November 6, 2020
Jiang Xisheng: First off, I would like to briefly introduce myself. I joined Huawei in 1989 and have worked in sales, marketing, service, and finance departments. I am now the Secretary of the Board of Directors, in charge of corporate governance, information disclosure, and share management.
(Showing the journalist around the Employee Stock Ownership Plan [ESOP] Room while answering her questions)
01 Marianne Björklund, Asia Correspondent, Dagens Nyheter: What about dividends? Have you been able to pay dividends each year since you started this? How much did you pay in dividends each year?
Jiang Xisheng: It depends on the company's business results every year. Over the past few years, our stock return has been around 20%. In some years, we distribute all company profits to shareholding employees. Sometimes we distribute 60%. It all depends on the company's demand for funds. Last year, the company had a total of 29.35 billion shares. This number will rise to over 33.7 billion by the end of this year. We are not a listed company, so it's difficult to compare our share numbers with other companies'. However, in terms of size, if you look at sales, business, workforce, and R&D investment, Huawei ranks at the top in the global industry.
(Checking sample ballots for the election of the Representatives' Commission)
02 Marianne Björklund: How often do you vote?
Jiang Xisheng: Every five years. This is a list of recommended candidates. Shareholding employees can choose from the list and write in for whoever they prefer. An automatic tallying system is used to count ballots.
03 Marianne Björklund: So compared with the US presidential election, is it the same?
Jiang Xisheng: All elections are complicated. We are not in a position to comment on the presidential election in the US. However, we did spend nearly one year on the election of the current Representatives' Commission. This covered everything from document preparation, publicity, and presentations, to organizing the actual voting process. We have 416 polling stations around the world. Ballots from these stations are then taken back to the HQ. We tally the votes based on the number of shares held by each employee. Of course, elections at Huawei aren't as controversial as those in the US. We have a team of dedicated vote counters and a team of poll watchers. Each has over 20 members. All our ballots are sealed and archived permanently, in case we need a recount.
04 Marianne Björklund: Is it anonymous when you vote?
Jiang Xisheng: No, it's not. The number of votes you get is based on the number of shares you hold. So the employee ID is read by machines when the votes are tallied.
05 Marianne Björklund: So we know who has voted for whom?
Jiang Xisheng: Yeah. But the tallying is done by machines. We won't check this manually, because there are 100,000 voters. Once the tally is finished, the counting and poll watcher teams will check the ballots before signing off on and sealing them. After that, access to them is strictly controlled. There is a whole approval process to access these ballots again.
(Checking shareholding employee information at the share registry showcase)
Jiang Xisheng: This is the registry of all our shareholding employees as per the end of last year. By then, we had 104,572 shareholding employees. Here, you can see their names, the numbers of shares they hold, and their employee IDs, from first to last. At the end of last year, Mr. Ren held about 0.9% of all shares, but that number is expected to decline by the end of this year. See, the row number, employee ID, name, and number of shares. Take this employee as an example. He works in the Southern-East Asia Region and holds over 2 million shares. Of course, some employees hold fewer shares, like this one. He has just over 16,000 shares. All the documents related to employee shareholding are stored here, including their subscription letters, contracts, and payment vouchers. Sometimes, employees will come here themselves to check this information.
06 Marianne Björklund: What do they check here? How much they own?
Jiang Xisheng: Usually, they check their own records. Sometimes they need copies of the materials for their own use due to certain legal conflicts. On days like today, we also open these archives to the public, including journalists, to prove Huawei is an employee-owned company. We've had journalists do a mini-audit of these records. They were free to look for any shareholding employees and check their subscription contracts, payment vouchers, and work experience at Huawei.
(Looking around the annual report showcase)
Jiang Xisheng: Huawei started to expand into the international market in 1997. In around 2000, Huawei began publishing official annual reports. We keep doing this today. KPMG has also been our auditor since then. These two are our earliest annual reports from 1998 and 1999. The annual reports from that time were quite simple and thin. Of course, our annual reports today are basically the same as those listed companies make and are compiled following global standards.
