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21st Century Business Herald reporter Zhang Xin reports from Beijing

All good things must come to an end. Eight months after the Oriental Selection "Little Composition" incident, Yu Minhong and Dong Yuhui officially "broke up".

"The complex external and internal environment we face will not only put the company's operations into trouble, but also harm the long-term development of individuals and the company. In order to ensure that Yuhui Tongxing has a better development stage and avoid business conflicts and public opinion disputes, the two of us have repeatedly negotiated and finally decided that after the end of the fiscal year (May 31), I will ask the board of directors for approval to transfer 100% of Yuhui Tongxing's shares to Yuhui himself." On July 25, Yu Minhong's "An Open Letter to Shareholders and Friends of Oriental Selection" set off the entire Internet.

“Water can carry a boat, but it can also capsize it.” When a “super internet celebrity” brings huge traffic and cash flow to a company, and even uses his personal influence to influence online public opinion and stock price fluctuations, he or she has the ability to play the game with capital, which invisibly and constantly impacts the voice of the company's actual controller.

Corporate governance is a complex art of balancing the interests of multiple parties. How to make good use of the double-edged sword of "super internet celebrities" to avoid the company being caught in a storm of public opinion and avoid spending huge amounts of money to make cuts out of helplessness is an important lesson that Dong Yuhui taught Yu Minhong and others in this incident.

From working together to completely cutting off

In June 2022, when some of New Oriental's businesses began to transform into live-streaming commerce, Dong Yuhui was an ordinary anchor of Dongfang Selected Agricultural Products. Dong Yuhui's way of selling goods is not the kind of noisy market shouting and selling, nor is it a stereotyped marketing rhetoric, but like a knowledgeable old friend chatting with netizens. For example, when he sells rice, he will say "I love three things in this world: The sun, the moon and you. The sun is daytime, the moon is night, and you are forever."

Soon, this unique live broadcast method attracted a tsunami of attention. Since Dong Yuhui became popular on June 9, 2022, the number of fans of Oriental Selection has shown explosive growth, with more than 3 million fans increasing in 7 days. At the same time, the sales of Oriental Selection live broadcasts reached 140 million in 90 days, of which more than 85 million sales were contributed by Dong Yuhui. It can be said that Dong Yuhui helped New Oriental, which was stuck in the quagmire of transformation at the time, to successfully get out of the predicament.

The good times did not last long. On December 5, 2023, the "small composition" incident broke out in Oriental Selection. The cause was the turmoil caused by who wrote the "small composition" of anchor Dong Yuhui. Dong Yuhui's huge fans complained for him, which eventually led to the loss of nearly 100,000 fans of Oriental Selection, and the company's stock price plummeted. In order to calm the public anger, on December 14, 2023, Yu Minhong apologized, saying that "there are big loopholes in the company's management", and soon set up a company specifically for Dong Yuhui-"Walking with Hui".

After the "Little Composition" incident, Yu Minhong and Dong Yuhui were caught in a continuous storm of public opinion. The stock price of Oriental Selection fell all the way, and finally the two who had once gone hand in hand chose to "break up" peacefully.Yu Minhong said: "In order to enable Yuhui to better display his talents and have more autonomy, and avoid unnecessary conflicts and contradictions, we decided to establish a company called Yuhui, with Yuhui as the director and general manager, with full control over the company's business decisions." Dong Yuhui described the separation as "driving alone without the protection of the port."

On July 25, 2024, Yu Minhong and Dong Yuhui each posted a long article on their personal social media accounts to "officially announce" their breakup. On the same day, Oriental Selection announced in the Hong Kong Stock Exchange "Friendly Departure of the Group's Well-known Anchor" that due to Dong Yuhui's career ambitions, investment in other careers and personal time arrangements, Dong Yuhui and Oriental Selection resigned from the company after friendly negotiations, and the resignation took effect on the same day.

According to the sale announcement disclosed by Oriental Selection, Dong Yuhui (buyer), Beijing New Oriental Xuncheng Network Technology Co., Ltd. (seller) and Yuhui Tongxing (Beijing) Technology Co., Ltd. (target company) entered into a sale agreement. Accordingly, the seller agreed to sell and the buyer agreed to acquire 100% of the equity of the target company for RMB 76.5855 million.

