Yum China: A Case Study

The scale of the operations of Yum China Holdings is striking and the structure of the he board interesting.  But the vital questions are:

1. Why did Yum China announce its Chairmen and CEO succession plans well in advance?
2. Should all listed companies be required to declare their Chairmen and CEO succession plans?

 

Yum China Holdings

Kentucky-based Yum Brands Inc., owners of KRC (Kentucky Fried Chicken, Taco-Bell. and Pizza Hut brands), opened its first restaurant in China in 1987.   By the time their Chinese operations were spun off, on 31 October 2016 to Yum China Holdings Inc., it had become China’s largest restaurant chain.  Yum China owned the franchise for Pizza Hut in China with more than 1,500 restaurants in over 400 cities; and the franchise for KFC, with over 5,000 outlets in nearly 1,000 towns and cities.  Taco Bell operations were also starting.

Primavera Capital Group, a China-based global investment firm, made a strategic investment in Yum China and the company was then listed on the New York Stock Exchange (YUMC) in November 2016.  Yum China Holdings Inc. is registered in Louisville Kentucky with headquarters in Shanghai.

 

Yum China strategy

The company outlines its view of its potential on its website:

‘Our brands are integrated into popular culture and consumers’ daily lives.

We are dedicated to serving our customers’ evolving needs by enhancing the in-store experience, improving mobile connectivity, introducing innovative new products, and constantly delivering value.  We also remain focused on driving shareholder value by growing sales and profits across our portfolio of brands through increased brand relevance, new store development and enhanced unit economics.  With a rapidly growing consumer class and increasing urbanization, Yum China is well positioned for long-term growth’.

 

The board of directors of Yum China Holdings[1]

The board has nine members, seven of them independent according to the company.

 

Fred Hu is chairman and founder of Primavera Capital Group, a China-based global investment firm (“Dr. Hu has served as chairman of Primavera since its inception in 2010.  Prior to Primavera, Dr. Hu served in various roles at Goldman Sachs.)

Peter A. Bassi served as president then chairman of Yum! International Restaurants.  Prior to this, Mr. Bassi spent 25 years in a wide range of financial and general management positions at PepsiCo, Inc., Pepsi-Cola International, Pizza Hut (U.S. and International), Frito-Lay and Taco Bell.

 

Christian L. Campbell is currently owner of Christian L. Campbell Consulting LLC, specializing in global corporate governance and compliance.  Mr. Campbell previously served as senior vice-president, general counsel and secretary of Yum Brands from its formation in 1997 until his retirement in February 2016.

 

Ed Chan Yiu-Cheong is currently a vice-chairman of Charoen Pokphand Group Company Limited and has been an executive director and vice-chairman of CP Lotus Corporation since April 2012.  Mr. Chan was regional director of North Asia of the Dairy Farm Group.

 

Edouard Ettedgui currently serves as the non-executive chairman of Alliance Française, Hong Kong.  Mr. Ettedgui also currently serves as a non-executive director of Mandarin Oriental International Limited, the company for which he was the group chief executive.  Prior to that, Mr. Ettedgui was the chief financial officer for Dairy Farm International Holdings.

 

Louis T. Hsieh currently serves as a senior adviser to the chief executive officer and as a director of New Oriental Education & Technology Group.

Jonathan S. Linen is a member of the board of directors of Yum! Brands, a position he has held since 2005, and of Modern Bank, N.A.  Mr. Linen is advisor to the chairman of American Express Company after serving as the vice-chairman of American Express Company.  Mr. Linen also served on the board of The Intercontinental Hotels Group.

 

Micky Pant is the chief executive officer of Yum China.  Mr. Pant has served as chief executive officer of Yum! Restaurants China since August 2015.  Over the past decade, Mr. Pant has held a number of leadership positions at Yum! Brands, including chief executive officer of the KFC Division, chief executive officer of Yum! Restaurants International and president of Global Branding for Yum! Brands and President of Taco Bell International.

 

Zili Shao has served as co-chairman of King & Wood Mallesons – China.  Mr. Shao held various positions with JPMorgan Chase & Co., including chairman and chief executive officer of JPMorgan China, vice-chairman of JPMorgan Asia Pacific and chairman of JPMorgan Chase Bank (China) Company Limited.

 

Yum China announces its Chairman and CEO succession plans

On 5^th October 2017, Yum China announced that its Chief Executive Officer, Mr. Micky Pant, would become Vice-Chairman of the board and Senior Advisor to the company on 1^st March 2018.  Ms. Joey Wat, who currently serves as President and Chief Operating Officer, would succeed Mr. Pant as Chief Executive Officer.

