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Letter from the CEO

Clarifying the rotating CEO system under the leadership of the Board of Directors

We live in a fast changing world. Amazing changes have taken place over the past two decades. In the past, China was quite a poor country; yet today we see a lot of automobiles, high-speed rail lines, and splendid cities along with high prices. The changes in the electronics industry are even more remarkable, as evidenced by the telecom industry's evolution from the voice era into the broadband and ultra-broadband era. These tremendous changes have made many people happy while a few others have been left distressed. We don't know what tomorrow will be like. I have said that information pipes will have a diameter as wide as the Pacific Ocean. What would it look like? It's hard for us to imagine, just as it is for children in kindergarten. Some telecom equipment vendors who once possessed remarkable technological strengths and took the lead globally have disappeared in a market that has such a huge demand for information technologies. Does Huawei have some sort of magical powers protecting it from collapse? Do you think we are unique and will rise while many others decline?

A rotating system for leaders is nothing new. In times when social changes were not so dramatic, emperors could reign for several decades and create periods of peace and prosperity. Such prosperous periods existed in the Tang, Song, Ming, and Qing dynasties. The rotational period for each emperor lasted several decades. Some companies in traditional industries rotated their CEOs every seven or eight years, and these CEOs experienced some prosperous times in their industries. 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.

Under conventional shareholder capitalism, the Board of Directors (BOD) represents the strength of capital and aims to continuously and effectively increase the value of capital. In consideration of the rights and responsibilities derived from capital as well as the long-term stability of the capital structure, BODs are inclined to be conservative when making decisions as part of corporate governance. The CEO accountability system under the leadership of the BOD is universally applicable. CEOs are a group of moving professional executives who have profound knowledge, a global view, and an open mind while staying abreast of the latest changes to technologies and business. It might be practical for an enterprise that has resources and privileges to select one CEO from among the exceptional individuals to run the company for a long time.

Huawei is a technology-centric company that possesses nothing except knowledge and customer recognition. Due to technological dynamics and market fluctuations, Huawei has adopted a rotating CEO system in which a small group of executives take turns to fulfill CEO duties. Compared to one single CEO who is expected to handle multiple affairs each day, have in-depth insights, and set the right direction, a group of rotating and acting CEOs should be more effective. Solidarity may be more of a challenge though. Huawei's BOD has made it clear that it will not make maximizing the interests of shareholders or stakeholders (including employees, governments, and suppliers) its goal. Rather, it holds on to the core corporate values that are centered on customer interests and encourage employee dedication. On this foundation, Huawei builds possibilities for its survival. By authorizing 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.

Traditionally, one person was authorized to act as a company CEO, and the fate of the company rested with this single person. Such a practice echoes the Chinese saying, "Success or failure rests with Xiao He*." History has proven time and again that this practice poses greater risks. To meet shareholder expectations and to achieve quarterly and annual operating results, traditionally, CEOs were extremely busy with multiple affairs, didn't have any time for further study or to think about the future, and were fully occupied each and every day. How could they succeed in such situations? 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.

The rotating and acting CEOs take turns leading the company for six months. After the rotational period is over, the non-acting rotating CEOs are still part of the company's decision-making nucleus. They have considerable authority in making business decisions and in deploying managers and experts. The rotating CEO system is an organizational arrangement of positional rights and obligations, not a rotation of the mission and responsibilities of the rotating CEOs in the company. When they are not acting, the rotating CEOs do not shift their mission or responsibilities. On the contrary, they participate in collective decision making and get even better prepared for their next terms as rotating and acting CEOs.

After their rotation is over, the non-acting rotating CEOs are still part of the company nucleus. By adopting this system, we avoid a situation similar to what the Chinese saying "Every emperor has a cabinet composed of his own favorites" describes. This rotating system ensures that outstanding employees continue to work for Huawei under the leadership of different rotating and acting CEOs. Some outstanding employees will not be inappropriately deployed because managerial deployments are based on collective decision making during the rotational periods and these employees will not be replaced randomly. This practice helps our company maintain sustainable development. Subject to the demands of capital and held in check by the BOD, the company will not develop blindly, and this might be the right way for us to succeed. Even if we fail, we will not regret our choice because we have blazed a new trail.

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

* Xiao He was a Chinese statesman who lived during the early Han Dynasty. In the beginning of the Han Dynasty, Xiao He recommended that Han Xin become a general. Later, however, Xiao He helped Empress Lü Zhi to have Han Xin killed. This phrase has been used ever since as a metaphor to describe a situation in which the success or failure of an endeavor is derived from the same person or thing.

Ren zhengfei
Ren Zhengfei
Chief Executive Officer