The modern story of Alibaba Group Holding Limited (NYSE: BABA) may be just as “fabulous” as the ancient Persian version in the 1001 Nights (for which, see Burton’s colorful if quaint 1886 translation).
In what ways?
It makes for quite a tale: launched by a school teacher with $ 4000 – explosive growth – reported yearly revenue now $ 5.55 billion – potential as limitless as that of the combined Chinese consumer and business economies on which it feeds.
As a regular part of my graduate-level course in Risk Management, we examine how language can be manipulative or revealing – how names and labels can mis-lead or inform.
Why is it clichéd nonsense, for example, that “Even a broken clock is right twice a day”? How reliable is the maxim, “Buy on the dips”? What is the best reaction to “This time it’s different”?
So the public reaction is interesting to Alibaba’s initial public offering – Jack Ma’s globe-spanning sales tour, the company’s early closure of its order book, the offering price raised to $ 68, and the first-day price pop to $ 92.70 on September 18. With the underwriters’ exercise of their “green shoe” option to sell extra shares, Alibaba raised $ 25 billion and became the largest IPO in history.
All in the face of such darker elements of the “fable” as:
- A governance structure that captures and traps investor equity by lodging control in a circle of insiders.
- An opaque business model based in the Cayman Islands, operating through a network of separate businesses in the hands of Mr. Ma and his coterie.
- A home country distinguished by its resistance to corporate or regulatory visibility – see both the decade-long auditor inspection impotence of the PCAOB and the teeth-gnashing enforcement attempts at work-paper access by the securities regulators of both the US and Hong Kong – and a history of exporting financial chicanery into the world’s capital markets – see the major Canadian regulatory and civil litigation settlements related to Sino-Forest Corp., and the rash of dubious reverse mergers of Chinese companies into partners listed in other markets.
History provides casebook examples of revealing terminology that might have alerted the sharp-eyed, but missed in the credulous buy-in of investors and gate-keepers to the stories of the flim-flam artists:
- At Parmalat, the recording of bogus transactions in an account called the “buco nero” might have been suggestive – the Italian equivalent of “black hole” not being immediately obvious for its legitimacy.
- A high-tech company in Silicon Valley engaged in that industry’s all-too-familiar practice of recording revenue on transactions not completed at year-end, keeping a separate ledger called the “oven list” – jargon for “half-baked” but booked early nevertheless.
- With a thesaurus full of kinder and gentler terms available, Enron’s use of special purpose vehicles denominated the “Raptors” might, for the curious, have suggested their predatory nature and raised the question, “Just who is the prey?”
As for Alibaba – which in its first trading week failed on any day to close above its opening price – there is more to compare with the old story than the image of an open-faced and humble wood-cutter, who by alert if simple eaves-dropping heard the magic phrase that opened the cave of the forty thieves.
As that version played out, AliBaba first concealed and disguised the thieves’ murder of his avaricious brother. And after the dead man’s cold-blooded slave girl had boiled in oil the thieves who came for revenge, and then knifed their chieftain while he sat as AliBaba’s guest at dinner, this superficially callow and guileless peasant looted their treasure trove for the life-time enrichment of himself and his family circle.
Not exactly a model for hospitality, openness or transparency.
So – for the huge herd of investors who rushed to buy Alibaba’s sizzle – in heedless disregard of the quality or even the existence of the steak – the future will soon tell whether, in their collective enthusiasm, they blinked and missed the unsubtle message in Jack Ma’s audacious branding choice.
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