Can't cut the cord

13 September 2010 By John Foley Follow @johnsfoley

The Chinese electrical retailer wants to neutralise its imprisoned founder, who is using his 35 pct stake to threaten its growth. Westernstyle corporate governance isn’t easily suited to vanquishing such problems. Shareholders won’t find any easy answers, only valuable lessons.

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Chinese retailer GOME Electrical Appliances faces a shareholder vote on Sept. 28 on a series of measures proposed by its jailed founder, mainland billionaire Huang Guangyu.

Huang's proposals include the ouster of GOME's chairman, Chen Xiao, and the cancellation of a mandate to issue new shares equivalent to 20 percent of the outstanding stock.

Huang, who owns 35 percent of GOME's shares, lost an appeal against his 14year sentence for paying bribes, illegal enrichment and insider trading in August.

GOME sold convertible bonds in June 2009 to Bain Capital, the private equity firm, giving it an effective 10 percent stake. Bain has not yet converted the bonds, but says it will do so before the shareholder vote. Until then it has just a 0.2 percent shareholding.

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