The All-Employee Ownership 'Utopia': How Ren Zhengfei Forged an Unbeatable Huawei Legion with Equity

Prologue: A "Strange" Company

Among the world's top business giants, Huawei is an "outlier."

It is a tech empire with an annual revenue of over a hundred billion dollars, yet it is not publicly listed, refusing to let capital interfere. It has over 190,000 employees, yet it is not a private enterprise in the traditional sense, as it is 100% owned by its employees (through a trade union).

What is even more mind-boggling is that its founder, Ren Zhengfei, the man regarded as the "godfather" by the outside world, holds only about 1% of the company's total shares after multiple rounds of dilution.

This unique ownership structure has puzzled countless Western management scholars and economists. They cannot figure out how a company without capital market supervision, and with a founder who owns next to nothing, can maintain efficient operations and unleash such powerful combat strength. They have called Huawei's Employee Stock Ownership Plan (ESOP) an idealistic "utopia" and predicted that it would sooner or later collapse due to human greed and managerial chaos.

However, more than thirty years have passed, and this "utopia" has not only not collapsed but has forged Huawei into one of the most formidable business legions in the world.

All of this stems from a seed of "sharing" and "mutual success" that Ren Zhengfei planted from the very first day of the company's founding.

Act I: "Let's All Make Money Together"

Huawei's culture of "sharing" can be traced back to that office in the "rotten-tail" building in 1987.

At that time, Ren Zhengfei founded Huawei with ¥21,000 scraped together from various sources. By convention, he could have taken the vast majority, or even all, of the shares. But he didn't. He chose to divide the equity equally among the initial five partners.

As the company grew, talented people continuously joined. Ren Zhengfei found that salaries and bonuses alone were no longer enough to attract and retain these top talents. Especially in the early 1990s, Shenzhen was in the midst of the first wave of entrepreneurship, and talent mobility was extremely high. The core members of many companies might be at work one day and gone the next to start their own businesses.

Ren Zhengfei saw this and was deeply concerned. He realized that to make everyone feel secure and willing to strive with the company for the long term, he had to deeply bind their interests to the company's destiny.

How to bind them? He thought of a method that was very advanced, even "unorthodox," for its time: letting employees become shareholders.

In 1990, Huawei first proposed the concept of internal financing and employee ownership. The company law at the time was incomplete, making implementation difficult. But Ren Zhengfei was exceptionally determined. His plan was: employees could use their salaries or bonuses to buy the company's internal stock at one yuan per share. These shares could not be traded publicly but were entitled to year-end profit dividends. If an employee left the company, the shares would be repurchased by the company.

As soon as this plan was launched, it ignited the enthusiasm of the employees. They realized they were no longer just "hired hands" but had become one of the company's "bosses." Every cent of the company's profit was directly related to their own wallets.

"Let's all make money together." This simple concept of wealth sharing formed a powerful centripetal force in Huawei's early days. People no longer cared about short-term personal gains and losses but treated the company as their own home and worked desperately. They knew that the bigger the company's pie, the more meat they would have in their own bowls.

Act II: The "Golden Handcuffs" of Virtual Stock

Entering the 21st century, as Huawei expanded rapidly, the initial simple internal stock model began to face new challenges. On one hand, the company's total share capital was limited and could not meet the stock-holding needs of a growing number of new employees. On the other hand, some veteran employees who held a large number of shares began to develop a "rentier" mentality and were no longer willing to strive.

To solve this problem, in 2001, with the help of management consultants, Huawei upgraded its original equity system and officially launched the "Virtual Restricted Stock" system.

This was a highly creative incentive tool. "Virtual" meant that what employees held was not common stock in the legal sense that could be traded and inherited, but a "right to dividends" linked to the company's net assets. Employees had to pay for these virtual shares at a price based on the company's net assets per share from the previous year. Holders of virtual stock could receive high company dividends but had no ownership or voting rights. When an employee left, these virtual shares had to be mandatorily repurchased by the company.

This system, like a pair of "golden handcuffs," ingeniously solved three core problems:

First, it solved the problem of "incremental" incentives. Virtual shares could be continuously "issued" as the company's net assets grew, thus allowing more newly joined, outstanding strivers to have the opportunity to share the fruits of the company's growth.

Second, it solved the problem of "succession." The mechanism of mandatory repurchase upon departure prevented veteran employees from "resting on their laurels." It sent a clear signal: only active strivers who continuously create value for the company are qualified to share in its profits.

Third, it solved the problem of "value orientation." The dividends from virtual stock were directly linked to the company's annual profits. This made all employees fix their gaze firmly on the company's long-term profitability and value creation, rather than focusing on short-term stock price fluctuations like in many listed companies.

This value distribution system, with virtual stock at its core, forged hundreds of thousands of Huawei people into a community of shared destiny with highly aligned goals. People were no longer working for Ren Zhengfei personally, but for themselves and for this community.

Epilogue: Not a Utopia, But an Engine

Is Huawei's "all-employee ownership" really an unreplicable "utopia"?

Ren Zhengfei himself doesn't see it that way. He has repeatedly emphasized in internal speeches that Huawei's employee ownership is not for welfare, and certainly not to achieve some "communist" ideal. Its sole purpose is to establish a powerful and enduring cycle of "value creation - value assessment - value distribution."

In this cycle, "striving" is the core of value creation, "responsibility and results" are the standards for value assessment, and "sharing" is the soul of value distribution. The three are intertwined and indispensable.

It is this seemingly "utopian" system that has become the core engine driving the massive machine of Huawei, keeping it running and full of vitality.

It has given Huawei an organizational cohesion that no other company can match. When the company faces external pressure and crises, hundreds of thousands of "bosses" will unite as one to defend their home and overcome difficulties together.

It has also given Huawei the strongest strategic focus. Because it is not disturbed by the external capital market, the company can invest the vast majority of its profits into long-term, future-oriented R&D, thereby building an unfathomably deep technological "moat."

Ren Zhengfei used a system of "giving away wealth" to ultimately build a business empire that "gathers people, gathers hearts, and gathers strength." With his remaining 1% of the shares, he has proven a profound truth to all entrepreneurs: the greatest wealth a leader can possess is not the number in his personal bank account, but the vitality and future of the organization he has created.

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Key Takeaways

1. Sharing is the Best Management: Sharing the company's growth benefits with core employees through a reasonable mechanism is the most fundamental way to build a highly engaged and cohesive team. Only when employees feel like "owners" will they truly fight for the organization.
2. Incentive Systems Need to Evolve: A company's equity incentive and value distribution system is not static. It needs to be continuously and dynamically optimized and adjusted according to the company's development stage, scale, and strategic goals.
3. The Founder's Vision Determines the Company's Destiny: Ren Zhengfei's spirit of "selflessness" and "sharing" is the root of Huawei's ability to attract and retain top global talent and ultimately achieve greatness. The breadth of a founder's vision determines the scale of his business stage.