Fraud in Alibaba.com: CEO and COO Resigned

We just received a breaking news from Alibaba Group PR team.

In an ongoing internal investigation, Alibaba.com found over 100 employees suspected of abetting fraud. Alibaba.com CEO David Wei and COO Elvis Lee today resigned to take responsibility for their failure to set a strong tone of corporate values from the top, Jonathan Lu, CEO of Taobao, was named as Wei’s replacement while no replacement was named for the COO position, yet.

Alibaba.com Chairman Jack Ma said that Wei and Lee, while not involved in the fraudulent activities, “did the honorable thing by accepting full responsibility” for what the company described as a “systemic breakdown of Alibaba.com’s culture of integrity.”

Alibaba.com requires potential vendors to provide business registration documents to set up storefronts on the site. But fraudsters attack the loophole by submitting fake papers, sometimes with the help of Alibaba.com sales staff, the investigation found. Once fraudster vendors were established on the site, they take orders, get paid up front but never ever send out the merchandise.

Besides people at the top, Alibaba Group Chief People Officer Kangming Deng, was demoted for failing to make employee education on Alibaba values a priority, the company said.

The management shakeup sends a strong message across all business units of the Alibaba Group. Despite the size and diversity of Alibaba Group, the founders are determined to hold on to their fundamental values.

“The founders of the company are incredibly angry about this,” added the source. “The founders felt this was not about mis-management, but about failing to recognize the long-held belief at Alibaba that the values of integrity and customer service are the essence of the company’s success.”

Is this a crisis? I don’t think so. In fact, I admire the change. Investors should be glad that the root of the problem is surfaced and tackled. This “case study” will remain in thousands of employees’ heart. It is an important educational process to growing a sustainable business, thriving on integrity. Kudos to Alibaba Group.