Deng Hong Photo: CFP

Liu Han Photo: CFP

Zhu Xingliang Photo: CFP

It's unfortunate and worrying when a company employee mysteriously vanishes, but particularly so if it happens to be one of the top executives.

This is what has just happened to Shanghai-listed Sichuan Star Cable Co. Li Guangyuan, the chairman of the board and the founder of the firm, disappeared in late July without leaving a word of explanation.

"[The firm] is unable to get in touch with Li Guangyuan over the phone," the firm said in a statement Friday.

The firm has not received any information from the local authorities about Li's whereabouts, and it is checking if the chairman is under investigation by the government after multiple media outlets claimed that he is, the statement added.

"The firm's strategies are set by the board of directors, and now the firm is currently operating normally," it said.

Li, a 37-year-old Anhui Province native, founded Sichuan Star Cable in 2003 in Leshan, Sichuan Province. The company grew rapidly since it was established and was listed in Shanghai last year. Li owns 62.6 percent of the company's shares, and was elected as a deputy for the 12th National People's Congress in February.

The firm made a net profit of 1.06 million yuan ($172,900) in the first quarter of 2013. It is a supplier for several major State-owned enterprises (SOEs), including China National Nuclear Corporation and China Petroleum & Chemical Corporation, according to a report Monday by the Beijing News.

The unexpected disappearance of Li has caused a flurry of rumors online, with many of them claiming he has been taken away by discipline inspection authorities for committing economic crimes in relation to government officials under corruption probe.

Vanishing act

Li is not the only senior executive to have "vanished" recently. Chengdu Gotecom Electrical Technology Co said on July 25 it could not get in touch with the chairman of its supervisory board, Wang Xinguo. And the chairman of Chengdu Exhibition & Travel Group, Deng Hong, disappeared in March.

In the cases of some other senior executives who have disappeared, it later turned out that they were under investigation for economic or other sorts of crimes.

For example, Zhu Xingliang, the controlling shareholder in Suzhou-based Gold Mantis Construction Decoration Company, reportedly left work abruptly on July 22. The company released a statement on July 27, which confirmed that Zhu was "cooperating with a probe by prosecutors."

Tan Jianming, chairman of Chengdu Xingrong Group, a tap water provider that is also involved with environmental protection, was also placed under investigation after he left work in April.

An unexpected disappearance of a senior executive can cause frantic speculation among a company's shareholders, said Lu Dongbin, a professor with the School of Business at Renmin University, and this will definitely hit the share price of a listed company.

"People tend to sell their shares in order to prepare for the worst situation, such as a top executive being arrested for bribery," Lu said.

The share price of Sichuan Star Cable dropped by 2.2 percent the day after its chairman vanished. The stock price of Gold Mantis Construction Decoration fell by 9.98 percent on the day that rumors about the disappearance of its controlling shareholder came out.

Political connections

Sichuan Star Cable saw rapid development under Li's leadership.

According to the Beijing News, the company finished constructing its first-phase plant only eight months after it was established and made revenue of 200 million yuan that year.

Several business people in Sichuan Province said Li was able to receive multiple purchase orders from SOEs thanks to his political connections, according to a report on July 25 by 21st Century Business Herald.

The paper cited a source who said that Li has close connections with Guo Yongxiang, Sichuan's former deputy governor, who helped Li in the petrochemical industry.

Guo was detained by China's Central Commission for Discipline Inspection last June for allegedly violating Party rules. Some have speculated that Li's disappearance may be related to the investigation into Guo.

It is not unusual for entrepreneurs to succeed thanks to connections with the government or certain officials. However, when the people in power fall, the businesspeople are also affected.

For example, the sacking last December of Li Chuncheng, former deputy secretary of the Communist Party of China Sichuan Provincial Committee, for allegedly violating Party rules has caused a ripple effect in the region's business circles.

The chairman of Chengdu Industry Investment Group Co, Dai Xiaoming, and the chairman of Chengdu Construction Engineering Corporation, Zhang Jun, have been placed under investigation due to their relationship with the former deputy secretary, according to media reports cited by the Beijing News.

Companies under pressure

Market watchers told the Global Times that small shareholders - who do not have the protection of a diversified portfolio and who tend to receive information later than major shareholders - are usually the biggest losers when a senior executive vanishes.

Wang Danqing, co-founder of Beijing-based ACME Management Consulting, told the Global Times Monday that big shareholders enjoy the advantage of being more familiar with the operation of a company, so it is easier for them to sense if something has gone wrong.

"Big shareholders can easily make a decision on whether to sell their shares based on insider information, while small  shareholders are less able to receive timely information," Wang said. "Therefore, when a sudden incident happens to a firm, the small shareholders are often the main victims."

Both Lu and Wang said the sudden departure of a senior executive can pose great challenges for a company, and so-called "normal operation" could be difficult to sustain.

For example, after Liu Han, chairman of Sichuan's Hanlong Group, was detained in March, the firm failed to complete its $1.23 billion purchase of Australian iron ore miner Sundance Resources.

"A company is likely to fall into chaos and its day-to-day operation could be paralyzed after the sudden loss of its top leader," Lu said. "Other than the controlling shareholder, such as Li Guangyuan of Sichuan Star Cable, who always has the final say on major investments and new policies, no one would dare to make those decisions."

Wang agreed, noting that the firm priority would be to maintain its production, and convey the idea that its operation has not been too heavily influenced by the incident.

"The company has to create an image of being stable even if it cannot find a replacement for its top leader in a short period of time," Wang said.