Huawei pulls back the curtain on ownership details

Δημοσιεύθηκε: 27 Φεβρουαρίου 2014 - 02:33

Inside a glass case in a private room in Huawei's headquarters in Shenzhen, China, are 10 blue books that help answer a question that has vexed the US government: who really owns the huge Chinese telecoms equipment company?

The centimetre-thick volumes contain the names, ID numbers and other details on the roughly 80,000 employees that Huawei says own almost 99 per cent of the company under an "employee stock option plan".

During a tour of the Shenzhen campus, Jiang Xisheng, chief secretary of the board, allowed the Financial Times to examine the books to see the holdings of the staff who own Huawei, through what is called the "Union", along with founder Ren Zhengfei.

Leafing through the thousands of pages, it appeared that the vast majority of staff had tens of thousands of shares, while a small group had holdings in the millions. After the FT pointed to an entry with 2.65m shares, Mr Jiang ordered a file from the next room where the contracts are stored to shed light on how shares are awarded.

The move to show a foreign journalist the books for the first time is part of an effort to rebut criticism that Huawei has been less than transparent about its ownership.

Huawei was founded by Mr Ren, a former Chinese military officer, in 1987. It has become one of the world's biggest telecoms companies, but has faced serious obstacles in the US because of suspicions about its ownership. In 2012, the US House intelligence committee recommended that the US block any M&A deals involving Huawei because it "cannot be trusted to be free of foreign state influence".

The company has repeatedly dismissed claims about possible links to the Chinese government as baseless, and the US government has not made public any solid evidence to back up its concerns. But to try to refute such suggestions, Huawei has started gradually pulling back the curtain on its ownership structure.

Duncan Clark, chairman of telecoms consultancy BDA China, says providing access to the shareholding books is a positive step, but that it will not satisfy critics.

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>"It is like a child that tries hard but the results aren't there. They think it's unfair, and there is probably an element of that," says Mr Clark, before adding that the best way for Huawei to answer its critics would be to go public. "Sunlight is the best disinfectant, but they are pulling back the blinds halfway."

Three years ago, Huawei revealed its board of directors for the first time. Last year, Cathy Meng, chief financial officer and Mr Ren's daughter, said the company would provide more details at some point about its ownership beyond the fact that Mr Ren owns 1.4 per cent. She said this would include details on directors' shareholdings, although Huawei has not set any date for their release.

Huawei says 80,000 of its 150,000 employees have joined the ownership plan, which currently prices the shares at Rmb5.42 ($0.89) each. Last year, the shares carried a dividend of Rmb1.41, implying a 26 per cent return for any bought at the current price. Huawei declines to say how many shares are outstanding under the plan.

Since the plan was introduced in 1997, the share price has risen more than fivefold - compared with a 250 per cent rise in the Shenzhen stock market - in tandem with Huawei's rise from a tiny company founded in two small apartments in Shenzhen.

"Back then, Mr Ren often talked about a good future but we thought it was too far off. But now it has been realised," says Mr Jiang, a telecoms engineer who joined in 1989 as one of the first 30 employees. "It has been golden times for Huawei."

One problem Huawei has faced is convincing critics that the plan gives staff some control as opposed to just sharing profits. The US House intelligence committee said "many analysts believe that Huawei is not actually controlled by its common shareholders, but actually controlled by an elite subset of its management".

Huawei concedes that Mr Ren retains veto power over major decisions. But it says the members of the Union vote every five years to pick 51 representatives, who then select the company's recently expanded board of 17 directors.

The list of candidates is selected by the outgoing representatives, but employees can also write in names on the ballots, which are filled out at roughly 400 voting sites around the world.

Huawei insists that its model both incentivises employees and gives them a degree of control. Some critics have asserted that Huawei is not really employee-owned because foreign staff cannot join the ownership share plan. Huawei responds that domestic law requires participants to be both employees and Chinese nationals.

To underscore the point, Huawei revealed that two of the five investors - Chen Jinyang and Shen Dingxing - who raised the original registered capital with Mr Ren later sued the company because they were not allowed to join the share plan, as they never became employees.

Huawei settled with the men. Asked what return they received on their investments, Mr Jiang smiles and says: 70 to 300 per cent.

Twitter: @AsiaNewsDemetri

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