Regarding the acquisition payment, Yu Minhong explained in the comment section after the above-mentioned "breakup" open letter that "I arranged the money for Yuhui to purchase the company, and the company was given to Yuhui." Some netizens calculated that the big gift package Yu Minhong gave to Dong Yuhui (including a company worth more than 76 million yuan + a net profit of 141 million yuan since the establishment of Yuhui Tongxing to the first half of this year + Dongfang Zhenxuan provided Yuhui Tongxing with an independently developed information system for free) can be described as "very generous." However, some people questioned whether this was actually a transaction carefully designed by Yu Minhong, which valued Yuhui Tongxing using the "cost method" rather than the "PE" method, and did not include Dong Yuhui's personal IP value.

In fact, the appearance of Dong Yuhui may have already broken through Yu Minhong's psychological defenses as a boss. In his book "I Was on the Brink of Collapse", Yu Minhong recounted two examples of employees making "excessive demands". He said that a teacher felt that the company could not do without him, and after he had already paid the other party a salary that was more than twice the market standard, the other party still came to negotiate with him about salary. This incident led to him, who was in the early stages of his business, to have the idea of ​​guarding against the "chef effect" in his heart, so he "took on everything", prepared almost all the classes by himself, and did not let one teacher be responsible for one class to prevent the phenomenon of "one dominant company". He claimed: "I am both the boss and the person who cooks the best food, so my restaurant is safe."

"When individual internet celebrities become the core assets of a company that capital cannot control, and when the influence of an individual is enough to manipulate online public opinion and stock price fluctuations, for Yu Minhong and Oriental Selection, Dong Yuhui is too powerful and is suspected of overshadowing his boss. It is an inevitable trend to cut ties with Dong Yuhui," Huang Yulu, a lawyer at Guantao Zhongmao Law Firm, told a reporter from 21st Century Business Herald.

"Release" Dong Yuhui may be a "lose-lose" outcome

Industry insiders said that Yu Minhong's decision to "let go" Dong Yuhui might be a helpless move, which might be a relief for both of them, but from a business perspective it might be a "lose-lose" outcome.

Lawyer Huang Yulu said that since the "Little Composition" incident, Dongfang Zhenxuan and Dong Yuhui have been at odds. If Yu Minhong does not take the step of "letting go", once Dong Yuhui voluntarily resigns, the "Traveling with Hui" specially created for Dong Yuhui will lose its soul and become meaningless, which will make Yu Minhong face greater public opinion crisis and losses. Dong Yuhui's ambition is not to "sell goods live", so instead of starting a new company, it is better to stop while he is ahead, fulfill his reputation of repaying kindness, and maintain his friendly relationship with his old employer.

Yang Hui, senior partner of Beijing Yinghe Law Firm, said in an interview with a reporter from 21st Century Business Herald:Dong Yuhui's departure from Oriental Selection was a choice made by both parties after careful consideration based on realistic considerations, but the future development of both parties will be challenging. On the one hand, Oriental Selection has lost its largest IP for bringing goods, and it is inevitable that it will be "revalued" in the capital market. After Oriental Selection reached a high of 75 yuan per share in January 2023, its stock price began to fall. Although it once rose back to 46 yuan per share in August 2023, it began to decline continuously thereafter. On the other hand, after Dong Yuhui "goes solo", he will face greater challenges in maintaining his personal IP, maintaining relationships with fans, and especially in quality control and logistics management of goods brought.

Zheng Zhigang, a professor of finance at the School of Finance and Economics of Renmin University of China, believes that "Yihui Xingxing" and Dong Yuhui, who are under great moral pressure, may have to move forward on the future business path. He believes that any small mistakes made by Dong Yuhui and Yihui Xingxing will be infinitely magnified by public opinion in the future, and Dong Yuhui will try his best to avoid being similar to the areas that his old employer is good at in business selection and expansion, which is very unfavorable for growing companies.

"In 2021, Li Ziqi's breakup with Hangzhou Weinian was almost a preview of the current Dong Yuhui incident."Well-known financial writer Wu Xiaobo said,Once a person who has become a super traffic star leaves the company, all resources will automatically gather towards him or her - including the company's internal traffic, word-of-mouth credit and data assets. He believes that this terrible "siphon effect" has a huge impact on the old company. For example, Wei Nian, which lost Li Ziqi, is actually another company.

