HONG KONG/SHANGHAI (Reuters) - A U.S. police investigation into an allegation of rape against JD.com Inc CEO Richard Liu has hammered the e-commerce giant’s shares, with the case laying bare risks posed by his iron grip on management and the lack of other leaders to challenge him.

Liu was arrested and then released without charge in the U.S. city of Minneapolis last week. Through his lawyers, he has denied any wrongdoing.

While the tech industry is known for the outsized control that founders like Liu have over their businesses, China’s tech leaders tend to be all-powerful, exacerbating governance risks.

Liu’s control of JD.com in particular has raised eyebrows given company rules that make it virtually impossible for the board to make decisions without him present.

“There is so much more hierarchy and less willingness to challenge the boss and less collective leadership around Chinese iconic leaders,” said James Robinson, managing director in Shanghai for public relations firm APCO Worldwide.

Robinson added this had compounded the sense of crisis and confusion when the news first broke. JD.com’s communications team had stated police had “quickly determined” there was no substance to the claim against Liu even though the investigation was still ongoing, and took almost two days to acknowledge he had been held by police overnight.

“If your top person is in a jail in Minnesota, then it could be a question of a lack of decision-making authority,” he said.

Liu was arrested late last Friday in Minneapolis and held by police for a little over 16 hours before being released. No bail was set. Police are still investigating. His lawyers have said they do not expect charges to be laid.

According to Minnesota law, the maximum penalty if found guilty of first degree sexual assault is 30 years and the minimum is 12 years.

In the two days of trade since the arrest, JD.com has lost $7.2 billion or 16 percent of its market value, also hurt by fears that the case will turn customers away from its website.

Liu owns about 16 percent of JD.com’s stock. But his power is amplified by weighted voting rights that give him nearly 80 percent of the company’s votes and the provision that bars the board from making binding decisions unless Liu is present, either in person or by teleconference, so long as he is a director.

If he is not present, the board can make decisions only with his permission or if he is sick. The clause explicitly excludes this being allowed during “any confinement against his will”, suggesting he could maintain control even in jail.

“We can’t think of any other company that has such articles,” said Jamie Allen, general secretary of the Asian Corporate Governance Association.

FILE PHOTO - JD.com founder Richard Liu attends a Reuters interview in Hong Kong, China June 9, 2017. REUTERS/Bobby Yip/File Picture

“I find it baffling. Liu already has weighted voting rights, so he can control the company, he is the founder. I don’t think any of the board would dare make a decision without him, so why would he need to do this?” said Allen.

JD.com board members did not respond to requests for comment. The company declined to comment on questions concerning governance and its initial response to Liu’s arrest.

WHO IS NUMBER 2?

Other critics of the company have pointed to the difficulties in identifying Liu’s strongest lieutenants, should he be unable to continue leading the company.

“You see only Richard Liu’s footprints all over the company. That’s why you look at the senior management team – who is No.2? Can you name the No.2 in JD?” said Wong Kok Hoi, founder and CIO of APS Asset Management, who presented his arguments for shorting JD.com at a hedge fund conference in Hong Kong in May.

The post of chief operating officer at JD.com has been vacant since Shen Haoyu, who had been in the role since 2011 and was in charge of the firm’s main JD Mall business, stepped back from the job in 2016. He has since left the firm and moved to Hillhouse Capital.

Jacob Williams, corporate governance manager for the Florida State Board of Administration, which oversees pension assets including about 158,000 JD.com shares, said Liu’s tight control of the company means more risk for outside investors when problems crop up.

“It really does create restrictions for minority shareholders in terms of what options we have available,” he said, such as making it harder to remove the CEO or to change directors.

Little would change unless larger JD.com shareholders weigh in, Williams said. “It definitely helps for the company to hear from shareholders. It will take more than a few shareholders to weigh in in order for the message to get through,” he said.

Funds with the largest stakes in JD.com include the Dodge & Cox International Stock Fund and Vanguard funds including the Vanguard Emerging Markets Stock Index Fund. Representatives for both firms declined to comment on Liu’s arrest or JD.com’s ownership structure.

A representative for another large investor, the Canada Pension Plan Investment Board, said via e-mail: “We will not comment beyond to say as with our portfolio in general; we evaluate consistently.”

(This refiled version of the story fixes spelling of “analysis” in headline.)