Ruixing’s internal strife for control of CEO exposes loopholes in corporate governance

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Our reporter Li Yuan
“Dare not interview, Guo Jinyi has a lot of eyeliner in the company. Once he finds out, the rice bowl will be smashed.” A middle-level member of lucky’s company was terrified of the reporter’s interview That’s what Guo said On the evening of January 6, a letter of request for the removal of Guo Jin, the chairman and CEO of Ruixing coffee, exploded the media circle. Dozens of middle and senior executives of Ruixing coffee jointly reported that Guo Jinyi, the current chairman and CEO of Ruixing coffee, was corrupt, abused power, and made many wrong decisions, demanding the removal of him.
According to the internal staff of lucky coffee, on the morning of January 7, Guo Jin said that no one is allowed to disclose any information to the outside world, and once found, they will be dealt with strictly. Meanwhile, Guo Jinyi has requested the board of directors to set up an investigation team to investigate the matter. “I have personally requested the board of directors to set up an investigation team to investigate the incident in order to restore the truth,” Guo said
At the same time, Zhou Bin, vice president of lucky coffee, accused Guo Jinyi in his circle of friends: “slandering us for not knowing the truth, slandering us to tarnish lucky and destroy the company, and even asking the board of directors to investigate us! What’s more ridiculous is that they even throw the pot to President Lu (Lu Zhengyao) and President Qian (Qian Zhiya)! ”
It is not difficult to see that both sides hope that the board of directors of lucky coffee will thoroughly investigate each other, but as of the press release, the board of directors of lucky coffee has not delivered any information to the outside world. Shen Meng, the executive director of Xiangsong capital, told China Business Daily that Lu Zhengyao can’t escape the responsibility for Ruixing’s financial fraud. Lu Zhengyao’s exit is not only to protect the company, but also to keep the position of other senior executives, and it is at this stage that there must be someone to cooperate with Lu Zhengyao made the cut. Ruixing’s senior management should have started the factional struggle at this stage. One group worked for the new president, and the other group still obeyed the old president.
Can a joint letter remove the chairman and CEO of the board of directors?
“In fact, it is very rare for Ruixing to ask for the removal of the chairman and CEO through a joint letter from subordinates and senior officials.” Wen Zhihong, partner of Hejun consulting, founder of Hehong consulting and chain business expert, believes that the first reason for this situation is that Guo Jinyi does have the problem of moral mismatch, which is not only a problem of ability, but also involves corruption or other problems mentioned in the joint letter. Another possibility is that there are other forces behind the manipulation of this matter.
A screen capture of Li Jun’s circle of friends, vice president of Ruixing, given to the reporter by a person in the industry, shows that on January 4, the company’s middle and senior executives, including Li Jun, issued a solemn request to the company’s board of directors and major shareholders to remove Guo Jinyi, chairman of the board of directors and CEO, so as to save the company from fire. The signature on the request letter is almost all the middle and high-level business backbones of the company, including seven vice presidents, general managers of all branches, directors of all core business departments and some other management personnel of the headquarters and branches.
“However, a few days later, we did not wait for any positive response from the board and major shareholders to our request, nor did we see the board take any action to save the company. Instead of introspecting himself, Guo Jinyi tried his best to sophistry in front of all the staff, confusing the public, slandering us for not knowing the truth, slandering us for Ruixing and destroying the company, and even asking the board of directors to investigate us in turn. What’s more ridiculous is that he still left the company. Under Guo Jinyi’s leadership, he lost his integrity and morale. This is obvious to all. The problems of supply chain, store operation and staff turnover are also indisputable facts. We also have a lot of evidence about Guo Jinyi’s corruption. It is precisely because we do not want to see the Ruixing that we have worked hard to build destroyed under the leadership of Guo Jinyi that we choose to ask the board of directors and major shareholders to remove him. Guo Jinyi has so frivolously slandered and attacked us. We want to ask, “who gave him such power?”
Interestingly, all the executives are asking: where are the rights of the company? But before we ask this question, can we remove the chairman of the board of directors and CEO of a company just by virtue of such a joint letter?
