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Produced by NetEase Finance ESG

Author: Liao Ximian

According to foreign media reports, Xiaohongshu recently received support from foreign venture capital firm DST Global, and the company's valuation reached US$17 billion, which is an increase compared to the valuation announced in Hurun's "2024 Global Unicorn List" in April this year, but it is still some distance away from the US$20 billion (approximately RMB 145.4 billion) after the last round of public financing at the end of 2021.

The rebound in financing valuations seems to indicate that Xiaohongshu's commercial model adjustments have been effective. Previously, Xiaohongshu had been stuck in the balance between community content and commercialization, and its e-commerce business had also been mediocre, with its main revenue relying on advertising. Since the beginning of last year, Xiaohongshu has adjusted its organizational structure several times in an attempt to find a better commercialization path.

Recently, Xiaohongshu was revealed to have started a new round of layoffs. The laid-off employees were distributed in the e-commerce product department, commercialization department, and community technology department. This move to stimulate labor efficiency reflects that Xiaohongshu’s ambition for commercialization is accompanied by anxiety about the fierce competition in the e-commerce market.

From an ESG perspective, frequent adjustments to the organizational structure and high-frequency employee resignations bring many risks to Xiaohongshu's ESG, especially the "S" (social dimension).

In addition, Xiaohongshu has long been inappropriately reviewing content on the platform, which is also a major point of loss in the social dimension. Although Xiaohongshu continues to make efforts in public welfare and has received many praises, its lack of employee rights and user responsibilities may have a negative impact on its sustainable development.

Layoffs and hirings at the same time: the mystery of high employee turnover

In the past two years, Xiaohongshu has seen frequent changes in its senior management to meet the strategic needs of rapid commercial development. This year, Wu Yingbing, former head of Didi’s supply and demand strategy, Zhang Rui, former head of Didi’s ride-sharing business, Ye Heng, former head of Kuaishou’s e-commerce products, and Zhao Weichen, former secretary to the board and general manager of corporate development and investor relations at Yika Technology, have all joined Xiaohongshu and held key positions in e-commerce, commercialization, advertising and other departments.

A strong general has no weak soldiers under his command. According to internal employees of Xiaohongshu, there is a rumor circulating inside that the new top management is not satisfied with the current labor efficiency ratio of Xiaohongshu, and believes that the current labor efficiency ratio of Xiaohongshu can only reach half of that of Pinduoduo.

According to relevant media reports on July 4, Xiaohongshu has recently launched a new round of layoffs, mainly focusing on employees with performance below 3.5-, including 3.5- and 3.25. This part of employees accounts for about 30% of the total number of employees. The news has been confirmed by many internal employees of Xiaohongshu.

In addition, Xiaohongshu has been established for ten years since 2013, but there are only a few employees with more than 35 years of service. A former employee said that Xiaohongshu has a high internal employee turnover rate, with the average employee tenure being only half a year, and those who have worked for more than two years can be called "living fossils."

When talking about the reasons for the high turnover rate, an insider said that Xiaohongshu regularly holds monthly management meetings attended by senior executives such as the CEO and COO. If an employee does not perform well in the monthly meeting, he or she may be laid off.

Many more people took the initiative to resign. According to an internal employee of Xiaohongshu, the work at Xiaohongshu is very busy and tiring, with overtime and long and short weeks. "Most employees are under great pressure, and the atmosphere is more or less difficult to breathe."

In addition, there are reports that due to weak advertising infrastructure, many front-line employees need to complete basic work such as manually running data and organizing Excel spreadsheets to schedule for merchants. This is a big gap compared to their original job positioning, which is also one of the reasons for voluntary resignation.

While laying off employees, Xiaohongshu is also conducting large-scale recruitment. As of July 15, on Xiaohongshu's official recruitment website, there were 86 pages of positions in the social recruitment column, with 10 positions on each page, and more than half of the positions were updated in July 2024.

This is not the first time that Xiaohongshu has made a move to recruit while dismissing. As early as April 2022, Xiaohongshu had a similar situation. Some recruitment website practitioners expressed doubts, believing that Xiaohongshu's release of many positions is more like releasing smoke bombs to make the public think that it is expanding.