The public had some concerns about our sources of funding, with some worried that too much of our funding came from China. We specifically addressed this in 2015, when we published our 2014 annual report. In the 2014 annual report, we added an appendix discussing the information from before 2014, explaining where the previous five years of funding came from. Here you can see where the funds came from. Dark red represents funds we got from parties inside China, and orange represents funds from outside China. 49% of our funds in 2010 came from outside China; 78% in 2014.
07 Marianne Björklund: Do they give you a lower interest rate or why do you prefer foreign banks?
Jiang Xisheng: There are two reasons. First, lower interest rates. Second, foreign lenders simply have more funds. The cost of raising funds in China is higher. Banks outside China are willing to lend to Huawei because of our brighter long-term prospects. They have always been quite active in this regard. Huawei has also been very active. So we use the funds we raise for global development.
(Looking around the share documentation room)
Jiang Xisheng: We have archived 30 years of shareholding documents. Two-thirds of those documents are stored here, with the rest stored somewhere else because there are so many. This shelf holds the subscription contracts signed by employees. We moved them here not too long ago. This shelf has the payment vouchers. Each year, we allocate shares to employees, so that they can purchase these shares with their own money. These are their payment vouchers from the banks. See, this voucher was issued by the Industrial and Commercial Bank of China (ICBC). This is the employee's staff ID. He transferred the money – over 30,000 Chinese yuan – via ICBC.
08 Marianne Björklund: How much does one share cost?
Jiang Xisheng: The share price differs each year. The current price is 7.85 Chinese yuan per share.
09 Marianne Björklund: So as a shareholder, what influence do you have over the company apart from electing the Representatives' Commission?
Jiang Xisheng: First off, they are entitled to dividends according to their shares and they can elect Representatives. These Representatives work on behalf of shareholding employees by exercising their rights, including the right to elect members to the Board of Directors and the Supervisory Board. These two bodies manage the company.
There is also a system for shareholding employees to submit suggestions about the company's system or development. Huawei has the Xinsheng Community, an online bulletin board system, where all employees can discuss their opinions on an extensive range of topics. Every Huawei employee can use the Xinsheng Community app or site on their phones or computers, so that they can share their perspectives and help the company identify issues. They can discuss whatever they want, to drive improvement and advancement within the company. Some people even call out the founder, Mr. Ren. The year before last, there was a popular post named The Ten Sins of Ren Zhengfei.
We also have set systems to nominate candidates. The video you just watched explained the process. Nomination is a critical link in Huawei's elections. Nominations typically take three or four months. To make the process more organized, the company divides its departments into nine sectors. Each sector nominates its own candidates. Of course, the company does set some guiding principles for how the sectors do this. During the process, employees can share their suggestions in many ways. Since each sector has many shareholding employees, they are responsible for listening to feedback from these employees. This way they can select candidates that will truly lead the company forward.
During the last election, our initial nomination list had over 500 candidates, but it was gradually reduced to just over 200. After a final revision, we got it to just over 100 candidates. This is a gradual screening process.
Each candidate on the final list must make a presentation and answer questions from their audience. During their 5-minute presentation, they describe their past experience and future plans on how to better serve as Representatives. The questions they answer are supposed to be about how they will play their role if they are elected. This whole process is recorded and posted online. This way, every shareholding employee can get to know and discuss these candidates, then they cast their votes. The next election will be in 2024.
10 Marianne Björklund: Why can't non-Chinese employees own shares?
Jiang Xisheng: This is part of Chinese restrictions on foreign exchange controls. Huawei is an international company. Non-Chinese employees are an important driver of the company's global development. So we also have long-term incentives specifically for them, an alternative plan called the Time-based Unit Plan (TUP).
11 Marianne Björklund: And how does that work?
Jiang Xisheng: This plan functions similarly to the ESOP. Both are based on employee performance, contributions, and the roles they play. Unlike the ESOP, TUP participants do not need to pay any money for the time-based units (TBUs) allocated to them. Each TBU will entitle them to dividends from the company. TBUs have set limits though – five years. New TBUs can be allocated to an employee if they continue contributing to the company and performing well.
