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Timing of Jack Ma's retirement minimizes risk for Alibaba

Founder's outsize profile poses hidden dangers in China

Jack Ma has previously stated that one should "never, ever do business with government."    © Reuters

HONG KONG -- Jack Ma Yun's announcement on Monday that he will step down as executive chairman of Alibaba Group Holding next year and be succeeded by Chief Executive Officer Daniel Zhang marks a watershed moment for the Chinese technology powerhouse as it shifts to a new generation of leadership.

But it also signals that Ma, one of Asia's most visible and high-profile business leaders, may have chosen the best timing for his exit.

Alibaba, China's most valuable company as measured by market capitalization, said that Ma would remain in his current position as executive chairman until Sept. 10, 2019, "to ensure a smooth transition of the chairmanship." In a statement, the company described the move as a sign that "Alibaba has stepped up to the next level of corporate governance from a company that relies on individuals to one built on systems of organizational excellence and culture of talent development."

But some analysts said that Ma -- a celebrated executive and a much sought-after speaker for global business forums -- may have seen the writing on the wall.

"Jack Ma has become too high profile, and that's dangerous for the company," said Shaun Rein, managing director at China Market Research Group in Shanghai. "It's always dangerous to be too high-profile for businessmen in China. The majority of them get arrested, or they get publicly investigated. So it's important for Jack Ma to step back and be less high-profile."

A spokesperson for Alibaba denied that political risks were taken into consideration for the timing of the announcement, calling the speculation "baseless."

"This has been a carefully planned succession over the past 10 years. Jack and [co-] founders of the company established the Alibaba Partnership for this very reason of planning for management transition 10 years ago," Alibaba said in a statement emailed to the Nikkei Asian Review.

"Jack believes now is the right time to start the transition because of his full confidence that the partnership, the company and the management team are ready," it said.

Ma is known for his independent thinking and international influence.

When Malaysian Prime Minister Mahathir Mohamad visited China in August after taking office earlier this year, he first met with Ma in Hangzhou, in Zhejiang Province, where Alibaba is based, and then Chinese President Xi Jinping in Beijing.

When Malaysian Prime Minister Mahathir Mohamad visited China in August, he met with Jack Ma in Hangzhou before meeting Chinese President Xi Jinping.   © Reuters

In September 2016, on a visit to Alibaba's headquarters in Hangzhou ahead of a Group of 20 leaders' summit in the city, Indonesian President Joko Widodo persuaded Ma to become an adviser to his government on e-commerce development. And when Ma visited New York in January last year before the inauguration of Donald Trump, the president-elect spared 40 minutes with Ma for what he called a "great meeting."

"People like Jack Ma will have a difficult time [in China] and a different skill-set will be required for people to succeed in China in the next few years," said Elliott Zaagman, a consultant specializing in corporate culture at Beijing-based Goldenspan Consulting. "It is hard for anyone under Jack Ma to shine brighter than him. But Jack Ma's risk-taking, thinking big personality may not fit the next stage of China where there is an economic slowdown and the country is going to be a different state politically," he said.

"Never, ever do business with government," Ma said in a 2014 interview with a U.S. television network CBS. "[Be] in love with them, don't marry them."

Zhang's impending appointment as executive chairman received praise from analysts. Market observers believe the 46-year-old will run the company as well as Alibaba's legendary founder -- if not better. Ma already yielded the role of chief executive in 2013, but has remained Alibaba's most-recognizable figure.

The announcement that Daniel Zhang would take over from Jack Ma as executive chairman of Alibaba has been well received by analysts.   © Reuters

"Ma was the face, the deal maker and set strategy, but Zhang has been running the company day-to-day" for several years, Rein said.

Other analysts gave high marks to Zhang.

"I don't see any significant hurdles to Zhang taking the reins," said Brock Silvers, founder of investment fund Kaiyuan Capital in Shanghai. "He has served as Ma's understudy for quite some time, and Ma obviously has great confidence in him," Silvers said, adding that "shareholders have no reason not to trust his judgment."

Jeffrey Towson, a private equity investor and a professor of investment at Peking University in Beijing, noted: "Daniel Zhang is crazy smart and tough. I wouldn't want to compete against him." While praising Zhang for leading Alibaba's team which "has been operating well" in recent years, "his biggest hurdle might be keeping Alibaba creative and daring. A lot of that came from Jack personally," Towson said.

The transition has marked the start of a new era in which the next generation of executives has stepped up and taken power at Chinese technology giants, a period that may eventually spread to other companies, such as Tencent Holdings and Baidu.

"While remaining as executive chairman in the next 12 months, I will work closely with Daniel to ensure a smooth and successful transition," Ma said in a letter to customers, employees and shareholders, on Monday, his 54th birthday. "Thereafter, I will stay on the Alibaba board of directors until our annual shareholders meeting in 2020," he wrote.

Ma will continue to serve in his role as a lifetime partner in the Alibaba Partnership, a committee that is comprised of 36 senior managers of Alibaba Group or its affiliates, the announcement said.

"We believe the 12-month time frame would enable a smooth transition with lower 'key man risk'," analysts at investment bank Jefferies Financial Group wrote in a research note on Monday. "By retaining a permanent role in Alibaba Partnership, Jack Ma will maintain an influential role in the company's culture and ecosystem despite his reduced day-to-day operational role since 2013."

The company's shares, which are listed on New York Stock Exchange, were down 2.3% to $158.6 in premarket trading on Monday.

Since Ma -- a former English-language teacher -- founded Alibaba in 1999, the company has grown into one of the world's largest technology companies with a sprawling business empire that includes retail, financial services, media and entertainment, and cloud computing. With a workforce of nearly 87,000 people and investments around the world, Alibaba's influence has gone well beyond China's borders to global suppliers and companies with which it has been doing business.

In 2017, Alibaba for the first time was included in the Fortune 500 list of global companies, alongside tech conglomerates Google and Facebook.

But despite a 61% year-over-year increase in revenue in the April-June period, its fiscal first quarter, the company has also confronted headwinds.

While retaining its leadership in China's e-commerce sector, pressures are mounting for Taobao and Tmall -- two of Alibaba's online marketplaces -- as new challengers such as Pinduoduo enter the market. The Nasdaq-listed company, which began trading in July, has value of around $20 billion.

Meanwhile, Chinese leaders have also tightened their control over financial innovations to avoid potential risks, cracking down on online lending and other financial services that Alibaba has been actively exploring. But confidence is running high that Zhang will be able to cope.

While Zhang took over as CEO in 2015, the Shanghai native is a less familiar face to the Chinese public. He first joined Alibaba in 2007 as chief financial officer of Taobao and is known as the key architect of the company's blockbuster annual sales event, the Nov. 11 Singles' Day shopping festival that now dwarfs the combined receipts of Black Friday and Cyber Monday sales in the U.S.

To many Alibaba employees, Zhang is known as "Xiao Yaozi," a nickname he gave himself in reference to a character in the martial-arts novels of Hong Kong author Louis Cha who advocates a free and unfettered spirit.

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