Huawei's Guo Ping on his company's unusual governance structure

February 28, 2013: 11:20 AM ET

In a rare interview, Guo Ping, rotating and acting CEO of China's Huawei, discusses how his powerful company is organized.

130228111529-guo-ping-340xaFORTUNE -- Huawei's massive presence at this year's Mobile World Congress in Barcelona couldn't be missed. Conference-goers were greeted with the Chinese telecom giant's electronic ads as soon as they stepped off the plane in the Spanish city. The company set up not one but two sprawling booths at the show -- the first to showcase its line of consumer handsets and tablets, and the other to display its telecom equipment products for carrier customers. The company also made a big splash with a new device, the Ascend P2, which it touted as the "world's fastest smartphone."

But for all of the noise Huawei made at this year's mobile confab, many -- particularly in the North American market -- remain skeptical about the company's ability to hook consumers, effectively compete with heavyweights like Apple (AAPL) and Samsung, and get past the U.S. government's efforts to block it from selling network infrastructure equipment to local carriers. And, despite its claims of openness and transparency, Huawei's corporate structure remains obscure. (The company's founder, Ren Zhengfei, never talks to the media; its three "rotating CEOs" shift power every six months.) In a rare interview, Huawei's acting CEO Guo Ping sat down with Fortune at Mobile World Congress to discuss the company's recent product launches, its unusual leadership arrangement, and its global ambitions -- U.S. market included. Here is an excerpt of the conversation, which was conducted with the help of an interpreter:

Your leadership structure is unusual. How does it work?

I think first of all I can introduce to you how we came to this system of rotating. I remember that in 2004 Mercer [a New York-based consulting firm] helped us establish our executive management team [EMT]. Their initial proposal was that Mr. Ren would be the chair of the EMT. However, Mr. Ren did not want to work like that and he did not want to take such a chair position. He wanted the other members to rotate and chair the EMT. So that's what we did from 2004 to last year. So in the past there used to be eight people rotating as chair of EMT, and now in 2012 three people became the rotating CEO. There are two major responsibilities if you are a rotating acting CEO. Number one is he or she is responsible for the financial results and number two is to take the lead in emergencies or crisis handling. The other seven people [on the EMT] make collective decisions as a team, for promotion of high-level managers or changes in salary structures. And after one's term as a rotating CEO, he or she will still be in this seven-person team and participate in this collective decision-making.

So is every decision consensus driven?

For different matters there are different mechanisms to make decisions. There are some matters where the rotating active CEO can make decisions by themselves and there are some matters where if the majority agrees they can pass. And there are also some other matters that need to be submitted to the board for approval. So we have the all hands meeting for the board every month. And these seven people [from the EMT] are also members of the board.

Whose responsibility is it to set the vision of the company? Is that Mr. Ren's role?

Mr. Ren will be present in every month's board meeting. He is a member of the board. But he's not among the seven-person decision-making team. So when we had the business objectives and business plan for 2013, they needed to be approved by the board. So there are different obligations and authority for the board, for the seven-person decision-making team and also for the rotating CEO.

Steve Jobs is often used as an example for a visionary CEO. What are the advantages and disadvantages to your structure versus a company like Apple?

Our management model is quite new, but actually it comes from an idea from a book written by an American author, called Flight of the Buffalo [the book was written by James A. Belasco and Ralph C. Stayer]. The theory of that book is about how migrant birds fly across the Atlantic Ocean -- they always fly in a V-shape but the lead of the team is not always the same bird. So they change and rotate to lead the whole team across the ocean. So I think for every company whether we talk about Apple or others they have their own different governing structure.

Is this rotating CEO structure seen as a long-term arrangement for Huawei, or is this just a succession plan?

Like I said we only started this system last year. I think we need more time to observe how it works.

You've said that you want to be more transparent. What steps are you taking to be more transparent and more open, especially when it comes to the U.S.?

It is our established policy to continually be open and transparent. You might not know that since 2000 we have been working with KPMG; they are our global auditor to review our reports. And you can also download our annual report for last year and the year before last on our site. We also have our annual analyst meeting. In the annual report you can also find our governance structure and also our members of the board, including their CVs and also an update of our business growth and other important information. We are not a listed company, but we are determined to follow the criteria and standards of a listed company. I would like to take this opportunity to say something more about why we are not listed. In China, if a company has more than 200 shareholders there is no solution for a company like that to be listed.  And we know that the Chinese government is also taking initiative to establish regulations related to non-listed companies. I know that when the number of shareholders of Google (GOOG) reached 500, then the SEC required them to go public. So in China the company law is still in the process. But for the future we do not exclude any possibility. Now we have more than 60,000 employee shareholders. [Update: According to Huawei, the company now has 74,200 employee shareholders.]

I was under the impression that all employees were shareholders. So not all of your 150,000 employees are shareholders?

You are right. It is true that all of the shareholders are employees.

Not all employees are shareholders but all shareholders are employees?

Actually I was the very person to introduce the stock options from the U.S. I visited two consulting firms in the U.S. They told us that in the initial phase everyone could be shareholders because we needed to have the cash flow. So when the company shifted into the development phase only the mainstay, key members of the company would be shareholders. And in Huawei we have different categories of employees. If you look at engineering groups they have a very big percentage of the shares. So now we position ourselves in the second phase, the development phase.

And what's the next phase?

The next phase will be the mature phase, but we hope that we are always in the development phase.

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About This Author
Michal Lev-Ram
Michal Lev-Ram
Writer, Fortune

Based in Silicon Valley, Michal Lev-Ram covers enterprise and mobile technologies for FORTUNE. Prior to joining FORTUNE, she wrote for CNNMoney, Fast Company, Popular Science and other business and technology publications. She was also a staff writer at Business 2.0 and holds a B.A. in journalism from San Francisco State University.

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