12 Marianne Björklund: If you are a shareholder of Huawei and you decide to quit, you have to sell your shares, as I understand, sell them back to the company. You can't keep them if you decide to quit, why is that?
Jiang Xisheng: The company decided to use a virtual restricted share system for two purposes: First, to incentivize employees; second, to raise funds for the company.
In principle, if employees are to leave the company, their shares must be repurchased. However, if they meet certain standards, they can retain their shares even after they leave the company. We call this system retention of shares following retirement. If we don't repurchase shares from employees who resign, the ESOP can't be used properly to incentivize our remaining employees. Employees who have resigned are inherently less invested in the company's long-term development.
Also, Huawei is not a publicly listed company. If we don't repurchase shares from employees who resign, share management would be very complicated and chaotic. So the company as a whole decided that this repurchasing mechanism was the best.
To me, this system is already pretty complicated since we have more than 100,000 shareholding employees today.
13 Marianne Björklund: Do you think Huawei would ever aim to become a publicly listed company? Do you think that would ever happen?
Jiang Xisheng: Huawei has reiterated to the public that we have no plans to go public. Huawei will not go public.
14 Marianne Björklund: Why is this system better than being a publicly listed company?
Jiang Xisheng: There are many publicly listed companies in our industry. However, the shareholders of publicly listed companies, as well as other so-called long-term investors and Wall Street, tend to pursue short-term interests. This means they often resist making long-term investments, especially in R&D where the outcome is usually unclear. Such behavior is not conducive to a company's long-term development.
Huawei's rapid growth over the years can be attributed to its heavy, long-term investments in R&D. We concentrate our efforts and invest patiently to drive technological breakthroughs. This also shows that our ownership structure works. With this structure, employees understand the company and are confident in its long-term development. Therefore, they support the company's long-term investments, including in R&D and customer services. This makes our ownership structure a major reason for Huawei's rapid and stable growth.
It's true that some publicly listed companies have a majority shareholder who may look at the long term. However, these majority shareholders may also invest in other businesses and intervene in the development of a company in order to protect other investments. Sometimes, majority shareholders may even sacrifice the interests of one company to support other businesses. This will harm a company's long-term development. There are many examples of this.
15 Marianne Björklund: But even if you have very clearly shown me the ownership structure, there are still, as you know, some reports in the media that have suspicions that the ownership has some kind of operation related to the Chinese Communist Party, and in the long run this also might affect your business. For example, with 5G, some countries now don't want you to take part in the development of their 5G networks. How do you look upon that? Is this also a risk maybe to have a different sort of ownership than other companies? And one that creates suspicions, whether grounded or not.
Jiang Xisheng: Yes, there are indeed suspicions, but we've offered many clarifications, and many people believe in us. Many government officials and members of the media have come to visit us and their doubts have been cleared. However, there are still people who smear Huawei. I think they primarily do this due to competition or political factors.
As you have seen, Huawei is a private company that is wholly owned by its employees. All members of our decision-making bodies and management team are elected according to Huawei's system, and they operate and make decisions independently without any external influence. I think Huawei is a role model in this regard both inside and outside of China.
I actually think that the influence the US government has exerted over US companies over the past two or three years far exceeds that the Chinese government has exerted over Chinese companies. As you just said, the US government has been going after Huawei. They initially did so under the veil of cyber security. Last year, the US government launched a global campaign against Huawei, smearing us worldwide, but I don't think the majority of people were buying what they said, because the allegations against Huawei are groundless. At this point, the US government has still produced no evidence to substantiate its allegations.
According to feedback from Huawei's customers and results from third-party assessment organizations, Huawei's network equipment is among the most secure and standardized in the world.
I'd like to share a personal story with you. When I was younger, I almost didn't make it to college because of my family's background. My grandfather was a landowner, so I was thought of as a landowner as well. This would have meant I was unfit to go to college. Fortunately things changed in China, and my background was no longer a problem. I think this applies to Huawei's situation, because it's unfair to say Huawei is not secure just because it's a Chinese company. It's simply wrong to make judgments about someone based on their background.
