Jack Ma Talks To China Entrepreneur Magazine About The Alipay Case (UPDATED)

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  • on July 6th, 2011

The latest issue of China Entrepreneur Magazine (中国企业家) has an exclusive interview with Alibaba Group CEO Jack Ma. He addresses the Alipay transfer and ongoing issues with Softbank and Yahoo ($YHOO), and has some choice words for both the companies and Jerry Yang (Yang Zhiyuan) and Masayoshi Son (Sun Zhengyi). Ma, who spoke with the magazine in June, says that compensation discussions are progressing, though it has been three weeks and there is still no announcement.

Jack Ma does not deny that he transferred out Alipay without board approval. He insists the board left him no choice and that in fact Softbank’s Son urged him to lie to the Chinese government about the existence of the Variable Interest Entity that gave Alibaba Group effective control over Alipay.

Ma also says that in the six years since Jerry Yang and Masayoshi Son joined the Alibaba Group board

“not one decision has been approved by the board. A lot of things have been discussed outside of the board, and the board have come to an agreement. It’s always been this way; there’s never been any mess of approval or opposition on the board. It’s all decided in the minutes of our meetings.”

That claim may warm the hearts of the US class action lawyers suing Yahoo.

Here is a summary of the interview, provided by China Entrepreneur Magazine:

In an exclusive interview Jack Ma gives to China Entrepreneur, he claims he warned shareholders from the first day he started Alipay that the government would try to control it. “But [the shareholders] didn’t believe me, or they said, ‘Leave it for now.’ If they don’t agree with something, you’re stuck.”

In an interview published in the issue of China Entrepreneur that hits the stands on Wednesday, Ma claims the Central Bank left him absolutely no room to maneuver or negotiate, and he was forced to cut Yahoo and Softbank’s stake in Alipay.

He claims that when he spoke to Softbank CEO Sun Zhengyi about the situation, Yang responded, “‘I only have two minutes, I have to go,’ and he didn’t give his opinion. The documents needed to be given to the Central Bank the next day, and if they weren’t, everything would be automatically shut down.”

Ma says running the decision through the board of directors would have been useless, because they would not have agreed to the decision, and Alipay would have collapsed, adding that in the six years since the board was formed, no major decision was made through a vote from the board.

Ma says that Softbank CEO Sun Zhengyi urged him to lie to the Central Bank about the foreign ownership of Alipay instead of seizing control of the company from Softbank and Yahoo. Ma refused.

Ma claims he had only three choices: “One, close the company. Two, lie. Three, follow the law, first transfer Alipay out, then negotiate. The first route was certain death, so there was no way I could take it. The second is a big risk; the Central Bank could leave you alone one day, then tie you up within an inch of your life the next. If you don’t have a variable interest agreement, you have to take even more responsibility. Tell me, which route would you take?”

Ma says negotiating with Yahoo and Softbank to agree to transferring Alipay out of their control was out of the question. “They wouldn’t be convinced. Because Sun Zhengyi really wanted to take the second route. He said that everyone takes this route, so why wasn’t I taking it?”

When China Entrepreneur suggested Sun Zhengyi may have believed that Ma could negotiate to protect Alipay from risk related to getting the government licence, Ma responded:

“Remember, I’ve said before, I don’t like politics, I’m not good at politics, I’m not on the left or the right. If I was good at politics, then I wouldn’t be a businessman today. If you want to be in business you have to
follow the law, and your principles. That’s my bottom line, I’m almost 50, am I supposed to go and do something illegal?”

Ma added: “There were only two options, no others: you have foreign investment, or you don’t. But the shareholders didn’t give an opinion.”

He stands by his decision to transfer Alipay without getting approval from the shareholders. “Process takes responsibility out of your hands; you can’t be wrong if you’re following process, and if it’s wrong it’s the process’s fault, and it has nothing to do with me. But I have to take responsibility.”

He blamed Yahoo for not telling its shareholders earlier. “After [Yahoo CEO] Yang Zhiyuan received the March 31 [report indicating Alipay had been transferred], he should have immediately told the Yahoo shareholders, but he waited until May to tell them. So now, Yahoo’s US shareholders blame Yahoo, not us.”

UPDATE: I removed the full text of the Jack Ma interview and English translation at the request of China Entrepreneur Magazine. They did not want the full text online anywhere but their own site, and apparently Yahoo and Alibaba were upset at the translation and the portrayal of some of the parties involved. The real issue was probably not the translation but what Jack Ma said. As best as I can glean the Alipay compensation negotiations are not close to completion. Alibaba is doing its own translation, to “clean up” what Jack Ma said. If there are discrepancies that appear to change what was said I will update again.

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Full Disclosure: I own shares in Yahoo at the time of publication of this post.

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