In China, a great leap in corporate governance

Bucking a deep tradition in private companies, the founder of tech giant Alibaba picks a successor – not a family member but a person with ‘professional talent.’ A kinship of qualities beat out succession by clannishness.

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Jack Ma, who founded e-commerce giant Alibaba Group and helped launch China's online retailing boom, announced Sept. 10 that he will be succeeded by Daniel Zhang in a year.

On Monday, China’s wealthiest individual, Jack Ma of tech giant Alibaba, announced his successor at the company he founded 19 years ago. Notably, in a country where 70 to 80 percent of private enterprises are still family run, Mr. Ma did not name a family member. Rather, one of the world’s biggest e-commerce companies will be led by Daniel Zhang, an 11-year Alibaba veteran chosen only for his “professional talent.”

The history of many countries can be marked by a transition away from a reliance on hereditary succession in both business and politics, or the belief that traits of leadership flow through bloodlines and family pedigree. Ma is a true innovator in many ways, most famously for building an innovative online shopping market worth more than the economies of most countries. But his legacy may lie in showing how China as well as much of Asia can produce founders of successful organizations not inclined to pass the reins of power to relatives.

“Alibaba was never about Jack Ma,” he stated in announcing his succession plan.

Instead, the former schoolteacher who came from humble origins is stepping back from day-to-day operations because he has built a corporate culture based on innovation, transparency, and accountability. “For the last 10 years, we kept working on these ingredients,” he stated.

The company’s future will depend on developing “droves of talent,” he said. And in a society with a long tradition of suspicion toward those outside the family circle, Ma has built an “architecture of trust” with customers, who number over half a billion. Chinese now readily rely on Alibaba’s online payment system, its ratings of products and services, and other trust-building mechanisms pioneered by the company.

Ma’s success reflects the first wave of entrepreneurs set free in 1992 when Communist Party patriarch Deng Xiaoping opened China for business. Ma also represents a trend away from family-run firms in many Chinese societies such as Taiwan and Singapore. Joseph Fan of the Chinese University of Hong Kong has found such companies lose 60 percent of their value on average when a founder hands the baton to a son or daughter.

China’s rapid growth now produces a new billionaire almost every day. Many of them, like Ma, have rejected nepotistic privilege in favor of systems based on merit and integrity. They swim in a talent pool, not a gene pool. As many countries have discovered as they progress, it is better to share a kinship of qualities than to rely solely on one’s progeny in business.

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