alibaba's shares, SoftBank has the right to nominate 1 director, the remaining 3 directors are nominated by the nominating committee of the Board of directors, and the above-mentioned nominated directors will be elected by a simple majority at the shareholders' meeting. Under the aforementioned voting rights binding agreement, the Alibaba Partners, SoftBank and Yahoo will vote for each other at the shareholders' meeting to ensure that the Alibaba Partners will not only control the board of directors, but will have substantial control over the voting results at the shareholders' meeting.

So, compared with the dual-share system of network and technology companies listed on the New York Stock Exchange in the United States, what are the advantages of the Alibaba partnership system? (1) The flexibility advantage of the flexibility index of the elected director. The dual or multiple shareholding system relatively clearly limits the scope of subjects enjoying special stock rights and interests, and the proportion of rights and interests such as voting rights attached to shares, etc., while the "partner" system is flexible, and the quantitative index of becoming a partner is only two requirements of working for more than 5 years and holding company shares, while the other so-called "having excellent leadership ability, highly identifying with the company culture,". And have a positive contribution to the development of the company, willing to make every effort for the company's culture and mission inheritance "is more of a relatively vague and general reference, for the election and appointment of new partners to reserve flexible space. (2) The anti-dilution effect is stronger. Although the dual-class system gives special stock holders more voting rights, the number of voting rights is still tied to the number of special stock shares they hold, but in a larger proportion than the ratio of common stock. The Alibaba partnership system, by contrast, severs that link. As long as partners hold shares in the company, their voting rights are not affected by any share number, eliminating the threat of share dilution and facilitating the founders and management to maintain more stable control of the company over the longer term. (3) Get additional bonus incentives. The dual-class share system gives special stock holders more voting rights, but does not entitle them to dividend distribution beyond the shares they hold. In other words, special stock holders do not receive more dividend income than ordinary shareholders who hold the same proportion of shares, unless otherwise provided in the articles of association or agreement. However, according to the Alibaba Partnership system, Alibaba will pay bonuses to the company's management, including partners, every year, and treat them as pre-tax expenses (accrued in the administrative expenses account). (4) Avoid criticism of dual-share system. From the perspective of the dual-share system itself, the shares representing the same amount of capital are artificially divided into two or more types, and are endowed with different rights, resulting in the separation of capital and rights, which is contradictory to the characteristics of public companies, resulting in the unequal status of shareholders. From the actual situation of dual-class shares, the interpretation of dual-class shares in the capital market has tended to protect the interests of the founder or management, or the management and private equity investors, through the planning arrangement or compromise before the public issue of shares and listing, at the expense of the shareholders' rights and interests of public market investors. Public market investors are often at a disadvantage because of restrictions on shareholder equity, especially voting rights, and their option to oppose is usually to vote with their feet. This is also regarded by the securities market of many countries or regions as differential discrimination against shareholders, which is a manifestation of inequality, and therefore not adopted. Therefore, in form, Alibaba can avoid being directly classified into the dual-share system through the design of the partnership system, and facilitate the distribution of rights and the realization of corporate culture inheritance through the partnership system.

In addition to the dual-class share structure, Alibaba realizes the purpose of controlling the management right of the company while the founding shareholders hold minority shares by creating a partnership system, and also ensures the rapid development of the company's operation according to the direction determined by the founder. At present, many enterprises learn from the structure and governance mechanism of Alibaba's partnership system and evolve into equity incentive models or corporate governance models that are more in line with their own needs. For example, Alibaba's partner selection mechanism, entry mechanism, exit mechanism, incentive mechanism, distribution mechanism and decision-making mechanism provide a good reference for other enterprises. Alibaba partnership system provides entrepreneurs with another direction of thinking about the control of corporate management rights in corporate governance issues, which is worth thinking about.

Jiao Hanwei

Chief partner and lawyer of Shanghai Guohillhouse Law Firm

Have more than 10 years of legal service experience and more than 5 years of operating experience in the cosmetics industry, familiar with law and business, He is good at providing enterprises with cosmetics business legal services, legal counsel, equity structure, equity incentive, equity financing, equity acquisition, brand management, brand rights protection, brand acquisition, business negotiation, litigation and arbitration and other solutions for the whole stage of enterprise development from the perspective of law and operation. He has led many corporate equity restructuring, equity incentive, equity financing, factory acquisition, brand acquisition and other cases, and has rich experience in practical operation.