The resignations of David Wei and Elvis Lee, announced after the close of trading in Hong Kong today, were clearly intended to signal that the company — and especially its founder and leader, Ma — is serious about addressing any hint of fraud. Wei is being replaced by unlisted sister company Taobao’s CEO Jonathan Lu, who will hold both jobs. Inits statement posted to the Hong Kong stock exchange, Alibaba.com said that 2,326 of the company’s “Gold Suppliers” in 2009 and 2010 had defrauded buyers, and that the average value of each fraud claim was less than $1,200. The company separately said that it had paid out a total of $1.7 million to fraud claimants out of a “Fair Play” fund established from the membership fees of fraudulent suppliers.
The numbers are small compared to the business done on Alibaba.com — the fraudulent sellers that were discovered add up to less than 2% of the company’s more than 100,000 Gold Suppliers, and the board says the fraud had “not had a material financial impact on our Company.” But it is clear that what irked founding Chairman Ma is that some of his employees — nearly 100 — apparently abetted the fraud and others didn’t act quickly enough to stop it.
The company’s official statement said that Wei and Lee were not involved in the fraudulent activity, and that ”management made good faith efforts to address the problem,” but the board “accepted Mr. Wei and Mr. Lee’s wish that they take responsibility for the systemic break-down in our Company’s culture of integrity.”
Ma conveyed his sentiments more directly in a letter to the company’s employees today. “Over this past month, I’ve experienced a lot of torment, a lot of frustration, a lot of anger,” Ma writes in the letter, which I’ve obtained from an employee of the company. “This is the pain we suffer as we develop, the price that we pay as part of our growth, and it hurts!” Ma then issues a general call to arms on corporate values that concludes, “If not now? When? If not me? Who?” I have pasted the letter in full below.
It is unclear how this news will affect the overall group, in which Yahoo holds a 40% stake, much to the consternation of Ma, who would like to buy back the stake. The billionaire had told employees in an email last month that two unlisted subsidiaries, China’s largest online marketplace Taobao and the nation’s largest online payment platform Alipay, are not ready to IPO.
Taobao, which destroyed eBay in the competition for China’s fast-growing e-commerce market, would clearly command a significant multi-billion dollar valuation from investors were shares to be offered. Alibaba.com, meanwhile, dropped 3.47% in Hong Kong Monday before the announcement, after a strong run-up of 10.5% since Feb. 10. Its market capitalization stands at $10.8 billion.
See the statement from Alibaba.com’s board here, and a report by the company’s in-house information service Alizila here. Below is the text of Ma’s letter to the employees of Alibaba, or “Aliren,” first in the English translation, followed by the original Chinese:
Fellow Aliren:
As we have announced today, the B2B board of directors has accepted the resignations of B2B CEO David Wei and COO Elvis Lee. Additionally, former senior VP of B2B HR Kangming Deng has resigned his post as Chief People Officer of Alibaba Group in acceptance of responsibility and will be demoted to a different post.
Several months ago, we discovered that some of our B2B China Gold Supplier (CGS) members were suspected of fraudulent activity. What made it shocking was evidence indicating that certain members of the CGS sales team knowingly allowed, or in some cases even helped, these fraudulent companies join the Alibaba.com marketplace.
We formed a special task force to investigate the situation. According to the preliminary results of a month-long inquiry, we found 1219 CGS (1.1% of all Gold Suppliers) who joined in 2009 and 1107 CGS (0.8% of Gold Suppliers) who joined in 2010 were engaged in fraudulent activity. These fraudsters had joined the Alibaba.com marketplace for the sole purpose of exploiting the platform that we’ve labored to build up over the past 12 years to defraud overseas buyers. At the same time, the investigation confirmed that nearly 100 CGS sales staff knowingly allowed fraudsters to become CGS members so that they could “make their numbers” and receive commission income.
Any tolerance of this type of affront to business ethics and company values is a crime against the rest of our customers and Aliren who remain honest. We must take measures to safeguard the values of Alibaba! All the colleagues who were directly or indirectly involved must be held responsible; more importantly, B2B’s management team must assume primary responsibility. We have already terminated the storefronts of all 2326 CGS members suspected of fraud, and we have asked law enforcement authorities to assist us in our investigation.
Since the day that Alibaba was established, pursuit of profit has never been our main goal. We have no interest in turning the company into a mere money-making machine. Rather, we have long held firm to our mission of “making it easy to do business anywhere”. When we say “customer first”, we mean that we’d rather sacrifice growth than do anything that would jeopardize our customers’ interests, much less be a part of any blatant fraud.
Over this past month, I’ve experienced a lot of torment, a lot of frustration, a lot of anger……..
This is the pain we suffer as we develop, a price that we pay as part of our growth, and it hurts! But we have no choice. It is not possible for us to be mistake-free; we may from time to time commit errors of judgment, but we will absolutely not err by compromising our principles. If we do not face up to reality and find the courage to take painful action, Alibaba will no longer be Alibaba and our pursuit of our 102-year dream and mission will become nothing but a joke!
This world does not need another Internet company, much less another company that can make money;
What this world needs is a company that is more open, more transparent, more sharing, more responsible, more global;
What this world needs is a company that is grounded in society, serves the interests of society, and accepts the responsibilities of society;
What this world needs is a culture, a soul, a belief and an acceptance of obligation. Because these are the only things that will allow us to go further, do better, act with confidence on the challenging path of entrepreneurship.
What comforted me is learning that the overwhelming majority of our CGS sales colleagues upheld their principles in the face of temptation. To these colleagues, I salute you! More importantly, we thank the colleagues who have the courage to stand firm and fight against what is wrong. From their actions we witnessed the courage and power of upholding integrity and principles. In them we see Alibaba’s future and hope! And we need more Aliren like them! Those who do the extraordinary must assume extraordinary responsibilities!
The resignations of David and Elvis are tremendous losses to the company. For me this is extremely sad and hurtful. But I think their willingness as Aliren to step up and accept responsibility is most admirable. On behalf of the company, I want to express my sincere gratitude to the both of them for their unrelenting dedication and contribution to the company.
Fellow Aliren, the B2B board of directors has appointed Jonathan Lu as B2B CEO; the Group has appointed Lucy Peng as Chief People Officer of Alibaba Group. I hope everyone will fully support the work that lies ahead and believe we can make a difference!
This is an era full of promises and an era that no one wants to miss out on. Only through holding onto our ideals and our principles will we be able to become the pride of this era!
If not now? When?
If not me? Who?
