Drama and violence in battle over a China firm
It may be a tiny Chinese educational company worth a little more than US$200 million, but the ChinaCast Education Corp has found itself embroiled in a battle worthy of a John Grisham novel. Its ousted chief executive Ron Chan has been accused of aiding in the disappearance of ChinaCast’s chops - ornate corporate seals that are needed to approve everything from paychecks to contracts.
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New York Times
23 April 2012
It may be a tiny Chinese educational company worth a little more than US$200 million, but the ChinaCast Education Corp has found itself embroiled in a battle worthy of a John Grisham novel. Its ousted chief executive Ron Chan has been accused of aiding in the disappearance of ChinaCast’s chops - ornate corporate seals that are needed to approve everything from paychecks to contracts.
And last week, more than a dozen men claiming an association with Mr Chan burst into the company’s Shanghai office twice, violently carting off several computers from the finance department, according to a US regulatory filing late on Thursday.
“We remain in disbelief at the actions of former CEO Ron Chan and his associate John X Y Jiang,” ChinaCast’s interim CEO Derek Feng said on Thursday. Mr Chan’s actions, he said, “are a threat not only to ChinaCast’s shareholders and employees, but also to every honest China-based company that wants to retain access to the foreign capital markets”.
Mr Chan has denied the allegations and in a telephone interview accused his former company’s board of ousting him in an effort to seize control.
The convoluted fight follows other recent messy cases involving Chinese companies that have flocked to US stock markets. In a number of instances - that of the Sino-Forest Corp, most prominently - investors hoping to tap into China’s entrepreneurial growth have instead been forced to confront problems from unpredictable management to accusations of outright fraud.
Some companies have since restated earnings, stopped trading or simply closed up shop. “What you have here are Western systems of corporate governance that don’t work with strong-willed Chinese CEOs,” said Paul Gillis, a professor at the Guanghua School of Management at Peking University.
ChinaCast’s battles with its former chief have raged for months. Mr Chan had waged war with one of its Western directors, accusing him of insider trading and seeking to push him off the board. A bitter proxy fight ensued, including an apparent attempt to lock out representatives from a hastily scheduled midnight vote. In the end, Mr Chan lost, and ChinaCast’s board was reorganised with a mostly new set of directors.
Here the tale becomes even stranger. The company fired Mr Chan in late March, accusing him of preventing its auditors at Deloitte from certifying the company’s books.The board also fired other executives suspected of being aligned with Mr Chan, including the chief financial officer and the chief accounting officer.
ChinaCast then sued Mr Chan in a Shanghai court, seeking the return of several chops. Mr Chan in turn issued an unusual letter to shareholders, declaring himself the victim of intimidation by Western investors seeking to wrest the company from him. He denied holding any company property or interfering with Deloitte’s work.
ChinaCast also suspects Mr Chan of being involved in Harmony, a rival education service provider located in the same Shanghai office building as his former employer, according to sources.
Mr Chan denies the current board’s accusations, arguing that he possesses no company property. He added that he had nothing personally to do with Harmony.