Internet & Tech

Fall guys

Welcome lessons from Alibaba’s fraud debacle

Responsible chap: David Wei

“If I lose mine honour, I lose myself.” So goes a line from Shakespeare’s Antony and Cleopatra in which the Roman protagonist must be making one of literature’s earliest recorded comments on the precariousness of brand value.

It’s a sentiment that’s not lost on Jack Ma. The Chinese tycoon has been in Roman mood this week, with at least two of his top executives metaphorically ‘falling on their swords’ following a management oversight that’s threatened the hard-earned reputation of the Alibaba brand. On Monday evening it was announced that company CEO David Wei and chief operating officer Elvis Lee had both resigned. They did so, pointed out the Wall Street Journal, after an internal investigation found that staff had allowed 2,300 sellers on the e-commerce site to commit fraud. Neither executive was found guilty of any wrongdoing himself, but both acknowledged that the buck stopped with them for a “systemic break-down” that risked a loss of customer trust in Alibaba’s services.

Regular readers of WiC will know that Alibaba Group operates three main businesses. Taobao is a huge Chinese shopping site (see WiC94) and Alipay is a dominant player in online payments (see WiC66). But Alibaba.com is the group’s flagship business (see WiC27). Established in 1999, it offers business-to-business services that help overseas buyers source Chinese-made goods. It does so by connecting over 108,000 China suppliers with the likes of WalMart and Procter & Gamble, says Bloomberg.

So what went wrong? Around 100 of Alibaba.com’s salesforce (out of a total of 5,000) were discovered to have been helping frausters evade the firm’s authentication process. That meant that Alibaba’s ‘gold supplier credentials’ were given to around 2,300 scamsters – who took customer money with no intention of sending them the products that they had ordered.

This obviously goes to the heart of Alibaba’s business model. Ma had little choice but to take action. In an open letter to staff, the entrepreneur wrote that Alibaba preferred “no growth to harming the interests of customers.” He added: “If we do not have the courage to face the truth…the mission and dream we have adhered to for 12 years will become a joke and empty talk,” Ma continued. “Any tolerance of behaviour in breach of the principles of business integrity is criminal to more honest clients and more honest Alibaba people. We must take measures to defend the values of Alibaba!”

When news broke of Wei and Lee’s departure on Monday night, there was an immediate response. Fellow tycoon Shi Yuzhu (see WiC21) commented on his weibo that his online gaming firm Giant had the motto ‘dare to take personal responsibility’ as part of its corporate culture. But he also added (rather honestly) that in practice the commitment had often been a “mere formality”. He was therefore impressed to see the resignations at Alibaba. “If I were in Jack Ma’s position I might have broken the company motto due to lack  of courage,” Shi admitted, i.e. he mightn’t have asked the CEO to go.

Ma has always been a bit different from his fellow entrepreneurs. A former English teacher and lecturer at Hangzhou Dianzi University, he got the idea for the Alibaba website in the mid-nineties, says the Economist magazine, when he typed ‘Chinese beer’ into Yahoo and got no results. He has since become one of the nation’s leading business icons – so much so that when Chinese state TV produced an equivalent of The Apprentice (called Win in China), Ma was selected to be the first judge (see WiC44). If anything, his reputation among Chinese has risen this week.


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