 

The company explained that Mr. Pant had served as CEO and a member of the Board of Yum China since its spin-off from Yum! Brands, Inc. and, prior to that, he served as CEO of Yum! Restaurants (China), when it was a division of Yum Brands Inc.

“We are exceptionally grateful to Micky for leading the Company through its spin-off and building a solid foundation as an independent company,” said Dr. Fred Hu, Chairman of the Board of Yum China Holdings.  “We thank Micky for his many significant contributions and are pleased that he will be Vice-Chairman of the Board and will also continue to serve the Company as its Senior Advisor in order to ensure a seamless transition to Joey.”

“Joey is an extraordinarily talented executive and the ideal leader to become our next CEO,” Dr. Hu continued.  “Joey has a strong track record of achieving results, and with her unique ability to translate vision and strategy into future world-class operations, I have no doubt that the Yum China business will continue to grow under her strong leadership.

Ms. Wat spent seven years in management consulting, including time with McKinsey & Company’s Hong Kong office.  From 2004 to 2014, she served in both management and strategy positions in the Hong Kong-based Hutchison Whampoa group, including time as Managing Director of their UK company, which operates the pharmacy chain Superdrug.  Ms. Wat joined Yum China in September 2014, first as President of KFC China and then as Chief Executive Officer of KFC China in August 2015.  She has been the President and Chief Operating Officer of Yum China since February 2017 and was appointed as a member of the Board in July 2017.

 

Source: Tricker, Bob and Gregg Li, Understanding Corporate Governance in China, Hong Kong University Press [forthcoming]

 

[1] Yum China press release.

 

Developing a shareholder strategy

A survey of shareholder communications in more than 400 companies listed on the Hong Kong Stock Exchange (HKSE) was published recently by the Hong Kong Institute of Chartered Secretaries (HKICS).   Since the HKSE ranks third equal with the Singapore Stock Exchange in world rankings (behind London and New York), it is likely that the findings have a wider significance.

The report, which I drafted, suggested that effective shareholder communications rest on an understanding of the shareholder base and their information needs. A key conclusion was that whilst some listed companies recognize that shareholder communications are vital, the majority do not and have some way to go to be effective.

Some of the key findings in the study were that:

• A sizeable proportion of listed companies did not know much about their shareholders – the survey results showed that a third of respondent companies did not know who their shareholders were. They did not regularly or routinely monitor their shareholder base.
• Some listed companies were not even bothered to find out – 5% of respondents said that they felt that they should be routinely monitoring who their shareholders were but did not: and a further 15.5% said they should be monitoring them on an ad hoc basis but did not.

• The majority of listed companies lack a shareholder communication strategy

–  58.3% of respondents recognized that their communications with their shareholders were inadequate or ‘somewhat inadequate’.  Most saw the need for improvement.  But 8.6%, although they recognized that their communications were inadequate, saw no need for change. Only 33.1%% thought that their shareholder communications were adequate.

• The vast majority did not think that all shareholders should be treated equally – Whilst respondents strongly believed that shareholders should be engaged more effectively, only a few (92) felt that all shareholders should be involved, whilst the majority (269) felt that engagement should only be with institutional investors and long-term shareholders. However, respondents believed that these investors had a stewardship role to proactively engage with the company.
• There is little accountability for shareholder communications at the CEO or board levels – Many companies (172) report information on their shareholder profile to senior management, the board, or board committees. But more companies (241) did not report the data or did not know how it was used.

• The company secretary is a source of help on investor relations – profiling the shareholder base in 52.5% of the companies responding, followed by the Head of Investor Relations (21.0%). Companies reported devoting more resources to investor relations activities including shareholder communication and engagement, with increasing significance for an investor relations function.

Five ‘imperatives’ were developed to give practical and effective guidance to the board of directors and senior management to enhance shareholder communications and investor relations for listed companies, namely to:

1. Develop an investor relations strategy within the corporate strategy
2. Know and regularly review the shareholder base
3. Formulate and regularly review shareholder communication policies
4. Formulate and regularly review shareholder engagement policies
5. Review the responsibility and accountability for investor relations

‘The full report can be read at: https://www.hkics.org.hk/index.php?_room=10&_action=detail&_page=3

(Click for the English or Chinese versions)

-Bob Tricker, 2017