The annual report of China’s giant telecommunications equipment group, Huawei, provides a fascinating insight into the highly experimental governance structure the group adopted last year under which it rotates its chief executive every six months.
In the report, released this week, Huawei’s founder and long-time chief executive, Ren Zhengfei outlined the rationale for the radical structure the group has adopted.
The background for the decision was the dynamic nature of the industry sector where Huawei is one of the global leaders and the perceived threats that might pose.
"Some telecom equipment vendors who once possessed remarkable technological strengths and took the lead globally have disappeared in a market that has such a huge demand for information technologies. Does Huawei have some sort of magical powers protecting it from collapse? Do you think we are unique and will rise while many others decline?’" he asked.
A rotating system for leaders wasn’t new. Emperors could reign for decades of peace and prosperity and some companies in traditional industries rotated their CEOs every seven or eight years and enjoyed prosperous times, he said.
"Today tides rise and surge; companies are springing up all over the place while others are quickly being swept away. Huawei hasn’t found a way to adapt well to a rapidly changing society. Time will tell if the rotating CEO system is the right move or not," he said.
Huawei did suffer something of a hiccup last year in what has been a decades-long success story, with earnings tumbling 53 per cent to $US1.85 billion even though sales were up nearly 12 per cent, which may explain why it felt the need to transform the way it is managed.
Rotating CEOs every six months, however, is a fairly dramatic response. Conventionally one would assume that would lead to instability, confusions, short termism, erratic strategies and insecurity within management. That isn’t, however, the way Ren views it, even if he acknowledges that the new model is something of a step into the unknown.
As he says, Huawei is "a technology company that possesses nothing except knowledge and customer recognition" in an industry with dynamic technologies and market fluctuations.
"Compared to one single CEO who is expected to handle multiple affairs each day, have in-depth insights and set the right direction, a group of rotating and acting CEOs should be more effective." CEOs do get overwhelmed by their daily workloads and shareholder expectations of omniscience seamless success, which leave little time for strategic thought.
"Solidarity might be more of a challenge, though," he said.
While the CEO role will rotate each six months, the group of executives chosen for the role are expected to make decisions collectively, reducing the risks inherent in the traditional CEO-as-sole-leader model.
Ren thinks that the rotations will make the executives better prepared for their next term as CEO and also says the system is an "organisational arrangement of positional rights and obligations, not rotation of the mission and responsibilities of the rotating CEOs."
The system also means that a change of CEO doesn’t lead to a loss of senior talent, or foster CEO-led favouritism within the Huawei workplace – which Ren illustrated with a Chinese proverb: "Every emperor has a cabinet composed of his own favourites."
There have been outstanding examples of joint CEOs – the Bassat brothers built Seek as joint CEOs – but the notion of changing CEO every six months is a novel one. Presumably it can only work if the CEOs do work well collectively and do govern by consensus.
"Subject to the demands of capital and held in check by the board of directors the company will not develop blindly and this might be the right way for us to succeed. Even if we fail we will not regret our choice because we have blazed a new trail," Ren said, in an unusually frank assessment of the riskiness of such an unproven approach.
Huawei, leaving aside some of the controversies it generates, is of course an unusual company anyway, with its co-operative-style ownership model, its emergence from nowhere to be a global technology leader and the reality that, whatever his title, the founder of a global leader is still very actively involved.
Whether a model of rapid rotation of acting CEOs could work in a more conventional company is doubtful, but it is an experiment that will certainly be worth watching.
A collective of Huawei emperors
Huawei's novel decision to rotate chief executives each six months can only work if the leaders govern by consensus, but even if it fails the Chinese telco provider won't regret its choice.
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