16 Marianne Björklund: What was your reaction when you heard that my country, Sweden, had actually blocked Huawei from participating in its 5G development?
Jiang Xisheng: I was very surprised. I have always seen Sweden as a very open, innovative, and inclusive country. During the first half of this year, the Swedish government was talking about not taking sides, and had said they would make independent decisions.
As I just mentioned, the US government launched a global campaign against Huawei last year, smearing Huawei on cyber security grounds. However, many countries did not believe what they were saying. Therefore, as some European media outlets have reported, the US government has been focusing more on using economic, military, and political pressure to bring countries to their side. However, I believe this is more like the mindset seen during the Cold War, which goes against current world trends.
Huawei's business has been developing very well in Sweden over the years. We have also invested heavily into R&D in Sweden, and our R&D team there has been gradually expanding and delivering solid results.
17 Marianne Björklund: What you said about the US pressuring other countries with economic, military, and political factors — is that something you know that they did with Sweden?
Jiang Xisheng: I'm not aware of that.
18 Marianne Björklund: So what will happen to Huawei in Sweden? How do you think this would affect your business in Sweden and in Europe?
Jiang Xisheng: We will continue to communicate with the Swedish stakeholders.
19 Marianne Björklund: So you're hoping that the decision would be reversed, and that they will change their minds.
Jiang Xisheng: I hope they will make objective, fair, and fact-based decisions that will benefit the whole of Sweden.
20 Marianne Björklund: I don't think it's the Swedish government. It's an independent authority called the Post and Telecom Authority that decided this, not the government.
Jiang Xisheng: In that case, we also need to strengthen our engagement with them. In addition to answering your questions, I can give you other materials that you may be interested in.
The development of the telecommunications industry can be attributed to openness and collaboration. The reason China's telecom sector has developed so well over the years is because it started as an open market. Back then, vendors from seven countries adopted eight standards for their products in the Chinese market. Ericsson entered the Chinese market many years ago, along with other vendors including Nokia, Motorola, Nortel, and Siemens. That's why China's telecom sector has developed so well.
Another example is the US market. The US imposed many restrictions, and proposed and adopted its own communications standard called CDMA, which restricted European vendors' operations in the US market. This change didn't affect Huawei, as the company was still very small back then and sold almost no products in the US. Due to the restrictions of CDMA, the US market went into decline, and its own telecom vendor, Lucent, went out of business.
In contrast, China was opening up its market at this time. That's why China became a world leader in 4G and 5G. I think the openness of the Chinese market has also contributed to the rapid rise of China's homegrown telecom vendors like Huawei.
Another aspect of openness and collaboration is related to technical research. For example, there is a key antenna technology in 5G called Massive MIMO. This technology was actually proposed by Erik G. Larsson, a Swedish scientist from Linköping University. His proposal has played a critical role in driving 5G development.
We can also look at another example related to antennas. In the past, different standalone antennas were needed for 2G, 3G, and 4G, requiring massive investments and hindering the development of 3G and 4G. A young researcher of Huawei developed an algorithm that allowed antennas to support different standards. This resulted in Huawei's groundbreaking technology, SingleRAN. After Huawei invented this technology, it was replicated by other vendors, making significant contributions to the development of the telecommunications industry.
In addition, collaboration, openness, and mutual learning between telecom vendors have driven the industry forward.
21 Marianne Björklund: So what will this mean for the development of 5G if Huawei is not allowed to take part? How would this affect the quality of 5G?
Jiang Xisheng: First of all, Huawei's 5G has already been deployed in many markets worldwide, so Huawei is already taking part. Some countries may choose not to use Huawei, but that's up to them. Huawei will focus on serving the countries and customers that choose to work with us to the best of our ability, helping them leverage 5G to drive their economic and social development. It is clear that ICT is playing a vital role in driving society and the economy forward in the wake of the COVID-19 outbreak. For example, it is enabling employees to work from home, and helping us better share and use information to fight the pandemic.
Marianne Björklund: Thank you!