Pinduoduo Leadership Change a Shot in the Arm for Corporate Governance
Pinduoduo took six years to build an online marketplace that serves almost 800 million paying customers – and that was not their only unprecedented feat. Yet, the company announced this month that its founder Colin Huang is stepping down from the board.
The move is exceptional on two counts.
First, tech founders seldom leave their companies. Pony Ma, Robin Li and Richard Liu remain chairman and CEO at Tencent, Baidu and JD.com, respectively. China’s most famous businessman, Jack Ma, was 55 when he stepped down as chairman of Alibaba in 2019. By comparison, Huang stepped down as CEO last July when he was 40 and relinquished the chairman position this year.
Second, founders tend not to give up their super-voting rights. The dual-class share structure is a favorite tool to retain control, arguing that it enables them to make long-term decisions and shields their companies from the stock market’s short-term mindset. Opponents argue that the mismatch between economic and voting rights is fundamentally unfair and allows such shareholders to make bad decisions with few consequences.
After stepping down, however, Huang will no longer be a member of Pinduoduo’s board. His voting rights will also be reduced from 79.65% to 28.13% with the conversion of his Class-B shares, which carry 10 times the voting power of Class-A shares.
Given that Huang alone owned Class-B shares, the move effectively dismantles the dual-class share structure at Pinduoduo, returning the company to a “one share, one vote” arrangement. Huang has also entrusted the remaining voting rights to the board, further reducing the sway that a major individual investor – in this case, himself – has on important corporate decisions. And he has pledged not to sell the shares for another three years.
The way Huang has stepped away from the company he founded speaks volumes about his confidence in the company he has built.
By removing the super-voting rights and entrusting the board, Huang has given a $50 billion vote of confidence (the value of his shareholding at current market prices) in the board’s ability to supervise management, and the competence of management to run the company well.
By pledging not to sell his shares for another three years, he has given both the board and management the assurance that they have in him a reliable investor who will stick by them.
By stepping down at 41, Huang is helping to accelerate talent development and leadership renewal at Pinduoduo. Indeed, Huang has not been involved in day-to-day management since last July when he turned over the CEO role to Chen Lei, then the chief technology officer.
China’s consumer internet industry is the most competitive in the world. Challengers emerge every day with new ideas to take on the incumbents, who risk sliding quickly into irrelevance with just a few missteps.
Huang is well aware of this, having himself been the David who in 2015 challenged Goliaths such as Alibaba and JD with pioneering concepts like interactive e-commerce. At that time, the conventional wisdom was that there was no space for a third player in e-commerce in China.
To continue to grow, innovate and lead the pack in ideas and execution, Pinduoduo needs to attract, groom and retain exceptional talent. But ambitious talent tends to leave if they see their way blocked by managers who will stay on for another 10-20 years.
In that, Huang belongs to the minority of founders who can let go.
As Huang put it in an open letter to shareholders: “It is time to let (a new generation of leaders) shape the Pinduoduo they aspire to build.”
Comparing the company to a child entering adolescence, he wrote: “I hope that my stepping down as the Chairman of the board will aid this young person into independent adulthood.”
