Corporate Governance and Transparency : The case of Huawei

Absztrakt (kivonat)

In my master thesis I try to find the answer to the question: “What shapes corporate governance and disclosure practices?” My thesis is based on the analysis of the corporate governance and disclosure practices of Huawei Technologies Co. Ltd., an international telecommunications infrastructure equipment supplier company. I compare the historical and current policies with those, I would expect according to the literature I reviewed. The theory of corporate governance is based on the principal-agent problem: the information asymmetry between the owner and the management of a company. This and the impossible enforceability of complete contracts results in welfare loss, which can be reduced with the use of corporate governance techniques, such as the increase of transparency of decision making, control, and evaluation processes, as well as the development of disclosure practices. Therefore historically corporate governance is the set of loss mitigation techniques resulting from the negotiations between owners and the management. However not all companies introduce the same corporate governance principles. The political, economic, and cultural environments, as well as the company’s ownership structure have significant impact on the finally evolving policies. Above all, strengthening of stakeholder theory has brought new players to the field: employees, governments and customers also require accountability. The experiences show, that increasing transparency and appropriate corporate governance helps and “pays”. Showing improvements at these fields encourages investors (especially the institutional ones) to buy the shares of the companies in question. Good corporate governance can be the source of good reputation that increases customer loyalty, employee commitment, and can have a positive effect on credit ratings or supplier terms. Empirical facts also show that there is often a positive correlation between corporate governance and corporate performance. International companies with Chinese background are becoming more and more significant players in world economy, and foreign investors in the international arena. The economic, political, and cultural differences between the Chinese and the Euro-American environment bring new challenges for such companies to overcome. Even though Huawei is a privately owned company, its international expansion ambitions and the increasing requirement of stakeholder accountability anticipates the necessity of sound and transparent operations. Hence Huawei’s corporate governance and disclosure practices are influenced by several factors resulting from the internal and external environment of the operations. Eastern traditions can be the background of its less clear internal relations and also of employee remuneration practices (the “iron rice ball” provides employees with a broad set of benefits: education, housing and health care). Political background is the clear reason for the existing however not in details disclosed state interdependence. Dispersed employee ownership and the lack of minority protection enable the existence of powerful management. Huawei’s disclosure practices have developed much in the last six years. Nowadays it complies with the majority of OECD corporate governance guidelines, which is significantly more than it is obligated to do. The comparison of Huawei’s disclosure development with its international expansion process reveals possible relationship between these two. Huawei’s first annual report in 2006 came out in the same time when its development in the European market gained speed. Further significant improvements of disclosure (more detailed information about the financials, and the management of the company) were made simultaneously with the condensing investment rejections in the U.S. in 2009-2011. However even having made several steps towards accountability, Huawei still has to sustain permanent refusal on the U.S. market. Further development is under way, but the analysis of the gap appearing between the expectations of OECD principles with the current practices can help reveal and identify those areas, where there is a need for change.