Citing losses of 15 million yuan ($2.4 million) a day since thousands walked out of NVC Lighting Technology Corp on July 13, distributors sent an open letter of protest about the ongoing strike to NVC president Andrew Y. Yan on Thursday.

Plants in Southwest China’s Chongqing and Huizhou, South China’s Guangdong Province have all halted work, while 36 regional distribution centers also stopped buying merchandise.

Both distributors and employees of China’s largest lighting equipment manufacturer by sales demanded the return of former chairman and founder Wu Changjiang and a complete overhaul for the board of directors. They also demanded the company’s third-largest shareholder Schneider Electric get out.

Employees upset about wage cuts have described the company’s recent operations as “chaotic.”

“All the staff hope Wu can return to the company and employees of NVC are all now strongly opposed to Schneider Electric,” company spokesman Shi Yongjun told the Global Times.

Wu knows the company and the industry, Shi said, and the company performed much better when he was in charge.

The company had been negotiating with strike representatives, Shi said, but it was not clear how long those negotiations would continue.

Since Wu’s departure on May 25, the company’s stock has tumbled more than 30 percent. Trading on NVC was suspended at the Hong Kong bourse on July 13 due to price-sensitive information.

Strike catalyst

The bombshell first exploded when Hong Kong-listed NVC Lighting announced in a statement that for “personal reasons,” Wu was resigning from his positions as CEO and chairman of the company and at the same time also resigning from all his positions in the company’s subsidiaries.

The company then announced Zhang Kaipeng, who had been working at Schneider Electric for 16 years, would replace Wu as CEO, and Andrew Y Yan, head of NVC’s second-largest stakeholder, SAIF Partners, had been appointed the company’s new chairman.

To outsiders, it appeared Wu, who held a controlling stake in the company, had been shunted out by investors seeking to control his company.

Wu wrote in a microblog post on July 12 the board had demanded he resign his positions.

That wasn’t true, new boss Yan wrote in a microblog post on July 13.

“I was informed by Wu on May 23 that he was asked to assist in an investigation by the Central Commission for Discipline Inspection of the CPC,” Yan said. “I then consulted with a lawyer, who suggested Wu should resign.”

The lawyer had said Wu was legally unable to perform his job as the company head, Yan explained, as he was at that time staying outside the country with no plans to return soon. NVC staff representatives and distributors presented a formal request for Wu’s return at a meeting with the NVC board in Chongqing on July 12.

When negotiations failed, a strike ensued with employees, dealers and suppliers all backing Wu.

“It’s impossible to reason with a mass movement,” Yan told Caixin Media on July 13.

So Yan argued Wu should return as company president but only on three conditions: First, inform the board details of the investigation. Second, end all transactions outlawed by Hong Kong securities regulations and third, obey board decisions.

Wu rejected Yan’s conditions, writing on his microblog they were “more like personal attacks.”

It remains unclear why the CPC disciplinary body want Wu.

Yan’s demand was “reasonable,” said Li Weidong, a research director at ChinaVenture Investment Consulting Group. “The investors are entitled to know what is really going on inside a listed company.”

“Members of NVC’s board have been in discussions with Mr Wu to seek to reach a mutually satisfactory resolution for the current situation,” the company said in a statement posted on the Hong Kong bourse on July 18.

Competing stakes

SAIF, the second-largest shareholder with an 18.33 percent stake, invested in NVC Lighting in 2006.

On July 2011, Schneider Electric bought 9.22 percent at $HK4.42 ($0.57) a share, which makes it the third-largest shareholder of NVC. At the same time, Schneider signed an agreement with NVC Lighting that allowed the French company to use NVC’s distribution channels for 10 years.

It was NVC’s obvious distribution advantages that prompted Schneider to seek control, many analysts believe.

The recent appointment of Zhang Kaipeng as CEO, who had worked for Schneider Electric, made that theory even more convincing.

SAIF and NVC Lighting’s other institutional investor Goldman Sachs was likely to sell its stake to Schneider Electric, according to an analysis by the Beijing-based Securities Times on July 16, creating the chance for a controlling stake in the company.

“It’s a possible scenario, but totally unacceptable to Wu,” said Chen Datong, a partner with Beijing-based investment firm Westsummit Capital.

Such strife was not beneficial to SAIF, said Li Weidong of ChinaVenture, and so it was unlikely SAIF was scheming to control the company.

The new leaders knew nothing about the lighting industry and had done nothing positive for the company, Ye Yong, manager of NVC’s operation center in Xinjiang Uyghur Autonomous Region, told the Global Times in an earlier report.

Wu now owns 18.45 percent of NVC Lighting, a bit more than SAIF’s 18.33 percent stake. Although still the largest shareholder, Wu has lost control of the company.

Analysts said Wu may end up successfully returning, given that he is still influential as the founder.

“It’s very possible Wu will return to the company, given that he can still control it and is very experienced in the lighting industry,” Li said. “Wu’s return is best for all parties.”

Schneider owns 9 percent of NVC Lighting and it was unfair to blame it for shrinking profits, Yan wrote on his microblog.

Investors versus founders

There have been similar conflicts: the dispute between Groupe Danone of France and Hangzhou Wahaha Group’s Zong Qinghou in 2006, Bain Capital and Gome Electrical Appliances Holdings’ Huang Guangyu(Wong Kwong Yu) in 2010 as well as Yahoo! and Alibaba’s founder Jack Ma earlier this year.

All three ended up with founders regaining their companies.

“Generally, two reasons lead to conflicts between investors and founders: The company fails to meet investors’ expectations or there are different opinions on interest distribution,” Yang Ning, a partner with LeBox Capital, told the Global Times. “NVC was most likely the former.”

“Founders of Chinese companies tend to have a strong will to control their company,” said Li of ChinaVenture, noting that unlike the corporate structures of international companies, founders’ families or the biggest shareholders usually don’t get involved in the daily operations of a company.

Li noted as NVC is a publicly listed company, both the founder and the investors are supposed to protect shareholders’ interests first, rather than the founder’s.

“It’s very difficult to start a company, so it’s understandable the founders always find it hard to let go of their control,” said Chen of Westsummit Capital.

Investors and founders should first communicate with each other when internal strife breaks out, he said, for the sake of the company and the shareholders.

“It’s not very proper for Yan and the other investors to immediately demand Wu’s resignation which could devastate the company.”

By Liang Fei