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

"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 the shares of Yuhui Tongxing to Yuhui himself." On July 25, Yu Minhong's "An Open Letter to Shareholders and Friends of Oriental Selection" set off the entire Internet.

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 will have the ability to play against 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 was not the noisy hawking in the vegetable market, nor was it a stereotyped marketing rhetoric, but rather a chat with netizens like a knowledgeable old friend.

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.

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 Dongfang Zhenxuan, 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 target company's equity for RMB 76,585,500. Regarding the purchase price, Yu Minhong explained in the comment section after the above-mentioned "breakup" open letter that "I arranged the money for Yuhui to buy the company, and the company was given to Yuhui."

"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.

Yang Hui, a senior partner of Beijing Yinghe Law Firm, said in an interview with a reporter from 21st Century Business Herald that Dong Yuhui's departure from Oriental Selection was a choice made by both parties after careful consideration and 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 has since begun to decline continuously. 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.

"In 2021, the breakup between Li Ziqi and Hangzhou Weinian was almost a preview of the Dong Yuhui incident." An analyst said that 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" is a huge blow to the old company. For example, Weinian, 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 publishing, 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.

On July 26, Yu Minhong stated at the Oriental Selection Shareholder Communication Meeting that in the future no popular anchors would follow Dong Yuhui's model and become "independent" of Oriental Selection or work with Hui.

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

While "super internet celebrities" bring huge traffic and cash flow to companies, they also have the ability to play games with capital, which will invisibly impact the company's actual controller's right to speak. According to 21st Century Business Herald reporters, "uncertainty" is the biggest potential conflict between "super internet celebrities" and companies.

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 a "broadcasting" way, and maximize the company's profits through live streaming of "internet celebrities". However, the "internet celebrity" business model 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 that the company could improve its corporate governance by optimizing its equity structure and incentive mechanism, innovating the company's board of directors' operating mechanism, 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 believes that for "Internet celebrities" who have made outstanding contributions to the company, the company is advised to consider giving them equity incentives, 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.

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 that they have control over the company's business decisions and control, and 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 8 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 that in order to 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, for major matters such as contract changes and escalation of disputes, companies should disclose them to the market in a timely and accurate manner to avoid market fluctuations and investor losses caused by information asymmetry.