Li Ziqi and Weinian have been cooperating since 2016, and the two parties have jointly incubated the "Li Ziqi" IP and brand in the form of an MCN company. At the beginning, the cooperation model between the two parties was relatively simple, with Li Ziqi responsible for content creation and release, and Weinian responsible for operation and exploration of business models. With the popularity of Li Ziqi, the two parties turned to a joint venture model in 2020 and jointly established Sichuan Ziqi Cultural Communication Co., Ltd. Among them, Weinian holds 51% of the shares and Li Ziqi holds 49%. However, under the profit distribution structure at that time, Li Ziqi could only obtain a share of the income and could not enjoy the appreciation of the company's equity from traffic monetization. In October 2021, Li Ziqi and Weinian went to court due to profit distribution issues. According to media reports, Weinian, which lost Li Ziqi, also lost ByteDance's investment.

Wu Xiaobo even said,The impact of Niu Gensheng starting a new business on Yili was far less than the damage caused to Yu Minhong by Dong Yuhui leaving Dongfangzhenxuan. Because in the era of mobile Internet, people (super internet celebrities) are the ultimate node of everything. They are not only the receiving point of traffic, but also the burst point of traffic. They are also the credit endorsers, disseminators and sales achievers of products. In other words, this person is the most important, even the only strategic means of production.

Wu Xiaobo further analyzed that:"Letting Dong Yuhui go" may be an option for Yu Minhong to rebuild the company's order, but it is undoubtedly a failure from the perspective of corporate governance. First, Dongfang Selection has lost its most core strategic asset - Dong Yuhui, and it will be difficult to fill this gap in the short term. Secondly, in a sense, "Dong Yuhui" is a "product" created by all employees of the company in the past two years, and it is a pity for him to "go solo". Thirdly, after the news of Dong Yuhui's resignation was released, the sharp drop in Dongfang Selection's stock price was an expression of the disappointment of investors and shareholders.

Wu Xiaobo also emphasized that Dong Yuhui's "independence" this time was not subject to any industry restrictions, and even the repurchase of shares of Huixing was "arranged and paid" by Oriental Selection. From now on, MCN companies and consumer goods companies that rely on traffic will be afraid of cultivating traffic stars, which will bring invisible and far-reaching harm to tens of millions of "celebrity internet celebrities" in the future.

Yu Minhong's subsequent statement also quickly confirmed Wu Xiaobo's analysis. On July 26, Yu Minhong stated at the Oriental Selection Shareholder Communication Meeting that in the future, no popular anchors would learn from Dong Yuhui's model and become "independent" from Oriental Selection or work with Hui.

How to resolve potential conflicts between “super internet celebrities” and companies

“Water can carry a boat, but it can also capsize it.” While “super internet celebrities” bring huge traffic and cash flow to the company, they also have the ability to play games with capital, which will invisibly impact the voice of the company’s actual controller.According to the 21st Century Business Herald reporter's understanding from multiple sources, "uncertainty" is the biggest potential conflict between "super internet celebrities" and companies.

Wu Xiaobo repeatedly stressed the importance of “super internet celebrities” to the company. He said,In a live broadcast room where traffic is the lifeblood, a "super internet celebrity" is "1" and everything else is "0". If this person (the "super internet celebrity") is not the actual controller or major shareholder of the company, then he is the company's biggest uncertainty.

Yang Hui told the 21st Century Business Herald reporter that in the "super internet celebrity" IP era, the company will follow the trend and incubate and create "super internet celebrities" in the form of "broadcasting" to maximize the company's profits through the live broadcast of "internet celebrities".The business model of "Internet celebrities" is special. Since fans and "Internet celebrities" are highly tied together, it is difficult for the incubated "Internet celebrities" to become a real "asset" of the company. Yang Hui said, "Especially when the personal influence of the "Internet celebrity" can directly affect the company's stock price, the "Internet celebrity" itself is an unstable factor for the company."

Yu Minhong mentioned "uncertainty" five times in his "breakup" open letter. He repeatedly emphasized that in the past six months, he and the shareholders have personally experienced and faced "huge uncertainty" in the company's development, and said that "this uncertainty not only brought fluctuations in the company's business and stock prices, but also caused anxiety among shareholders." Obviously, the root of this uncertainty lies with Dong Yuhui.

