NYTIMES - U.S. Investor Tries to Shake Up Sina, a Pillar of China’s Internet

Sina now gets 87% of its revenue from it’s Variable Interest Entities (VIEs) - NYTIMES article highlights some of the VIE and corporate governance issues -

Proxy fights in general are not uncommon, but one between a Chinese company and an American investor is the first of its kind, according to disclosures tracked by the data provider FactSet. And the campaign has helped to underscore the limits of foreign ownership of Chinese internet companies.

Foreign investors seem less than worried about any lack of control or lapses in corporate governance if the market is any indication. Shares in those companies have been on a tear in markets around the world as Chinese consumers reliably use their smartphones to buy electronics, shop for groceries, make investments, play games and look for dates.

As a result, Chinese companies often behave differently. While Sina holds a regular annual meeting, some of its peers do not, a standard for the United States. Baidu, the search engine giant, has not held an annual shareholder meeting since 2008. JD.com, the online retailer, has never held one.

To get around Chinese restrictions on outside investments in sensitive industries, many companies use a complicated legal structure, called a variable interest entity, or V.I.E. Under those arrangements, shareholders have rights to the profits of a company, but they do not control key assets — potentially leaving them exposed if the company runs into trouble or the Chinese government declares the structure illegal.

Sina uses a V.I.E. structure. Only one of the five director seats is available each year. The chairman and chief executive, Charles Chao, has a permanent position; the other members serve four-year terms.