Huawei’s stance on ownership spurs further doubts about company control

Following a recent report that cast doubt over Huawei’s claim that it is wholly owned by its employees, the Shenzhen-headquartered tech giant called a press conference on Thursday aimed at clearing the air.

During that briefing, Huawei reiterated that it is fully owned by its employees, describing, once again, its intricate corporate structure. The company, however, produced little new information that could put the ownership issue to bed once and for all and didn’t fully address questions about who effectively controls Huawei.

An academic paper arguing that Huawei’s claim of employee ownership is implausible under Chinese law was published on April 15, stirring major debate around Huawei and any ties it might have to the Chinese government.

In it, authors Christopher Balding of Fulbright University Vietnam and Donald Clarke of George Washington University examined publicly available sources, which showed that Huawei’s operating company belongs to a holding company, with Huawei founder, Ren Zhengfei, holding a 1% share.

The remaining 99% is held by a “trade union committee,” which was established under China’s Trade Union Law. However, under Chinese law trade unions answer to the state, which could mean that 99% of Huawei is effectively controlled by Chinese authorities, the academics asserted.

Earlier this week Huawei dismissed the report by Balding and Clarke, saying that it was “based on unreliable sources and speculations, without an understanding of all the facts.” To which the authors Huawei replied that the company didn’t specify what it considered to be “unreliable or wrong, or from which we drew the wrong conclusions.”

At the press conference, Jiang Xisheng, chief secretary of the Huawei’s board of directors, said that a company of Huawei’s size is legally obliged to establish a trade union, which organizes social and recreational functions for the employees and has to abide by Chinese law.

As a result, it is registered under the Shenzhen Federation of Trade Unions, the body which is responsible for overseeing Shenzhen’s trade unions. The federation certifies trade unions and carries out annual audits, but this doesn’t mean that Huawei’s trade union takes orders from it, Jiang said.

Huawei has assigned an additional function for the trade union committee by making it the owner of 99% of the holding company, thus legally entrusting it to implement the company’s employee shareholding scheme. That program covers some 97,000 Huawei current and former employees, and entitles them to shares and related dividends.

Employees buy into this employee shareholding scheme using money from their own pockets. Should they wish to forgo the shares, they can only sell them back to the company.

“Because of this employee shareholding scheme, Huawei is owned and controlled by its shareholding employees,” Jiang said during the press conference. “That is why we have maintained our independence over the past three decades, allowing us to stick to our strategies.”

But the two academics argue that the shareholding scheme amounts to, at most, a profit-sharing scheme, far from actionable ownership, which would give the employees some real control over the company.

At the press conference, Huawei said that the shareholders run the risk of seeing their shares depreciating, and that this proves that the shares are more than contractual interests in a profit-sharing system.

“Huawei’s share capital comes from our employees’ own money. Our employees will not allow external influences to compromise their own interests or damage the company’s long-term development,” said Jiang.

Huawei claims that the shareholders’ voting powers puts them at the helm. They vote for a “representatives’ commission,” which in turn votes for the Huawei board of directors, the body that makes operational decisions.

But founder Ren Zhengfei is entitled to veto power in both bodies, meaning he can dismiss the shareholders’ majority vote at any time.

Jiang said that there were seven members in the trade union committee, and none of them were members of the company’s board of directors.

The question of who controls the company is at the center of an international debate, as the US is trying to shun Huawei from the development of 5G networks.

Washington has tried to convince governments around the world to ban the Chinese company from the next generation of the internet, claiming that Huawei’s links to the Chinese government could have serious national security implications.