“Although we haven’t seen the articles of association of lucky company, under normal circumstances, shareholders appoint directors to form the board of directors. The board of directors elects the chairman according to the rules of procedure, and then the board of directors decides the general manager. Therefore, this letter from the senior executives is based on the board of directors and major shareholders of the company. The senior executives have no legal right to recall the chairman and the general manager.” Fan Bosong, a partner lawyer of the field law firm, told reporters that the normal recall procedure should be for the company to hold a board meeting and form a resolution according to the rules of procedure.
Yan Chuang, a lawyer from Beijing Zhongwen law firm, also told reporters that to remove the chairman, the board of directors needs to hold a meeting to vote in accordance with the articles of association previously agreed by the company, and obtain the required majority vote to remove the chairman. However, if the board of directors is unable to perform its duties, it should be decided by the general meeting of shareholders or major shareholders.
According to Article 101 of lucky’s articles of association, there are two ways to remove directors: one is to pass an ordinary resolution of the general meeting of shareholders, which requires more than 50% of the shareholders to vote. As of June 26 last year, the Lu Zhengyao family still controlled 37.2% of the voting rights of Ruixing, and CEO Qian Zhiya controlled 7.9% of the voting rights of Ruixing. The total voting rights of the two reached 45.1%, far higher than other shareholders. Therefore, in the legal process of removing Guo Jinyi, Lu Zhengyao can still be realized through the general meeting of shareholders.

In fact, under China’s legal framework, directors are elected by shareholders, while the chairman is elected by the board of directors; the removal of the chairman needs to go through the board of directors, and if the director is removed at the same time, it also needs to go through the shareholders’ meeting (a joint-stock company corresponds to the shareholders’ meeting). “Lucky is a listed company in the United States. Generally, it will set up a framework overseas, such as British Virgin Cayman, and then control Hong Kong companies, and then control domestic companies. The chairman of the board of directors will play an important role in a company. At present, the preliminary judgment does not rule out that it is through this way to attract attention, but actually to fight for control. ” Liu Xiaoqin, a partner lawyer of Beijing Zhonglun Wende law firm, told reporters that under the current corporate governance framework, the ownership and management rights of the company are separated. Shareholders generally recommend directors to participate in the operation and management of the company, so the selection of directors is particularly important. The chairman of the board of directors plays a key role in the board of directors. He may sign relevant documents as the legal representative. He may decide to hold the board of directors internally and make proposals for the board of directors. He may also represent the image of the company externally and reflect the concept of corporate governance. Therefore, the change of the chairman of the board of directors will send some signals to investors.
“Instead of commenting on the grudges between the former chairman and CEO of lucky coffee and the current chairman and CEO, let alone on which is right or wrong, from the perspective of corporate governance alone, this time 31 senior executives jointly sued the chairman and CEO of the board of directors and asked for the removal of Guo Jin, reflecting that lucky company has many problems in its governance structure and internal control defects.” Zou Zhiying, a management accounting expert, chairman of Zhiying Shengshi and former CFO of Merck pharmaceutical China, told reporters.
Behind the extreme relief
In April 2020, lucky coffee broke out the financial fraud incident. On December 17, 2020, lucky coffee reached a settlement with the SEC, paying 180 million US dollars in exchange for the latter’s abandonment of accounting fraud charges, which means that Lu Zhengyao and other then company executives can temporarily avoid being punished by the Sarbanes Oxley act. “However, after the settlement, Lu Zhengyao and others may still face the need for the approval of the U.S. court for the settlement, and may also face a class action, because this case involves the issue of long arm jurisdiction. The company is listed in the United States, so it infringes on the interests of American investors. At that time, everyone was concerned about whether this would become the first case of long arm jurisdiction, and there was no news later. ” Liu Xiaoqin said.
According to the public inquiry documents, there was a round of reorganization of the board of directors before. Just before the reorganization, it can be said that Lu Zhengyao and others have made the last effort to ensure that they and their “own people” have control of the company. At that time, Lu Zhengyao, who was not yet the chairman of the board of directors, once initiated a general meeting of shareholders. At the meeting, he himself dismissed himself. At the same time, Li Hui, Liu Erhai and Shao Xiaoheng were also dismissed. However, he nominated two independent directors. This shows Lu Zhengyao’s nostalgia for Ruixing’s control. “Although I don’t have much contact with Lu Zhengyao, I feel that he is more worldly and tough in doing things.” A senior media person who has dealt with Lu Zhengyao said.
