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Four CEOs better than one as Huawei profits slump

Rotating CEO plan not to be criticised as "Leniency will help them succeed"

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Chinese telecoms equipment maker Huawei has taken the unusual step of appointing a panel of three CEOs and a plan to rotate them every six months, after its latest financials (PDF) saw profits plummet 53 per cent despite revenue rising 11.7 per cent to around 204 billion yuan (£20bn) last year.

The firm said its net profit stood at 11.6 billion yuan (£1.1bn) for 2011 after it spent heavily on R&D and in pushing its own brand smartphones – led by the super-thin Ascend P1 – in an increasingly competitive market.

Carrier network sales as usual made up the majority – around three-quarters – of the firm’s revenue at 115bn yuan (£11.3bn) although it remains held back by its inability to crack the US market thanks in part to lingering concerns over its links to the Chinese government and military.

Fellow Shenzhen-dwelling rival ZTE didn’t do an awful lot better when it announced its 2011 results last month, however, reporting revenue up 86bn yuan (£8.4bn) but profits down by 37 per cent.

Huawei CEO and founder Ren Zhengfei said he hoped the unusual plan to bring on board three co-CEOs would help equip the firm for greater success in the future.

“By authorising a group of ‘bright minds’ to act as rotating and acting CEOs, the company allows them to make decisions within certain boundaries while they face a constantly changing world. This is our rotating CEO system,” he wrote in an open letter.

“Huawei's rotating and acting CEOs are comprised of a group of executives. As they seek harmony in diversity, they can help the company adapt quickly to changes in the environment. They make decisions collectively, which avoids corporate rigidity caused by any particular individual being too obstinate and also avoids the uncertainties caused by unexpected risks to company operations.”

Vice chairmen Guo Ping, Eric Xu Zhijun and Ken Hu Houkun will join Ren on the CEO panel, with each taking turns at the helm for a six month period, although all will be involved in the “decision-making nucleus” at all times.

It could be seen as an ambitious way to keep as many talented senior execs at the company as possible ahead of the inevitable day when Ren decides to let go of the reins, although time will tell whether such a system is a practical way to run a company of Huawei’s stature.

In fact, Ren himself said as much in his letter to shareholders:

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 also exhorted stakeholders to go easy on the multi-CEO plan, writing:

"We must not be too critical of our rotating CEO system. Leniency will help them succeed."

®

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