So, when the company’s “super internet celebrity” has the ability to compete with capital, how should the company’s actual controller resolve the potential conflicts between the two?

Yang Hui suggested:Companies can improve their corporate governance by optimizing equity structure and incentive mechanism, innovating the operating mechanism of the company's board of directors, strengthening information disclosure and improving transparency, so as to resolve potential conflicts with Internet celebrities as early as possible and achieve long-term cooperation and mutual benefit and win-win results for both parties.

From the perspective of optimizing the equity structure and incentive mechanism, Yang Hui believesFor Internet celebrities who have made outstanding contributions to the company, it is recommended that the company consider giving them equity incentives and establishing an employee stock ownership plan, allowing Internet celebrities and other employees to become shareholders of the company through the stock ownership plan, further binding their interests with the company, stimulating their work enthusiasm, sharing the company's profits, and enhancing their sense of belonging and loyalty.

Taking Yu Minhong and Dong Yuhui as examples, Zheng Zhigang believes that Yu Minhong should resolve the crisis by means of equity. For example, Oriental Selection holds 49% of Huitongxing, and Dong Yuhui holds 51% of the shares. Even Oriental Selection can symbolically hold 1% of Huitongxing, while Dong Yuhui holds 99% of the shares.

Lawyer Huang Yulu also suggested that big "IP" anchors hold more than 51% relative control of the company or 67% absolute control. This will ensure their control over the company's business decision-making power, and they will have a certain say in creative content and personal image development, so as not to be "marginalized" by capital and power.

Judging from the outcome of the battle between Li Ziqi and Weinian, a reasonable equity division can indeed lead the two to "reconciliation". On December 26, 2022, Sichuan Ziqi Culture Communication Co., Ltd. underwent industrial and commercial changes: Hangzhou Weinian Brand Management Co., Ltd.'s shareholding ratio was reduced from 51% to 1%, and Li Ziqi (Li Jiajia)'s shareholding ratio increased from 49% to 99%. At the same time, Liu Tongming (Chairman of Weinian Company) resigned from his senior management position.

In addition to equity incentives, Yang Hui said that "super internet celebrities" should be given greater voice. She suggested that the company's board of directors' operating mechanism should be innovated, the board members should be diversified, "super internet celebrities" should be allowed to enter the board through normal election procedures, and external independent directors should be introduced to balance the interests of all parties and ensure the fairness and transparency of decision-making. At the same time, the company can consider setting up a special committee within the board of directors to handle matters related to "super internet celebrities", including contract negotiations, cooperation model adjustments, rights protection and other matters, to improve processing efficiency and professionalism.

It is worth noting that Yang Hui emphasized thatTo resolve potential conflicts, companies should also strengthen information disclosure and enhance transparency. She suggested that companies should regularly publish relevant reports on cooperation with "super internet celebrities" (cooperation progress, profit distribution, dispute resolution, etc.) to improve information transparency and enhance market and investor confidence. In addition, companies should disclose major matters such as contract changes and escalation of disputes to the market in a timely and accurate manner to avoid market fluctuations and investor losses caused by information asymmetry.

Further, why is it so important to improve corporate transparency? We can see that after the "Little Composition" incident, Yu Minhong's silence caused the share price of Dongfang Zhenxuan to fall by 14% within three working days. At the same time, Yu Minhong, Dong Yuhui and the company behind them were also attacked from all sides by public opinion.

Yu Minhong said frankly in his "breakup" open letter: "The sudden outbreak of what netizens defined as the 'small composition incident' caught us off guard and exposed many problems. Yuhui and I were in an awkward situation, and the company was also in turmoil." "What's complicated is that as a company based on the Internet, the power of public opinion often affects the development of the company. Although there has been no obstacle to communication between Yuhui and I so far, the complex public opinion disputes, coupled with the guidance and rumors of a few forces with ulterior motives, directly led to the estrangement between Dongfang Zhenxuan and Yuhui Xingxing. At the same time, I myself was deeply caught in the tide of public opinion, constantly attacked and stigmatized, and Yuhui was also subjected to a lot of unwarranted accusations and harm, which has continued to this day. This public opinion environment has led to huge uncertainty in the development of both companies, stock prices have fluctuated violently due to external influences, and the company's credibility and reputation have dropped sharply."