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How established Chinese leaders are grappling with the issue of succession for their companies

Written by Hundun Daxue Published on     8 mins read

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For many established companies in the West, succession planning remains the most challenging task for CEOs. In this article, we will take a look at how Chinese companies are coping with this challenge

This article was originally written by Hundun Daxue, a Chinese WeChat public account. Translated and adapted by Ellen Tay. 

Chinese major appliance manufacturer and world’s largest residential air-conditioner manufacturer, Gree Electric Appliances (SZSE:000651), announced on February 19, 2021, that its director and executive president, Huang Hui, will be resigning from his positions in the company due to personal reasons. After his resignation, Huang will no longer hold any position in Gree.

Huang, a 29-year veteran, joined Gree in 1992. Together with the former board of secretary Wang Qingdong, the duo was widely speculated as potential candidates to succeed current group chairwoman Dong Mingzhu. Wang resigned in August 2020 due to his involvement in insider trading. Now, with the departure of Huang, the former “iron triangle” at Gree has dissolved, and the question of Dong’s successor hangs in the air.

01 The branding of Dong Mingzhu

Most people have come to associate Gree Electric Appliances with its chairwoman, Dong Mingzhu. Dong is, without a doubt, the face of the company. She is frequently spotted in the company’s advertisements on buses and in airports across China, local variety shows, and has even appeared in a full-page advertisement in the New York Times. In 2020, she made her live-streaming debut alongside professional live-streaming influencer Li Jiaqi. Her debut live stream raked in more than RMB 100 million (USD 14 million) in sales in three hours.

Internally within the company, the influence of Dong runs even deeper. Dong joined Gree in 1990 as an air-conditioner salesperson. Since then, she has steadily worked her way up the ranks to the chairwoman of the company. Known for her innovative ideas and courage to challenge the status quo, Dong decided to issue shares equivalent to 15% of the total capital to distributors at a preferential price more than a decade ago. With a stake in the company, the interests of Gree and its distributors are even more closely linked.

Besides giving distributors a share in the company, Gree’s unique system of establishing new companies with tier-1 distributors and then selling its products through second-hand third-level dealers was instrumental in helping the company acquire market share in its early days and fending off competition from Midea and Suning.

As Gree’s offline distributor network grew, so did Dong’s relationship with them. Her close ties with distributors and dealers have been viewed by many as the trump card that has protected her position as Chairwoman during the tussle for leadership over the years.

While Gree’s offline sales model has its merits, it is an additional cost to the company. Most companies choose to streamline their distribution channels by doing away with their wholesale dealers and opting to connect manufacturers directly with end consumers or retail outlets. Dong has been reluctant to cut off Gree’s offline distributors, but she is also cognizant of the importance of an online sales strategy. Her foray into live-streaming is a significant step in revolutionizing Gree’s distribution channel.

Live-streaming also provides Dong with an excellent opportunity to build up her brand name. In fact, Gree named its online distribution mall “Dong Mingzhu’s shop.” Gree’s 90,000 employees operate their own “shops” within the online distribution mall, with Dong being the number one “shop owner.”

02 When will the “queen” give up her throne?

Even though Dong still has the energy of a person in her prime, it is hard to ignore the fact that the “queen” will be turning 67 this August.

Dong’s career at Gree has been nothing short of legendary. She joined the company at 36 years old as a salesperson and quickly rose through the ranks as she proved herself to be a hard worker who delivers. Her strong sales track record caught the eyes of Gree’s founder, Zhu Jianghong, who started placing her in strategic management roles in the company. Nicknamed the “Zhu Dong pair,” the partnership between the formidable duo was pivotal in transforming Gree into the leader of the home appliance industry in China and the international brand it is today.

When Zhu retired in May 2012, he handed over the reins of his company to Dong. The latter stepped up as the chairwoman of Gree Group, and the chairwoman and CEO of its listed subsidiary, Gree Electric Appliances. Nine years later, Dong has passed the official retirement age in China, but her successor is nowhere in sight.

Dong has iterated that her most pressing concern is to find her successor, but this is easier said than done. A suitable candidate needs to be self-disciplined and constantly strive for self-improvement. “I have been observing the talents we have in Gree. While they can execute when handling a single project, they still have not proven their mettle handling more complex projects. … I have tried to identify my successors several times. Even though I am the current CEO, I am still going back to my old trade, chasing after sales.”

Many industry watchers viewed the close association of Gree with Dong’s brand name, as well as Dong’s dictatorial leadership style, as an inherent risk to Gree’s sustainable growth. Although a corporation needs a leader with charisma, clear vision, and decisiveness to helm the ship, modern corporate governance relies more on having a robust system of checks and balances. More importantly, modern corporate governance requires leaders to plan for a smooth transition of power without sabotaging the growth of the company.

