Huawei Advisor Tian Tao's Interview with Swedish Newspaper Dagens Nyheter

November 6, 2020

Shenzhen, China

Tian Tao: I was the Editor in Chief of a magazine called Top Capital for quite a while. You are probably as curious as I was about how a Chinese company like Huawei got to where it is. You are here today to dig into the mystery behind Huawei's rise. I've been asking this question for 20 years, watching and studying this company. The books I've written are the results of my research. Twenty years ago, I also felt there must be some mysterious patron behind the scenes, say, the Chinese government, driving Huawei's growth. However, the deeper I dug into the company, the more fascinated I was. The openness I found at Huawei, and the openness of its founder Ren Zhengfei in particular, as well as his unique leadership style, drew me in. This is why I've stuck by the company for 21 years.

Ten years ago, many in China believed that Huawei's success, because it was a private company, had been achieved through some kind of nefarious means. For quite a long time, people in China believed that there was no way Huawei could grow as quickly as it had. Today, in the Western world, especially with Western media and politicians, Huawei has this mysterious reputation. I believe, to a great extent, this is due to a lack of understanding. I am actually thrilled that you want to pierce this veil of mystery today. Ask whatever questions you have.

I am in a good position to answer them. I have interviewed between 500 and 600 Huawei employees, and have transcribed 6 or 7 million words from those interviews. The six books I helped put together, including Explorers – Huawei Stories, are anthologies of stories from Huawei employees talking about their own experiences. I believe, by reading them, it is easier to understand how hard Huawei actually had to fight to become what it is today.

The history of this 31-year-old company is full of blood, sweat, and tears. For over 31 years, it had to overcome many challenges, attacks, and crises one after another. But everyone I've met, from its founder to regular employees, like these young people here today, stood their ground wherever they were posted, to overcome difficulties and challenges created by their environments or by anything else. That's how Huawei has become what it is today. You are welcome to ask any questions you have. I will be completely honest with you.

01 Marianne Björklund, Asia Correspondent, Dagens Nyheter: You've written a book about the management philosophy at Huawei, right? What would you say is the key to this company's management philosophy?

Tian Tao: Huawei's management philosophies have many similarities with systems in Sweden. I've been to the Nordics before and even took a quick trip to Sweden. It was during a six-day survey project in Denmark that I began to recognize similarities to Huawei. In China, we call "the Nordic model" welfare socialism or welfare nationalism. I personally like to call it stakeholder capitalism, because in it, the organization, be it a country or a company, strikes a balance between its customers, shareholders, and employees simultaneously. It considers the interests of all three parties.

I noticed a very important phenomenon. Nordic countries, like Sweden and Denmark, don't have that mega-rich class that you see in the US. The income gap between workers and entrepreneurs (or capitalists) is not that wide. The social welfare system for normal workers is very, very good. For Huawei to succeed, it has also been able to strike a balance between its customers, shareholders, and employees.

How is that balance struck? Through Huawei's ownership structure. Huawei is very unique because it is 100% owned by its employees, with no outside financial shareholders. What am I calling an outside financial shareholder? Someone who invests in a company for profit, but doesn't play a role in the company's value creation process. How many shareholders does Huawei have today? Over 100,000, all of whom are employees. Without exception. This is very unique to Huawei. Thirty years ago, Mr. Ren was the sole owner of the company. Over the past 30 years, he has diluted his own stake in the company down to 1.04%, and is aiming to further reduce it to 0.6%, like Steve Jobs.

One of the most central features of Huawei's shareholding system is that you have to be an employee to own shares. This is crucial. The first group of employees joined the company in their 20s, and have followed Mr. Ren's leadership since the beginning. They've been with the company for over 25 or even 30 years. I bet there are over 1,000 of these "veterans" at Huawei. Why though? They think, "I am working for myself, because I am a shareholder of the company." Many of them have stationed themselves in much less developed countries, including some of the most war-torn parts of Africa, or in countries plagued by malaria. Many young employees, only 25 or 26 years old, have been in the field for five to eight years. Some are stationed away from home for over 10 years. Some contract deadly diseases, including malaria, but choose to stay after recovering. This is, to a large extent, because they feel that they are working for themselves.

The ownership structure is very decentralized. Even the original shareholder, Mr. Ren, only owns 1.04% of the company's shares. However, this is still quite a lot. As the company has developed, its employees have benefited immensely and are well paid. This is why I feel Huawei's organizational design is quite similar to the Nordic model. Over the past 30 years, the ratio of employee compensation at Huawei, including salaries, bonuses, and other benefits, to shareholder dividends has been 3 to 1. In other words, the total amount paid out for normal employee income is two times more than what is paid out to shareholders.

Why does Huawei do this? Because Mr. Ren is keenly aware that in today's world, knowledge workers are becoming a pillar of economic development. Huawei compensates people for what their big brains are actually worth. What's the problem with the US today? It prioritizes shareholder interests, and capital interests, and it squeezes employee pay to cut costs. That's one of its biggest problems. Huawei has been able to achieve its success today within 30 years, because it doesn't see labor as a cost. Instead, it sees labor as one of the most fundamental drivers of value creation. This has been one of the most important factors that contributed to Huawei's rapid growth over the past 30 years.

In many of the interviews I've had with Western media outlets and academics, I get asked, "How could Huawei achieve what it has without the support of the Chinese government?" But if we assume that the Chinese government or some other outside investor was propping up Huawei, there is no way they would have let Huawei invest three times its dividends into labor. Just look at actual state-owned enterprises in China that receive direct government investment. They set employee and manager salaries relatively low and they are not as competitive as Huawei.

I know you are going to talk to Jiang Xisheng tomorrow. I'll give you the transcript of my own interview with him from years ago. Just from that, it will be easy to see just how difficult Huawei had it since the beginning and how many times Huawei has been on the brink of bankruptcy.

02 Marianne Björklund: You said it is owned by the people who work here. But hasn't Huawei been a favored company in other ways, for example, receiving loans with a low rate and other purchases from the government? At least that's what some people say. What would you say about that?

Tian Tao: In that interview, Jiang said borrowing a few million yuan from a bank was a real challenge for Huawei in its early years. There's even a story about this. One Huawei employee was queuing at the company canteen behind Mr. Ren back in the day, and was worried because he looked so down. When the guy asked him if something had happened or if he was sick, Mr. Ren just said, "I don't know if I will have anything to eat tomorrow." The company was that close to running out of cash. It was very difficult for Huawei to get funds from the outset. With the employee stock ownership plan though, part of Huawei's funds come from shareholding employees who want to buy company shares with their salaries and bonuses.

Many banks, including the China Development Bank, have provided loans for Huawei's international projects. But when you look deeper, you will find that Huawei has borrowed significantly more money from foreign banks than from their Chinese counterparts, because interest rates are lower.

In terms of government purchases, for a long time during Huawei's first 15 or so years, the Chinese government generally favored foreign companies over privately-owned domestic ones. This was part of the economic reforms of the time, and all state-owned enterprises were entitled to preferential treatment too. Mr. Ren said because Huawei wasn't foreign-funded or state-owned, he felt like an orphaned child, without a mother or father. The company was actually in a weak position and had to carve out its own path. The reason was very simple. There were many preferential policies in place for foreign companies, so companies like Motorola were given tax exemptions on products sold to China, but Huawei had to pay very high tariffs for imported components. The truth is Huawei wasn't favored; it struggled even to survive.

In short, many preferential policies, including tax exemptions and credit, were given to foreign companies as China opened up to the outside world. State-owned enterprises were also favored because they were funded by the state. Huawei wasn't able to take advantage of either types of preferential treatment. Admittedly, Huawei used to lag way behind Ericsson and Nokia in terms of technology and quality, and this was the main reason customers didn't choose Huawei. But why have Chinese carriers increasingly opted to use Huawei over the past decade? This is in large part due to Huawei's superiority over its peers in terms of technology and quality. Huawei now outperforms Nokia and Ericsson in many areas. Customers will always want quality products at fair prices.

There is one thing that Swedish people may not know. On many occasions over the past decade, Ren has asked the Chinese government and carriers not to exclude Western companies, especially Ericsson and Nokia. He regularly calls for collaboration across the value chain to make sure everyone progresses. Huawei once went to many Chinese government agencies, including the Ministry of Industry and Information Technology, to ask that fairer policies be put in place for Western companies including Ericsson and Nokia.

It was precisely because Huawei couldn't access the preferential policies exclusive to foreign and state-owned companies that it was forced to go global. Back in 2002, I ran into Mr. Ren and we started chatting. He said Huawei had continued to go from failure to failure even though it had been in the international market for eight years. Then he burst into tears. Going global wasn't easy for Huawei, and it was struggling in its domestic market too. There was no way for the company to back out though, so it had to keep going. The company began ramping up R&D investment during that time as well. In the past, Huawei spent about 12% to 13% of its annual revenue on R&D, and now this ratio is about 15%. Among its 190,000 employees, more than 90,000 are R&D engineers. Heavy R&D investment is vital to improving technology, quality, and competitiveness. Its relentless global push is another key reason it has become what it is today. The company would have collapsed if it had clung to the domestic market and refused to expand overseas.

03 Marianne Björklund: Can you explain how the Board is elected in Huawei? I understand stakeholders elect the Representatives' Commission, and then the Commission elects the Board. But what is the process? Could you explain it?

Tian Tao: You can ask Mr. Jiang for more details when you interview him tomorrow. I'll talk more about the general principles behind Board elections. The way Huawei elects its Board is probably more democratic than many other leading global companies. Huawei drew from the political systems used in the UK and the US as well as the mechanisms used in large European companies to form this system. Huawei's election system takes into account its own reality and best practices in political governance and enterprise governance at multiple levels.

Board elections take place every five years. The company appoints a nomination team, which produces a list of candidates for Board positions. For example, if 15 directors are needed, the team will nominate 20 or 25 candidates.

The Representatives' Commission is made up of representatives elected by Huawei's shareholding employees. During the election, Huawei's more than 90,000 shareholding employees each vote on candidates. Election day is a massive undertaking as Huawei's shareholding employees are spread across more than 180 countries and regions. On that day, almost every aircraft going to Shenzhen or Hong Kong has a Huawei employee onboard who is acting as an election worker. They fly first class and are responsible for carrying ballot boxes back to HQ by hand. The ballots are all paper ballots so it's vital none are lost. All shareholding employees, regardless of where they are, can vote for candidates that have already been nominated, or they can write in their own choice. The ballots are then collected and counted. Those who win the election become the representatives of the 90,000-plus shareholding employees, and they vote to elect Board members. During the election, Board candidates give presentations and take questions from the representatives. The representatives then vote. This is similar to the US presidential election.

04 Marianne Björklund: According to Chinese law, all companies need to have representatives from the Communist Party on the board. Do they have any influence over how Huawei is run?

Tian Tao: China's Company Law does not have these kinds of requirements. It only focuses on how company shareholders are elected. Actually, Huawei learned how to establish its party organization from Motorola. The first head of Huawei's party organization was Chen Zhufang. Huawei had no party organization just after its establishment. Back then, Motorola set up a party organization in its Tianjin subsidiary, and Germany's Volkswagen also established a party organization in its Shanghai subsidiary. Huawei had seen news reports that Motorola's and Volkswagen's party organizations were playing a very positive role in mobilizing employees and improving employee creativity. So Chen Zhufang went to these companies and learned from them, and then she established Huawei's party organization.

The party organization at Huawei is called the Committee of Ethics and Compliance, or the CEC. It has no authority over the company's governance structure, decision making, or appointing executives. Mr. Ren and other members of the Board are not members of the CEC.

As for the role of the CEC, its major responsibility is to ensure that employees around the world abide by the law, including those of the UN and all countries where Huawei operates. The CEC also works to make sure that employees comply with general ethical standards. These are the two biggest responsibilities of the CEC.

05 Marianne Björklund: As you've probably heard, Sweden banned Huawei from developing its 5G network. And other countries have done the same. There seems to be a fear that Huawei is very close to the political leaders here in China, and that there's a security risk if they let Huawei into their 5G network. Why do you think that they see this risk if, like you say, the Party has no influence at all over the company?

Tian Tao: I think Sweden has been influenced by the US. Countries should not choose sides, but should make decisions based on facts. Has Sweden identified any security issues with Huawei's equipment? Is there any evidence that Huawei has done anything bad with support from the Chinese government in its 30-year history? No. The US government has yet to provide concrete evidence that substantiates its accusations against Huawei. Huawei has repeatedly challenged the US government to provide evidence, but nothing has surfaced. I believe the US attacks against Huawei are groundless. Sweden is a respectable country. I don't think it should follow in the US's footsteps.

I recently published another book called Philosophies, Systems, and People, which shows that Huawei's culture and management style are actually Western or American. Huawei is like a Western or US company pre-1980s, not like the US companies today that simply focus on maximizing the interests of shareholders and capital.

Huawei should thank Swedish, UK, and US companies for their robust management systems and how seriously they've taken talent management and R&D for hundreds of years. Ericsson is a very respectable company, and I'm not just saying this because you're from Sweden. I have the upmost respect for them. The first time I went to Sweden, the first thing I did was pay a visit to Ericsson because it's a company that Huawei and every other Chinese companies should learn from.

Huawei's success today would not have been possible if it had not learned from Western companies. Here I mean Western companies before now. Western companies today try to maximize the interests of shareholders and capital. They also squeeze employee pay to cut costs whenever there's a crisis. However, things are quite different at Huawei. It has never cut salaries in its 30-year history. If it has a financial difficulty, it prefers cutting back in management while maintaining or even increasing investments in R&D and people.

Huawei has been through some really tough times, but it has never had huge layoffs. Huawei sometimes has to let employees go, but never because of financial difficulties. It only lays off people who have become complacent or stopped working hard. Huawei is under immense pressures from the US, but it still plans to hire 8,000 new employees next year. Huawei respects and values talent. It provides attractive compensation to outstanding talent and helps people unleash their full potential. This has been the main reason behind Huawei's growth over the years.

You don't have to include anything I said just now in your article, but I hope you include this part about talent. In the telecom industry, big companies have always opted for massive layoffs during financial crises, but Huawei never has.

06 Marianne Björklund: You said you think that Huawei is in a big crisis. Why do you think the company is in a crisis right now?

Tian Tao: Actually, Huawei has always been in crisis, and has never had a "day off" since it began. In the past, there were numerous times when Huawei was low on cash, couldn't get a loan from the banks, and was on the verge of bankruptcy, but it never stopped paying its employees. There were times when employees received seven or even eleven pay raises a year. This of course showed signs of its chaotic management back then, but it was also because Mr. Ren recognized the value of people.

Huawei has encountered major crises and difficulties every step of the way. Actually, I don't think Huawei would have become what it is today without those crises and difficulties, because it might have been cocky toward its customers and lost its way once it saw a bit of success. Endless crises have ensured that Huawei always maintains a sense of urgency, values talent, and remains committed to providing the best possible technologies and products to its customers. The current US campaign against Huawei is just like any other crises the company has faced before.