Several Maimai users also said that Xiaohongshu's so-called recruitment was just to understand the industry situation. "At that time, a department manager was obviously trying to get a plan from me." In this regard, Xiaohongshu officials still have no specific response.

In addition, the age limit set by Xiaohongshu for recruitment is also controversial. An industry insider revealed that the minimum age for Xiaohongshu to recruit people is 35 years old, and currently even job seekers aged 32 may find it difficult to get a job. A former ByteDance employee once posted online that his former colleague was rejected for an interview at Xiaohongshu simply because he was over 32 years old.

In fact, Xiaohongshu's market positioning is for young people, so it is understandable to build a team that is full of vitality and close to the world of young people. However, the lowering of the age line has obviously touched upon the society's age anxiety about employment.

There is no clear answer as to whether the frequent loss of old employees and the massive recruitment of new employees, as well as the age limit for recruitment, can stimulate human efficiency, keep the team alive, and stimulate the company's performance growth. However, it is worth noting that the frequent rotation of personnel not only harms the interests of employees, but is also not conducive to the construction of Xiaohongshu's internal culture and the sustainable development of the company.

Multiple rectifications have been ineffective, and content censorship has caused controversy

On the other hand, the uneven quality of Xiaohongshu's content is also a point that users have criticized. A large number of filtered attractions, false "grass planting" promotions, and the diversion of stolen pictures and stories have made users call it "cheated". In addition, the spread of illegal and irregular content has also increased risks for users.

In September 2021, Qu Fang, the founder of Xiaohongshu, spoke at the Internet Enterprise Social Responsibility Forum of the World Internet Conference. The theme of her speech was "Weaving a Tight Protection Network against Illegal and Harmful Information and Maintaining a Good Network Ecology." She shared the various rectification actions and results carried out by the platform, and particularly mentioned the continuous improvement of platform governance effectiveness through means such as strengthening technical control levels.

But to this day, Xiaohongshu's community governance and content review still have problems, and have been repeatedly named by relevant state departments and official media.

At the 315 Party last year, a reporter exposed three "Internet celebrity attractions" packaged by Xiaohongshu's online water army. Behind them is a corresponding industrial chain, and data related to likes, comments, and fans are clearly marked with prices. In this regard, Xiaohongshu has launched special rectifications many times to crack down on false promotions.

However, the repeated reports of "failures" in seeding shows that Xiaohongshu's special governance still has limitations. In July last year, some media pointed out that an artist who evaded a huge amount of tax frequently appeared on Xiaohongshu, and netizens reported to the platform but there was no change. Internet platforms and companies must bear corresponding responsibilities in preventing bad artists from making a comeback.

In January this year, a blogger on Xiaohongshu was accused of "breaking the law" by ignoring the warning "Military area, no entry" and trespassing in a military area. In May this year, an anti-trafficking blogger exposed the long-standing illegal activities on Xiaohongshu, such as giving away and adopting children, selling birth certificates, and registering children.

Although Xiaohongshu removed such content from the shelves afterwards and set up prompts to guide users to identify the content and report it to the platform in a timely manner, such illegal and irregular content that crossed the red line should not have existed for a long time and gained popularity. In the industry's view, in the final analysis, Xiaohongshu did not fulfill its responsibilities as an information content management entity and did not fulfill its obligations as a platform supervisor.

Product responsibility is one of the important aspects of the social dimension of ESG, involving service quality, regulations and negative social impact. The community is the foundation of Xiaohongshu, and the good construction of the community ecology is related to the long-term development of Xiaohongshu. Xiaohongshu must always be vigilant about the risks that may be contained in the review and management of content during its development.

References:

[1] “Xiaohongshu’s mid-year review: up to 20% staff cuts, kicks off a new round of structural adjustments”; Mirror Studio

[2] “Little Red Book’s Commercialization Is Lost”; Times Finance

[3] “Xiaohongshu executives dissatisfied with employee productivity ratio, to start a new round of layoffs”; Phoenix Technology