Family culture and strongman Control in Huawei
Being ranked No. 1 of “most influential Chinese business leaders” by Fortune China in three consecutive years from 2011 to 2013, Zhengfei Ren, the founder, controlling shareholder and CEO of Huawei is almost regarded as hero of the company.1 He has been the man who is influencing and inspiring the whole company since it was founded in 1987. Now, Huawei is a global leading company in ICT (information and communication technology) solution with revenue in 2012 more than 35 billion dollars.2 The magic rise of Huawei is largely attributed to the family based strongman culture with strong executive force from the top and ability to make long-term planning, but, as far as I can see, will hardly ensure future success.
The inner network of relations called “organizational enthusiasm” plays an important role in Huawei’s internal management. Ren, is the one who “set fire” in the company. After serving in the PLA (Chinese Liberation Army) for several years, Ren created the Huawei Empire almost from nothing in his forties. He is described as extremely optimistic and strong. 3 As a small team with few resources, Ren’s enthusiasm and strong entrepreneurship is what kept people around him, working with him to their best. Rather than relationship between boss and staff, this, original from Chinese guanxi culture, this organizational enthusiasm is more like personal loyalty, trust and affection. Stronger than pure staff loyalty, this relationship like brotherhood and sisterhood pushed Huawei harder during its early days. As Huawei expanded rapidly, the enthusiasm was spread in a larger scale to different levels of the employees by passionate speech and slogan delivered by Ren, and also by the top to bottom passing. Ren is conveying his personal philosophy to everyone and make is become the philosophy of Huawei so that after a while, most of the employees just believe and trust whatever Ren said, willing to follow him from inside. In this way, in addition to the CEO, Ren is almost the “Godfather” of Huawei. Other than doing what they are paid, the strong relationship of network among staff and the enthusiasm for the organization and the mission make employees willing to do more.
Huawei implemented the management method of paternalism, which is deeply rooted in Chinese culture. Ren serves as the most respectful seniority in Huawei. As I analyzed above, the organizational enthusiasm contribute to the guanxi like brotherhood and sisterhood in a family. Then in a traditional Chinese family, the hierarchy and respect for seniority is the important thing to manage the big family and keep everyone together. This can also be interpreted as “Yes sir culture” or “Bureaucratic culture”. In big family, the seniority is the absolute the leader and decision maker. Young people are not allowed to say no the show their special ideas. In Huawei, the superior serve as the elder in a family, leading, helping and controlling the subordinates and what the subordinates should do is to finish his part perfectly and make his superior satisfied. The best thing for this family like network is that the organization is very steady and efficient. But, Huawei is also criticized for “no respect for characteristics”4 However, unlike their fathers and mothers, the young generation in China tend to feel depressed in the paternalistic environment so that it’s difficult for Huawei to take advantage of this internal management methods when there are more and more young employees in the company with different characteristics.
With enthusiasm influence on one hand and authority management on the other hand, Ren is building a company like a traditional big family. He tries to convince all the employees that they share the common interests as well as loss. Honesty, hardworking, self-criticism and team work are considered as the core value of Huawei. Teamwork is expressed as “Cheering with wine when succeeding while Helping each other when failing”, which integrates guanxi into teamwork, emphasizing the private relationship between colleagues in addition to purely cooperative relationship in working.5. Every employee is encouraged to work as much as they can and take unlimited responsibility of their job. In a traditional family, people are encouraged to sacrifice themselves to contribute to the common interests of the big family. Ren gives his employees a good reason to work extremely hard and put the company above everything else. Huawei is not only the workplace for the employees, but also the reflection of their philosophy and the realization of their personal value. As a result, there is no doubt that Huawei is famous for its hardworking spirit and developing speed.
In response to the “family” perspective, Ren designed a very special shareholders system, which enables everyone to get bonus but make the controlling even centralized. Up to now, Huawei is a private owned company. The only phantom stockholders are union and Ren. The union hold the more than 98% of all shares on behalf the employees, entitling rights only to get bonus but no rights of trading and the employees have to returned back all shares they own when retirement. The rest of the shares, less than 2% are owned by Ren himself. This results in more than 600,000 shareholders of Huawei, 6 which also means that there is no big shareholder in addition to Ren, the management team has no need to be responsible for share holders other than Ren. However For the staff, they are not only the employees but also the “owners” of the company. They know that their performance and the profitability of the company are directly related to their pocket. Now it’s more like a really family, people share similar value, strong relationship with each other, hierarchy among different levels and even common interests linked by the phantom stockholder system.
