Luckin Coffee shareholders vote to remove chairman
Published on: Tuesday, July 07, 2020
By: Bloomberg
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Jenny (centre left) and Lu (centre right).
HONG KONG: Luckin Coffee Inc Chairman Charles Zhengyao Lu was ousted by shareholders from the scandal-plagued Chinese company, just days after surviving an effort by some directors to strip him of control, local media reports said, citing unidentified sources.

Three other board directors including Sean Shao were also removed in an extraordinary shareholders’ meeting in Beijing, according to the reports from 21st Century Business Herald and Sina, while Ying Zeng and Jie Yang will be added as independent board directors.

A company representative didn’t respond to requests for comment.

The removal of Lu is the culminating step in a major shake-up of top management since fabricated transactions dating back to April 2019 came to light earlier this year. The coffee chain already fired its chief executive officer (CEO) and chief operating officer (COO), among other employees, in May as it came under investigation by Chinese and US regulators.

The voting result ended a temporary reprieve for Lu, who remained the chairman after a proposal to remove him from the start-up he founded wasn’t approved by the required two-thirds of directors in a special meeting last week. According to Luckin’s articles of association, a director can be removed by shareholders or other board directors.

Luckin’s executive shake-up is an unusual case in China, where it’s rare for a private start-up to oust a founder and chairman, who is considered the soul of the firm. Lu and others were removed in a bid to distance the company from the financial scandal and allow it to continue operating more normally.

Lu’s dismissal came after Luckin said it substantially completed an internal investigation into the financial irregularities. Once considered among China’s brightest growth stories, the chain has seen its stock become almost worthless, plunging 94 per cent this year.

The company said last week its internal investigation concluded that net revenue last year was inflated by about 2.12 billion yuan (US$300 million or RM1.29 billion), while costs and expenses were boosted by 1.34 billion yuan. After the conclusion of the investigation, a majority of directors requested Lu’s resignation. – Bloomberg

Luckin’s fall has ensnared banks including Credit Suisse Group AG and Morgan Stanley as they face a US$300 million shortfall on margin loans made to Lu. The scandal is also a black eye for China Inc as US Congress moves closer to passing legislation that could bar Chinese companies from trading on US stock exchanges.

Luckin said it would fire a dozen workers and discipline 15 others following the internal investigation. It already dismissed CEO Jenny Zhiya Qian, COO Jian Liu and some employees who reported to them in May after uncovering the scheme that funneled funds to the company from several third parties with links to the participants. The board said it fired the executives based on evidence showing their participation in the false transactions.

Lu became a billionaire after his fast-growing Chinese chain went public in the US, but much of his wealth was wiped out by the plunge in Luckin’s stock. Lu last month resigned as the chairman of Car Inc, China’s biggest rental-car fleet operator, as scrutiny increased over Luckin and the accounting scandal. A Beijing court has frozen Lu’s entire stake in Car Inc’s parent, UCAR Inc, for judicial reasons.

He has drawn criticism for applying an aggressive cash-burning expansion strategy to all his start-up projects as the model helps quickly expand the businesses and gain market share at the expense of profitability.

Luckin, founded in 2017, raised US$645 million in its US initial public offering (IPO) last year and counted BlackRock Inc among its backers. It took direct aim at Starbucks Corp in China, with a strategy to open more stores in two years than the Seattle-based heavyweight has in two decades. 


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