03 The changing of the guards

Gree is not the only company to face the problem of finding a suitable successor. As many of the first-generation self-made entrepreneurs march towards retirement, finding the fitting successor is increasingly essential to preserve the legacy of the family business.

It is not hard to understand why leaders like Dong are struggling to find their successors. On one hand, current leaders hope that the company’s future growth will be a continuation of the “DNA” that they have implanted into the organization. On the other hand, the successor needs to discern future market trends and drive innovation throughout the organization to navigate the company through the headwinds of a shrinking home appliance industry, general economic downturn, and uncertainty caused by the COVID-19 pandemic.

Compared to Gree, the other two giants in the home appliance industry–Midea and Galanz have gone down two different paths to search for successors.

Back in 2004, most had expected that Midea’s founder and major shareholder, He Xiangjian, would choose his son as his successor. Instead, He announced that he would split Midea into two group companies: Midea Home  Appliance Group and Midea Refrigeration Appliance Group, and named Zhang Hechuan and Fang Hongbo the CEO of each company respectively. His decision sent a signal to the market that Midea’s future leader will be a professional manager and identified Zhang and Fang as potential candidates.

He started experimenting with ways to decentralize his power as early as 1997 by implementing a professional manager system within Midea. In the same year, Midea also established five different divisions–air conditioners, home appliances, compressors, motors, and kitchenware based on its product line-up. The role of the group company was to be a service center and oversee investments.

In 2012, 70-year-old He officially stepped down as chairman of Midea Group and handed over the reins to Fang. As part of the leadership transition, Midea Group also underwent a major restructuring exercise. In the new structure, except for He’s son, the rest of the senior management are all professional managers. He remains on the board of directors as a major shareholder representative but no longer holds any administrative positions or participates in Midea’s daily operations.

Since the transition of power, Midea has continuously been profitable and has grown to become China’s largest home appliance company by market value and revenue. Midea’s succession planning has been lauded by many as an exemplary case of transformation for modern enterprises.

Unlike Midea, who chooses to do away with nepotism in succession planning, Galanz prefers to keep it within the family. Since its founding in 1978, Galanz has been a family business for three generations. Liang Huiqiang, the next successor in line, made his first official appearance at Galanz’s annual meeting in early 2019. Born after 1995, Liang has been interning at different departments since university days. Before stepping up as the vice-chairman, Liang spent some time as assistant to the CEO, shadowing his father and picking up pointers along the way.

04 How did Alibaba do it?

Research has shown that when it comes to succession planning, a leader who is overly assertive or imposes too much personal will often lead to counterproductive effects. For example, short-sighted leaders usually do not have a succession plan. Laid-back leaders may appear to support succession planning and implement succession planning procedures while actively or passively resisting leadership transition. Egoistic, self-centered leaders tend to choose an underqualified successor to avoid being upstage or choose a successor based on likeness rather than actual ability. Over-diligent leaders end up micro-managing and depriving their successor of the chance to step up. Overly suspicious leaders tend to blame employees for any problem or situation that arises, creating low morale among subordinates.

To identify the most suitable successor, it is essential to have a system that allows the “rule of law” of the organization to replace the “rule of man” bias. By breaking down the responsibilities of a leader, a robust system and process allows for fair evaluation and identification of suitable candidates and eliminates personal judgment during decision making.

For example, e-commerce giant Alibaba first established its partnership system to motivate the “18 Arhats” in his original founding team. Any employee who made a significant contribution to the company has the chance to be promoted to senior management and made partner. Even to date, this partnership system has incubated and groomed many talents across different departments and is an important reason why Alibaba is able to constantly innovate its product offerings.

Alibaba also believes in empowering its executives when it comes to developing new business areas. At the beginning of Alibaba’s e-commerce journey, the senior management was unsure if the future of e-commerce lies in B2C, C2C, or other models. Therefore, it tasked its three key executives to develop different products for each model. Taobao, T-Mall, and eTao were developed as a result.

Empowerment is also a strategy adopted by Huawei, China’s leading telecommunications equipment and services provider. The company started a CEO roster system in 2004. Eight of its top executives took turns running the company for six months each. This roster system has created a unique internal corporate culture. It helps to balance out the power struggle in the company as the interim CEO has to assume responsibilities for six months and adopt a holistic view to make strategic decisions. Furthermore, this is an excellent way to identify suitable candidates for succession planning.

Having a succession plan in place is often the beginning of the journey and not the end, and sometimes, even the best-laid plans can go wrong.

For established leaders like Dong, who face continued pressure to grow the company, the road to finding a successor is long, and the future remains unknown.

WRITTEN BY

Hundun Daxue

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