In my last post on Alibaba, I valued the company at about $162 billion but also argued that investors considering investing in the company might hold back because of corporate governance concerns. I will start by making the case (and it is an easy one) that Alibaba is more corporate dictatorship than corporate democracy, but I would then like to use the company as a vehicle to talk about what constitutes good corporate governance and how best to incorporate its presence or absence into value.
The Alibaba Corporate Governance Model
In theory, the stockholders in a publicly traded company are its owners and get to determine who runs the company and how it is run. In practice, we know that this is more myth than reality and that a variety of constraints, both internally and externally imposed, exist on stockholder power. Even in the most idyllic corporate democracies, incumbent managers start off with an advantage over stockholders in the power game, though activists can sometimes even the playing field. With a company like Alibaba, stockholder don't even have the fig leaves of choice that they do with most other publicly traded companies and there are three reasons why: