We await the much-heralded IPO of Alibaba, the Chinese on-line retailer that is larger than — I read this somewhere, what was it, larger by sales than the economy of Europe and the US combined??– no that cannot be right….  In any event, its BIG.  And as a stock–  HOT.

Comes along Professor Lucian Bebchuk of Harvard Law School, leader of the movement for shareholder rights and director of the Harvard program on corporate governance, and writes in the New York Times yesterday a warning to investors:  keep your eyes open to “the serious governance risks accompanying an Alibaba investment.”

Bebchuk notes there is great governance risk; a small group of insiders owns a small amount of equity but has guaranteed control.  This same group owns lots of equity in companies that do business with Alibaba and could thus divert profit from Alibaba to these other entities. 

Bebchuk got this information from a very public source: the registration statement disclosures filed with the SEC and given in the Prospectus to all would-be investors. Since investors are thus duly warned by robust disclosure, it is strange that Bebchuk would in effect restate the risk as a warning in a column. 

Investors receiving full disclosure can make their own decisions.  If they find that profits are not sufficiently robust, they sell the stock.  Concentrated control, and the opportunity to use that concentration for personal gain, are risks presented by very many companies in the marketplace.  Directors, even if named by an insider cabal, still owe fiduciary duties to the other shareholders.  Just seems strange to me– anyone else react that way?