George opened with an apt disclaimer: “I have no inside
information related to Huawei. I have never done personal business with them,
and I have not spent much time in China. I do have a background in the wireless
industry, but my proposals here are generic to modern business practice, and/or
a sort of common sense, I think. Which is not to say that any of them have a
practical chance of being adopted.”
Well said. And his
thoughts are valuable. Huawei, however,
is unique.
The first of the five points suggests that Huawei should
follow and be assessed to its performance according to globally-accepted
financial/accounting standards. Now, as
I used to parrot when I was with Huawei, George notes that “Huawei currently provides
financial statements that comply with international accounting standards
(IFRS), audited by KPMG…” He goes on to point out, however, that Chinese
companies listed on American exchanges don’t follow the requirement to be reviewed
by the Sarbanes-Oxley spawned Public Company Accounting Oversight Board (PCAOB) since the Chinese government has blocked the PCAOB from
exercising its function for Chinese companies.
Now, Huawei is not listed in the U.S., but George suggests “Huawei
should request the Chinese government for a waiver to allow PCAOB to review
KPMG’s audit, and, they should also invite an additional audit review by a
different firm – not KPMG, and not based in China, and, they should also
publicize the waiver request, even in the face of Beijing’s likely disapproval,
and actively lobby the government to permit it." Strong idea. Not enough though. And, the current Huawei wouldn’t touch it –
they are beyond adamant about not going sideways of the Chinese Government or
the CPC.
For his second point, George suggests that Huawei should ask
to have its credit rated by the three leading global rating agencies, according to
global standards, and not as is the current practice or relying on credit
ratings from suspect Chinese credit rating agencies, which operate by credit
ratings standards that are not equivalent to global standards. George notes that credit ratings performed by
global firms like S&P and Moody’s would amount to “another form of “audit…which
is in some ways more demanding and more substantive than an accounting audit,
because it also considers the nature and viability of the company’s strategy
and the competitive market environment.”
He’s correct. This would be an easy thing for Huawei to do
and would certainly help their global reputation. It’s been recommended before. It’s unclear why Huawei has balked.
George’s third recommendation, in my opinion, falls quite
flat. He points out that “The number one
stated concern of most Western governments is the possibility that information
passing through Huawei’s networks could be accessed by the Chinese government.” He then cites unspecified Chinese law that
says the company like all Chinese companies are subject to “forced cooperation
with the Chinese military intelligence service.” This is a constant canard of the U.S.
Government, despite the fact that Chinese, international and American lawyers
have all pointed out that no such law exists in terms of outside-China data and
information. In any event, why would they publish a
law in a country lacking a history of the rule of law? That question is what undermines George’s
third recommendation, e.g. that “Huawei should construct its own firewall…to
interpose between its equipment and the Chinese security apparatus and block
the transfer of user information. This firewall should be open to inspection
and validation by outside authorities.” This
is a pipe dream, absent fundamental overhaul (foreshadowing).
Point number four has George proposing that Huawei jettison
it’s historical, militaristic “Wolf Culture.” George mistakenly opens suggesting
that “Huawei sprang from a military origin.”
This is simply untrue, but he has a point that the culture encouraged by
Huawei Founder and still CEO Ren Zhengfei – a former PLA civil, not
telecommunications, engineer - is indeed militaristic, rhetorically. Ren still speaks in riddles and analogies
that sometimes rely on his military past (and just as often on his love for
nature), but, having spent enough time in the organization, albeit as a
Westerner, I can say that the “Wolf Culture” has really just become proud company lore at this point. All of that said, should Huawei want a cheap
and easy PR campaign, they could do as he suggests and “euthanize the wolf
culture,” but died-in-the-wool Huawei adversaries in the West wouldn’t buy it.
George’s point number five is one focused on something that
has always been a source of consternation in the West: “Who Owns Huawei?” George
says “The company says that Huawei is employee-owned. 100,000 happy
capitalists. Probably a lot of millionaires. Just like Microsoft, more or less…” I must admit, that sums up what we were
saying when I was with Huawei. And, he points
out that in the West the prevailing thought is “that Huawei is either owned or
controlled by the CCP.” Of course,
there’s no proof offered for this assumption on the part of Western authorities
other than “they’re Chinese so they must be.”
George offers an “interim” recommendation: “Huawei should invite an
international team of business, legal and corporate governance experts to
review the current structure in detail, with full access to all the appropriate
information, charged with producing a thorough and honest report of the current
state of affairs.” Great
idea. Huawei has invited same on
multiple occasions, but never followed through. And, the U.S., for instance, has offered the same as well, and, yet, in 2012 instead sent a
gaggle of ham-handed Congressfolk and staff which ultimately released a pre-cooked report that
confirmed their largely groundless preconceptions.
George includes a sixth bonus point, what he calls
“Laissez-Faire.” He says that “Huawei’s
relationship with the Chinese government has to change. The company needs to
stand up to the Chinese authorities and assert its commercial independence from
the state’s geopolitical agenda.” He
concludes: “It is time for Huawei to become what they say they are. Stand up
now. If we take the company’s self-characterization at face value, as they want
us to, true to its outward clothing as a private company with a no controlling
government ties – then show us! Take the heat. The world will rally to you.”
Now, while I greatly appreciate those heartfelt sentiments,
and I truly believe that George’s entire article is reasonable, rational and
hopeful, as I said before, Huawei is simply not going to go sideways of the
Chinese Government, at least not in China.
Which leads me back to George’s point number five where he also said: “Huawei
should consider how to restructure itself so as to bring its ownership
arrangements into line with a more comprehensible and transparent structure.
Whether this involves creating a public company, or a hybrid with multiple
share classes, or a partnership, or a state-owned enterprise...”
Yes.
Over my eight years at Huawei, I spent better than half of
them advocating for the company to address its Western nation challenges
through organizational change.
Specifically, I repeatedly recommended that the company should
localize. And I mean truly
localize. The company has a mantra that
talks about 75% localization. It’s a
crock. A) A lot of those folks are Green Card holders from China, and B) Local
executives are almost universally not empowered to make decisions or otherwise
run the business. And, it’s not hard for local stakeholders – including Government – to recognize this, which makes
Huawei more suspect, which reinforces pretty much all of the negative assumptions
about the company.
Further, I recommended that the company should make a
harmless investment in the U.S. that would require it to go before the
Committee of Foreign Investment in the United States (CFIUS) – A who’s who of
sixteen U.S. Federal Government agencies charged with assessing foreign
acquisitions for potential national security threats. Further, I suggested the company acquiesce to
whatever the Committee might demand to approve a transaction. Yet further, I suggested Huawei and the U.S.
Government could use the process to birth a truly independent, transparent
American subsidiary of the company, including with select Government-appointed
Board Members, and other Americans empowered to make real decisions, and
appropriate security assurance mechanisms established and monitored to ensure
the integrity of American networks and data.
So, in sum, I think George's recommendations were great, with a
couple of exceptions in terms of Huawei going domestically (China) sideways of
the PRC or CPC, and with the addition of perhaps the most critical requirement
– empowering non-Chinese in non-Chinese markets to manage the business and
oversee the security of non-Chinese critical infrastructure.
