At Huawei, employees are the only shareholders

Huawei — an easy to miss name located as a small print behind the USB dongles of Reliance Communications and Tata DoCoMo — is currently one of the most profit-making telecom equipment companies in the world and the biggest in China.

With revenues of $32 billion last year and massive investments towards research and development every year, the 22-year- old giant has never tapped the capital markets in its history to fund growth.

Nor does it plan to do so in future.

Huawei has a unique shareholding pattern – 100% of it is employee-held, and there are no major shareholders.

“Every employee who is a Chinese national and has spent more than two years in Huawei has claims to some ownership in the company, through stock holding,” said Scott Sykes, vice president, corporate media affairs, Huawei.

But they can’t trade the stock since it’s not listed.
Huawei introduced the employee stock option programme across its Chinese operations in 1990 out of a need to bring in more responsibility and a sense of ownership among staff, just when the company was starting to dream global.

With 140,000 employees now and a presence in 140 countries, almost 60,000 are part-owners.

With those joining Huawei every year more than those leaving, each year, a new set of shares are issued. Or shares from staff leaving are reissued. The quantity depends on skills and experience.

Sykes said the company is toying with the idea of opening up the scheme to non-Chinese nationals too, including himself.
A non-Chinese, he joined Huawei’s Shenzhen headquarters last year after a few years at Alcatel Lucent.

Interestingly, the founder of the company — Ren Zhengfei — is its biggest shareholder, but he owns just 1.4% shares.

“Our founder has always been of the opinion that all employees should act as owners and hence we all are shareholders. If the company makes good profit, we get higher dividends and if it doesn’t, our dividend payout is less,” said Rajiv Weimin Yao, vice president, corporate affairs, Huawei India.

Yao works in Huawei’s Gurgaon centre in India. As a Chinese national, he enjoys the benefits.

When an employee leaves, he has to sell his shares back to the company unless the person is too senior, having spent 10-15 years working for it.

“In such cases, the person is allowed to retain his shares which he can trade with the company at a later date,” said Suresh Vaidyanathan, head, brand and PR, India Marketing, Huawei India.
Staffers can’t sell the shares to each other either. While the system comes with its advantages, it has drawbacks too.

“Because of this complex structure of shareholding, it is very difficult for the company to get listed and raise money from the markets as this will require a lot of exercise in terms of restructuring the shareholding pattern,” said Sykes.

With targeted revenues of $100 billion by 2020 and a growth rate of over 20% annually, it certainly presents a juicy lolly for investment bankers.