But after all, financial fraud violates the obligations of directors and senior executives to the company. Therefore, in mid July, Guo Jinyi, a former director, formally took over as chairman and CEO. Qian Zhiya and coo Liu Jian were suspended and resigned from the board of directors. So far, the board of directors all changed. In the eight member board of directors composed of Guo Jinyi, Zhuang Weiyuan, Wu Gang, Cao Wenbao, Yang Jie, Cha Yang, Liu Feng and Zeng Ying, Zeng Ying and Yang Jie were the independent directors previously nominated by Lu Zhengyao.
In the interview, a number of experts said that from the current situation of Ruixing, the “Ruixing forced Palace” incident is not a matter of fighting for the control right of capital, but a matter of fighting for the internal control right. Because if it is the fight for the control of capital, then the major shareholders of the capital side can make decisions on the appointment and removal of the board of directors, including the chairman and CEO, through a normal procedure from top to bottom. Now the situation is a kind of bottom-up action from the management, which is more like a fight for internal control. At present, such a “forced Palace” event has just appeared.
From the company’s point of view, lucky’s superficial performance is that the restructuring effect is very bad; in addition, the documents related to the control right, business philosophy and standardization have formed the present situation. Obviously, the internal contradictions of lucky intensified the turbulence of the company.
But the reason why Ruixing is what it is now is that there are many loopholes and defects in its corporate governance. But the fight for rights and the rectification of the company’s problems may be the first clarion call.
Challenged leadership
After Ruixing’s financial fraud incident, Guo Jinyi was ordered in the face of danger. According to public information, Guo Jinyi adjusted Ruixing’s strategic direction after taking office. The joint letter also mentioned the problems of changing suppliers and reducing costs in all aspects of the supply chain. It can be seen that Guo Jinyi’s strategy is to reduce costs, which also reveals that Guo Jinyi’s leadership has great problems.
In fact, in management, different people have different interpretations of the topic of leadership, and different enterprises or enterprises have different requirements for leadership at different stages or periods.
“However, as a new successor, Guo Jinyi may need to have the following abilities in Leadership: first, cohesion. When an enterprise is facing some major events or in a relatively turbulent period, how can it unite people? As the chairman of the board, we should not only make people feel that they are appointed by the top, but also supported by the bottom. The second is the influence. As the main decision-maker of the company, how to spread their ideas, including the ways and means of dealing with the sudden problems faced by the enterprise, to the relevant stakeholders inside and outside the company, and turn them into the consensus of everyone and into the executive power is the key point of their influence. Third, we should have the ability to respond to changes. As the main decision maker, how to deal with all aspects of problems when lucky is in such a big turmoil? Let the internal and external are recognized, this kind of adaptability is quite high for decision makers. ” Wen Zhihong said.

Obviously, in addition to the background of “China Department”, as soon as Guo Jin took office, he has been committed to openly confronting Starbucks, an old competitor in the coffee industry, in various major forums. Internally, in terms of the above three abilities, judging from the challenges Guo Jinyi is facing, his leadership can be imagined.
In the interview, the middle-level person at the beginning also revealed that there are indeed many employees who are constantly leaving. In enterprise management, people are the primary productivity, and backbone employees leave frequently, which exposes the dangerous signals in the company’s operation.
Ruixing’s “forced Palace” incident can also be said to be a public relations crisis for enterprises. “First of all, the reputation of the brand is damaged. Originally, financial fraud is the first, and the ensuing infighting will further affect the brand’s ability to recover in the market.” Zou Zhiying said that the second is that it has slowed down the decision-making process. From the perspective of the current contradictions between the two sides, there are major differences in the enterprise positioning, supply chain strategy and development strategy. Internal strife will further affect the next company’s decision-making, lead to unclear company positioning, damage to partners and cooperation ecology, and in turn affect the development of the enterprise. Thirdly, in the face of the company’s “infighting”, the employees are hesitant and difficult to stand in line, which is likely to form a large-scale loss of personnel.
When there is no way to achieve the internal relief, the choice of external relief may be a result of helplessness; but when this problem attracts public attention, the company may not win.
Our reporter Sun Jizheng also contributed to this article