Huawei's Employee Shareholding Scheme: Who Owns Huawei?

Abstract

This paper aims at empirically analyzing Huawei’s employee shareholding scheme behind its rapid growth to make it the leading Chinese communication manufacturer, with a particular focus on its governance aspect, which the literature has not revealed in depth. With a research question as “Who owns Huawei?”, it sheds light on the background and mechanism of the firm’s employee shareholding scheme and its role in the firm’s governance, drawing on publicly available sources including corporate databases, the preceding literature, information provided by Huawei upon request whenever necessary. As a result, the following points are revealed: (1) Huawei Technologies is wholly owned by its holding company named Huawei Investment & Holding, which implements an employee shareholding scheme through its trade union and it is owned approximately 99 % of the share by employees. (2) As stipulated by the regulations, the firm concentrates all employees’ share to its trade union. Under the restriction from issuing regular stock to its employees, the shares held by the employees are designed as phantom stocks, which come with shareholder rights, including dividends, voting and property rights, as articulated in the Company Law of the People’s Republic of China. (3) Employees’ stocks are legally registered in the name of The Huawei Investment & Holding Co., Ltd. Trade Union Committee, but are effectively owned by employees and controlled separately from the assets of the trade union. (4) Huawei's highest decision-making body is the Employee Shareholders' Representative Commission, which represents the employee shareholders and exercises their rights through the elected Representatives. The employee shareholders vote one vote per share and Representatives vote one vote per person. Although Ren Zhengfei, as the founder, has a veto, its exercise is limited to the extent specified by internal regulations. (5) Based upon the above findings, this paper concludes that Huawei is owned and controlled by its employees, despite the fact their stocks are registered in the name of the firm’s trade union, which is not only made public, but also internally disseminated and practiced. This paper, as the first research in English to the best knowledge of the author, the firm is employee-owned and controlled. It contributes to understand its Scheme in the context of the Chinese legal system, and discover the reality concealed under the constraints due to the Chinese legal system and discuss in real terms, as one of the first comprehensive investigation of Huawei’s Scheme from the governance perspective. Further contributions are anticipated through the comparative studies, adopting a similar program, with other Chinese firms adopting a similar program, and concentrating employee shares to their trade union committees. The author presumes this paper serves as the first step toward series of global comparative studies to enrich our findings not only about the similarities and differences among the countries with different economic and legal systems, but also about the principles of the relevant program suited to the firms with global operations. The rest of the paper is composed of introduction, literature review, discussion, and implications before arriving at the Conclusions. The discussion covers the legal background, employees’ ownership and trade union’s involvement, governance structure, and related subjects.