Corporate governance infighting won’t have fatal impact on Luckin: analyst
Published: Jan 07, 2021 10:43 PM

Photo shows a Luckin Coffee shop in Shanghai, east China. Photo: Xinhua

Luckin Coffee, the once-shining Chinese coffee chain that has been tainted by an accounting scandal, is embroiled in corporate governance infighting, with mounting confusion over an internal petition to remove chairman and CEO Guo Jinyi.

The situation is unlikely to have a fatal impact on Luckin's operations, an industry analyst said. 

A letter signed by dozens of Luckin executives circulated on Chinese social media on Wednesday, claiming that the company is on the brink of collapse due to Guo's incompetence and requesting the board of directors and major shareholders to remove Guo from his posts immediately and appoint new management to protect the interests of employees, consumers and investors, media reports said. 

The letter listed multiple suspected wrongdoings by Guo, including corruption and abuse of power, and it called for the establishment of a special committee or independent investigation team to be attended by staff representatives for a corruption probe into Guo.

The removal petition is authentic, domestic news site reported on Thursday, citing a company confirmation.

In a statement forwarded to the Global Times late Thursday, Luckin's board of directors said it received a letter on Monday from certain staffers containing allegations against Guo and "immediately formed an independent committee ... to conduct an investigation into the claims and the circumstances of the letter" 

Guo has denied the allegations in the letter, according to the statement which noted that the company "remains focused on growing its core coffee business and is committed to its long-term growth targets."

In an internal letter to all employees on Wednesday, Guo said that former chairman Charles Lu Zhengyao and former CEO Jenny Qian Zhiya organized and presided over the drafting of the letter, and some employees who were kept in the dark were coerced into signing the letter, according to media reports. 

Guo claimed he had filed a request with the board of directors to set up a task force to start a probe into the incident, media reported. 

There has been skepticism about Luckin's operational approach since it was hit by the accounting scandal in April 2020, said Zhang Yi, CEO and chief analyst at consultancy iiMedia Research, noting that the company's performance shows it is meeting Chinese consumers' needs.

Over 60 percent of Luckin's nearly 3,900 self-operated stores were profitable on an individual level in November 2020, according to a statement on the company's website. 

The internal management conflicts will inevitably slow Luckin's expansion, but the possible management reshuffle is unlikely to have any fatal consequences, Zhang told the Global Times on Thursday. 

The chain was founded in 2017 and quickly rose to prominence with its ambitious expansion across China. It pulled off an IPO in the US in May 2019. 

It announced plans to delist from NASDAQ in June 2020 following fraud allegations, and it revealed in December it had reached a settlement with the US Securities and Exchange Commission to pay a $180 million penalty to settle the fraud charges. 

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