Huawei, the tech company that was established in Shenzhen in 1987 by a former engineer in the People’s Liberation Army of China, has seen unprecedented growth, such that it is the world’s largest telecommunications equipment provider and the second largest smartphone maker. This phenomenal growth is attributed to its style of corporate governance.

Shareholders play a key role in Huawei, as they do in many other companies. The shareholders are the major decision makers in relation to capital and profit distribution, as well as the selection of members of key governing bodies, including the board of directors and members of the supervisory board. However, the shareholders’ meeting consists of just two shareholders – Ren and the union. The union works through  representatives’ commission, which represents the rights of all shareholders.

The board of directors, which consists of 17 members (a chairman, four deputy chairs, three executive directors and nine directors), protects the interest of shareholders as well as other stakeholders, who are the customers.

The supervisory board, which is required under China’s company law, consists of 10 members (the chairman, five executive members and four non-executive members) and oversees the board of directors, the company’s operational and financial  status as well as its internal control and legal compliance.

Whilst Huawei’s dual board structure is not unusual, its unique corporate governance style is a departure from the widely used Anglo-American model. It is a private company, which is fully owned by its employees, although not all employees are shareholders. This is a situation where employees who are hired by management constitute the shareholder body, but yet have to report to management on a daily basis.

Huawei also has a practice of rotating chairmen in the board of directors every six months, and these rotations are known well in advance.

Although Huawei has distinctive bodies of governance, there are membership overlaps. Both the chairs of the board of directors and supervisory boards are also members of the representatives’ commission. Also, members of these boards can also be in the commission.

In Huawei’s governance structure, the CEO and founder Mr Ren features in all governing bodies, except the supervisory board. He also sits on the representatives’ commission and the board of directors, although he is not classified as an executive director. Thus the CEO plays both executive and governing roles, which is not unusual. Perhaps this hybrid of roles has enabled Huawei to move  in an undistracted direction at an incredible speed over the years.

In addition to the open governance system of Huawei, the Communist Party also plays a crucial role. The governing bodies must exist in harmony with the party establishment.

 It is evident that Huawei’s corporate governance model seems to have been reflected in its business performance. The financial results have been extraordinary. “The compound annual growth rates for revenue and operating profit were 26 percent and  18 percent respectively“, according to Lawrence Loh, director of Centre for Governance, Institutions and Organisations at National University of Singapore. Loh makes the observation that
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“.