Bloomberg News

Huawei Founder Ren Splits CEO Role With Rotating Panel

April 23, 2012

Huawei Technologies Co., China’s largest maker of phone equipment, said its founder Ren Zhengfei is splitting the role of chief executive officer with a panel of three executives who will rotate at six-month intervals.

Deputy Chairmen Guo Ping, Xu Zhijun, who uses the English name Eric, and Hu Houkun, who uses the name Ken, will join Ren as co-CEOs, spokesman Ross Gan said in an interview yesterday. Ren, 67, retains his title as a deputy chairman of Huawei, according to the company’s annual report released yesterday.

“This is succession planning with Chinese characteristics,” said David Wolf, CEO of Wolf Group Asia, a Beijing-based marketing consulting firm, who has researched China’s telecommunications industry with funding from Huawei. “Ren wants to keep talent. This is excellent way to keep as many tigers in his part of the forest as possible. What would be terrible would be for one of these people to run off.”

Ren founded Huawei in 1988 after retiring from the Chinese military in 1984 and built it into the world’s largest maker of equipment for phone networks after Ericsson AB. (ERICB) Ren’s military background has been cited as a cause for concern by U.S. lawmakers in regards to Huawei’s prospective expansion in the U.S. The U.S. House Permanent Select Committee on Intelligence began a probe last November of whether Huawei poses a security threat.

Huawei initially implemented a rotating CEO system last year in which Ren mentored the executives, according to a December note to employees from the founder.

Ren’s Dec. 25 memo to employees didn’t specify what role he would play in the company’s new structure, or which executives were participating in the CEO rotation. In the same memo, Ren said he had been treated for cancer twice in the previous eight years.

Chairwoman Sun Yafang’s role at Huawei is unchanged, according to the report released yesterday.

2011 Profit Fell

Huawei profit fell to 11.6 billion yuan ($1.8 billion) in 2011, less than half the 24.7 billion yuan it reported a year earlier, according to the annual report. Profit slipped as the company increased investment in research and development and funded the global expansion of new businesses targeting sales of consumer devices including smartphones and computer services for businesses. Sales rose to 203.9 billion, from 182.5 billion, according to the report.

Hu took the first rotation as CEO from October through March; Xu began the second rotation as CEO earlier this month; and Guo is scheduled to take the title in October and the rotation among the three would continue in that manner, Gan said.

“The company’s fortunes will not be beholden to the whims of one person,” Gan said. “Huawei will be governed by consensus and collective wisdom.”

Co-CEOs Background

Current CEO Xu was born in 1967, and holds a doctorate from Nanjing University of Science and Technology. He joined Huawei in 1993 and has served in roles including president of the wireless product line; chief strategy and marketing officer; chief product officer; corporate executive vice president; and chairman of the investment review board, according to his official company biography.

Hu has a bachelor’s degree from Huazhong University of Science and Technology in Wuhan. He joined Huawei in 1990. He has held roles including president for the China market; president for Latin America; president of global sales; chief sales officer; chief strategy and marketing officer; chairman of corporate global cyber security; chairman of U.S. operations; corporate executive vice president, and chairman of the human resources committee, according to his official company biography.

‘Bright Minds’

Guo, born in 1966, has a Master’s Degree from Huazhong University of Science and Technology. He joined Huawei in 1988. His previous roles include general manager of supply chain, chief legal officer and president of information technology management, according to his official company biography.

“By authorizing a group of ‘bright minds’ to act as rotating and acting CEOs, the company allows them to make decisions within certain boundaries while they face a constantly changing world,” Ren said in the report. “As they seek harmony in diversity, they can help the company adapt quickly to changes in the environment. They make decisions collectively, which avoids corporate rigidity.”

Disclosing Leadership

After the rotational period is over, the non-acting rotating CEOs are still part of the company’s “decision-making nucleus,” Ren said in the report.

Huawei only disclosed the members of its senior leadership team and board of directors for the first time last April as it raised transparency to offset security concerns in markets such as the U.S. That information showed founder Ren was related to at least two members of the company’s leadership: Chief Financial Officer and executive director Meng Wanzhou is Ren’s daughter, while Ren’s brother, Ren Shulu, is a member of the supervisory board.

Ren established Huawei with about 21,000 yuan in capital, after a career in the military’s Engineering Corps, according to his official company biography. China’s central government had disbanded the Engineering Corps in 1983 and Ren subsequently retired from the army after a decade of service.

Ren’s military record and his selection to the 12th National Congress of the Communist Party of China in 1982 have been cited by U.S. lawmakers as reasons Huawei may pose a security threat. Ren hasn’t maintained any ties with the military since his retirement and the government and military hold no stake in Huawei, according to the company.

Raising Transparency

Employee-owned Huawei increased disclosures over the past year and moved to make its holding company structure more transparent to reduce some of the security concerns raised by Ren’s military background.

Huawei Technologies is a wholly-owned subsidiary of Shenzhen Huawei Investment & Holding Co., according to the annual report. Huawei Holding is solely owned by employees of the company, without any third parties, including government bodies, holding any of its shares.

Huawei Holding through a workers union manages an employee shareholding plan that included 65,596 of the company’s staff as of the end of 2011, according to the report.

To contact Bloomberg News staff for this story: Edmond Lococo in Beijing at elococo@bloomberg.net

To contact the editor responsible for this story: Michael Tighe at mtighe4@bloomberg.net


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