Gao Ruoying/Wen

After more than a month of violent layoffs, the stock price of Xingyu Shares (601799. SH) has been continuously falling. On September 9th, the stock price closed at 75.2 yuan per share, and the daily market value evaporated by about 705 million yuan. Compared to the high point of 147.13 yuan/share in late May, the stock price of this leading car light company has almost halved, and its total market value has shrunk from over 40 billion yuan to about 21.5 billion yuan.

Previously, internal accountability within the company had already been implemented. On September 7th, Xingyu released the "Relevant Information and Rectification Measures on the Recent Misconduct of Job Adjustment and Personnel Reduction in Our Company", admitting that the company had "misjudgment and hasty decision-making" in the relevant incidents, and imposed penalties such as salary deduction, dismissal, and demotion on on management personnel including the general manager, deputy general manager, and human resources director. However, this has not reversed the negative feedback in the capital market.

It is difficult to explain the decline in stock price due to performance pressure. Xingyu continued to make money in the first half of this year: operating income of 6.884 billion yuan, net profit attributable to the parent company of 669 million yuan, and sufficient cash on hand. In other words, the market sell-off is not due to a lack of confidence in its fundamentals, but rather due to other reasons.

The official website of Xingyu states the company's core values - family culture: love, gratitude, and responsibility. But Xingyu's actual operation is undoubtedly telling the market: they 'say one thing, do another'. The slogans written on the prospectus and posted in the most prominent positions of office buildings are just slogans, they have no intention or ability to fulfill those ideas. The continuous decline in stock price at this time is actually a re pricing of the company's governance level by the market.

In the past, the market didn't seem to care about these things. Investors value a manufacturing company more based on factors such as gross profit margin, customer structure, and on hand orders, all of which are indicators of whether the company is making money. The reason why companies repeatedly say those beautiful words but do not take them seriously in action is because the bosses understand in their hearts that these have nothing to do with "making money", and investors do not care too much. The only way for a company to prioritize shareholder interests is because shareholders value profits, and management breaks down profits into KPIs and presses them down layer by layer, ultimately pushing them down to the least bargaining power - employees. The beautiful values advocated by enterprises and their practical actions ultimately become two skins of self talk.

But today's experience with Xingyu shows that value propositions that were once thought to have no direct relationship with competitiveness and profitability will now be constantly scrutinized. Once they are found to have flaws or even falsified, related issues will be converted into the company's valuation by the market through compliance review, order retention, listing pace, regulatory letters, and other methods.

Apple's experience back then is a lesson from the past. The controversy surrounding its "sweatshop" caused a huge uproar precisely because it was Apple: if the world's most respected companies do not value human rights, what is the value of a company's existence?

This is also the significance of the joint signing of the "Declaration of Corporate Purpose" by 181 top CEOs of companies at the August 2019 US Business Roundtable: companies must create value for customers, employees, suppliers, and communities together; The interests of shareholders are shifting from the sole goal of the enterprise in the past to the result of doing other things right. Creating profits can certainly prolong the life of a company; But in the long run, whether a company is worthy or not to survive still requires moral legitimacy, that is, gaining recognition and acceptance from employees, customers, communities, regulators, and the public.

Cognitive transformation is only the starting point, and ultimately it still needs to fall into internal governance. Many Chinese companies like Xingyu, seeking overseas development, face a more realistic hurdle in improving their governance level: labor disputes will be transmitted to commercial cooperation and capital markets through compliance obligations. Compliance in employment is a bottom line that a company must uphold.

Many domestic enterprises are not concerned about this. The criticism of the "35 year old phenomenon" and the "culture of excessive overtime" by public opinion has been ongoing for a long time, but there has not been much fundamental change. If enterprises do not comprehensively upgrade their governance level internally, it is only a matter of time before more crises like Xingyu break out. The tolerance of society is always limited: it allows companies to make money, but it is difficult to tolerate a poorly established company making a lot of money in the long run.

Over the past 40 years, Chinese enterprises have learned to win competition through cost, efficiency, and scale; Next, we must learn to hold onto our competitive achievements with responsibility, communication, and dignity. Technology can catch up and scale can quickly grow, but there are no shortcuts to modern corporate governance.

(Author Gao Ruoying)