Another weird and wonderful story out of corporate China has captured my attention. Relevant excerpt:
It’s a situation that’s difficult to picture in much of the capitalist world, with its emphasis on private property rights, contract law and the prerogative of owners to hire and fire. Imagine the CEO of an American corporation who’s just been terminated after a successful takeover leaning back in his chair and saying: “You know what? I’m doing a pretty good job. I think I’ll just stay.” In China, though, it’s far from rare.
Essentially, despite having ticked all the relevant boxes in terms of conventional activist investing, the shareholders couldn't achieve their goal of evicting management because management knew how to use their legal representative / chop-holding status to entrench themselves amid the legal process. Things got really slow and ultimately disclosures were not filed in time and the entity in question seems to have been delisted altogether.
So, hypothetically, what if the offshore shareholders tried to beat them at their own game. What if they reproduced an exact replica of the chop -- it's a physical object after all. And what's more, all the multinationals operating in China are always complaining about IP theft: "they're taking my manufacturing plant tech, machinery IP, blah blah blah." Well, fight fire with fire: use the lax IP environment to your advantage.
They’ve been around for thousands of years but they’re still tripping up foreign investors in China. Company chops are the carved seals that, when used with a red inkpad to stamp documents, confer legitimacy on corporate actions. Investors accustomed to the norms of Western business may think they control the company when they hold a majority of the shares. Nuh-uh. The chops are the keys to the kingdom. He or she who possesses them is the master.
In this kind of situation, could offshore shareholders improve their legal leverage by simply making their own chop?
Note: What I feel this story is misleading on is it might not be about the chops per se, but the legal representative (anybody can "hold" a chop, but only in the hands of the legal rep can it be recognized by the onshore courts). But still I think it's a valid thought experiment that we can explore.