I saw a news story that Huawei, China’s giant telecom infrastructure and companion device maker, adopted a very different approach to the tenure of CEOs. Instead of promoting or hiring an executive for an eight or ten year stint, Huawei has opted to try a rotating triumvirate: three acting execs that assume the additional role of CEO for six month terms on top of their other responsibilities in the firm.
At this point, Eric Xu is now the acting CEO, from 1 October to March 31st, and he took over from Guo Ping, who was preceded by Ken Hu. Founder and longtime CEO Ren Zhengfei wrote about this new approach in April 2010, and some of what motivates this thinking is fascinating:
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. [...] We don’t know what tomorrow will be like.
Huawei is rejecting the idea of a single “official future” around which everything must be aligned for the duration of a long term CEO. He continues,
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.
Ren hedges, saying that the company is experimenting with this approach because they have come to believe the old way is unworkable.
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.
Ren makes that case that they are trading off solidarity — a clear consensus and single steady direction — in exchange for the increased effectiveness that comes from different minds being allowed to make decisions within the boundaries established by the company culture.
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.
Stability is maintained by the fact that the rotating CEOs continue on in their primary work during their rotations, and also, the CEOs do not create their own collection of direct reports: other “outstanding employees” are not “inappropriately deployed” — i.e., deposed from their work — since the incoming CEO only has six months in place, and the nucleus makes those decisions collectively.
And his final words?
We must not be too critical of our rotating CEO system. Leniency will help them succeed.
This seems to combine a laissez-faire attitude and a spirit of experimentation, critical elements to a sustainable advantage based on innovation and a fast response to opportunities, threats, and shifting markets.
It would be interesting to extrapolate this management discipline in other critical functions. Imagine rotating chief technology officers, or CXOs of any sort.
And you have to wonder about Ren’s ongoing role at Huawei as a CEO emeritus, one actively engaged, but not managing on a day-to-day basis. Perhaps underscoring the cultural underpinnings that define the boundaries of the rotating CEO role.