Is Huawei’s rise due to its corporate governance style?

Huawei’s unique corporate governance structure includes employee ownership and representation on the board:

First, Huawei is a fully employee-owned, private company. All shareholders are employees although not all employees are shareholders. This is a most intriguing aspect. Employees are supposedly hired by the management, and yet they constitute the shareholder body. So there is an apparent tautology in that employees are owners who also report to management on a day-to-day basis.

Second, Huawei has a most novel practice of rotating chairmen in the board of directors. Each rotating term lasts only six months. There are currently three directors designated as chairs, and the rotation schedules are fixed in advance. The six-month terms for the period from April last year till March 2023 are already known. In essence, there may be an apparent challenge in viewing the chairman as a leader versus a caretaker.

Third, while Huawei has distinctive bodies of governance, there are high membership overlaps. The chairs of the board of directors and supervisory board are also members of the representatives’ commission. Likewise, members of both these boards can be in the commission as well. Technically, this should not be a problem as the boards are supposed to represent the shareholders. However, the interlock needs a good separation of roles and viewpoints.

Fourth and perhaps most significantly, there is a central figure, CEO and founder Mr Ren, in all the governing bodies of Huawei, except the supervisory board. He is one of the two shareholders. He also sits on the representatives’ commission as well the board of directors (but is not classified as an executive director).

 

Huawei’s corporate governance model seems to be vindicated by its business performance, even if there are suspicions of undue external influences. The financial results have been most formidable. In the latest five years, the compound annual growth rates for revenue and operating profit were a formidable 26 per cent and 18 per cent respectively.

Huawei’s case is a classic exemplification of the tension in corporate governance – the balance between purpose and pragmatism. While the starting point of the Anglo-American model is independence and control, Huawei seems to put the end point of performance first.

Source: Is Huawei’s rise due to its corporate governance style?, Opinion – THE BUSINESS TIMES

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