Pinduoduo Is Stuck In Startup Governance Mode

Pinduoduo (PDD) is in need of a C-suite upgrade. China’s e-commerce darling on Wednesday replaced co-founder Colin Huang as chief executive with his fellow founder Lei Chen. The pair wields supervoting stock and controls the board, but their $102 billion company still lacks a chief financial officer or other top executives. It has a long way to go for better governance.

It’s an odd time for Huang to step back. The New York-listed company only went public in 2018 and has since seen its valuation more than triple. In a letter to staff, Huang, who remains chairman, says he will now focus on formulating Pinduoduo’s long term strategy and developing its corporate structure. He has also pared down his direct equity stake from 43% in March to under 30% this month, filings show.

Not much else may change, though. Pinduoduo remains firmly in the hands of the men who started it five years ago. Huang still holds an 81% voting stake. What’s more, the duo has established a model where five “partners” are in charge of appointing executive directors to the board and nominating the chief executive. A committee sits on top, screening and approving board members and determining bonuses. But as of March, Huang and Chen are the only members in the committee, and the partnership remains inert until it finds more members.

Pinduoduo is at least acknowledging the deficiency. As part of Wednesday’s rejig, Huang pledged to build and refine the partnership, and even transferred some of his shares, roughly 8% of the company’s total outstanding, to it. And even though the company has no chief financial officer, it did appoint a new vice president of finance.

Governance concerns have yet to hamper Pinduoduo’s share price performance; investors have added some $60 billion to its market value since the start of the year alone. But the first quarter’s net loss more than doubled to $582 million from a year ago. As competition with Alibaba intensifies, Pinduoduo is running out of time to revamp its management structure.

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