In the past, this extremely centralized rights of decision making, enables Huawei to make long-term and strategic plan. With its stockholder system, Ren is the controlling shareholder and the CEO ever since it was founded. So basically, Ren can put whatever he wants into force. Huawei’s success is largely because of this determined “strongman”. There is advantage of this strongman control compared to diverse shareholders with CEO satisfying their interests. Ren just focuses on what is beneficial for the company in long-term. Thanks to the centralization and simplification of decision making process, Huawei is much faster in responding to the market and taking new strategy than its competitors. We must admit Ren is more than a superman, taking so much responsibility and regarding the company as his life. He always expressed crisis awareness in which he shows his worry about Huawei and uncertainty of business environment. 7As the overwhelming controller of the company, nobody understand the company more than him. His crisis awareness is becoming the worry of all employees in Huawei and the only way to get rid of this, according to his suggestion, is to improve personal work as much as possible.
Because of the hero leader and devoted employees, Huawei is able to take advantage of IT booming and political policy to expand overseas rapidly. In recent years, there is increasing investment overseas by Chinese companies, at first mainly in Africa, now also in Europe and North American. 8 Huawei plays a leading role in overseas development by keeping close with Chinese diplomatic policies, the strategy made by Ren in 1990s. The large share of market overseas turns to be an important reason why Huawei expands so fast. But nowadays, as a leading power in ITC worldwide, following politicians will not ensure future revenue. Huawei is challenged with establishing an open and transparent managerial system to survive in foreign markets.
Like every other company with relatively short history and spirits of entrepreneurship, Huawei is faced up with changing managerial structure to have sustainable development depend from Ren in the future. But this is extremely hard for Huawei given its shareholder structure explained above. Recently the “rotating CEO” system is launched by Ren, aiming to deconcentrating the controlling rights, which I highly doubt.9 With Ren being the forever CEO above the CEO team, the CEO team is nothing other than his followers and executors of his will. What’s more, the fact that CEO team members are determined by Ren revealed the lack of non-transparency of promotion.
Though guanxi network pushed it to perform unbelievable well, the complication and non-transparency raised by this sophisticated guanxi is also a big obstacle for future development. In 2011, the rumor about president Yafang Sun’s leaving, denied by Huawei later, gave us a glimpse of the non-transparent conflicts of interests in the top level.10 Ren is nearly 70 years old in a bad health condition. It ‘s forecast that he will retire soon and leave the CEO position to his daughter Wanqiu Meng, current CFO of Huawei. 11 The risk to lose trust and devotion due to non-transparent system and no specific shareholders, along with family culture difficult to be passed over in young generation, makes Huawei’s future even more unpredictable.
Reference: 1 The ranking of “most influential Chinese business leaders”, Fortune China, March 29, 2013
2 Huawei Annual Report 2012, Huawei investment holding Co. Lt d. , 2012 3 Tao Tian, “Ren Zhengfei: an irredeemable optimist” , Entrepreneur, Phrase three of 2013
4 Shuang Zheng, “Simple analysis of top ten inner consuming factors in Huawei: Lockout Looming and bureaucracy”, China Business News, March 22, 2011
5 Huawei Annual Report 2011, Huawei investment holding Co. Lt d. , 2011
6 Yongqing Pei, “Reviewing Huawei in both internal and external difficulties: dancing on 11 knives”, Tai Media, April 2013
7 Zhengfei Ren, “The winter of Huawei”, Zhengfei Ren’s speech inside the Huawei Company, 2000 8 Toh Han Shih, “Challenges as China's firms eye investments offshore; Chinese companies are cashed up and looking for prospects overseas but cultures can pose a problem”, South China Morning Post, June 26, 2012 9 Zhengfei Ren, “The River Flows Eastwards”, Forbes China, December 27, 2011 10 Page of Wanzhou Meng, Baidu Pedia (Baidu Baike), 2013 11 “Investigation of Sun Yafang’s leaving: rumors from two employees from Huawei”, Jinghua Times, August 1 2011
