Huawei’s Problems Aren’t Just Political

(Bloomberg Opinion) -- The U.S. pushed its campaign against Huawei Technologies Co. Ltd. into hyperdrive on Monday, with the Department of Justice unveiling indictments against the Chinese telecom giant for allegedly violating U.S. sanctions on Iran and pilfering American commercial secrets. Some may see these latest accusations as part of a larger effort by the administration of U.S. President Donald Trump to stifle China's technological rise, as economic relations between the world's two largest economies deteriorate. Huawei, as it has in the past, denied breaking U.S. law.

Clearly, the U.S. is engaged in a wider, geopolitical struggle to contain a rising China, while trust of Beijing in Washington has plunged to a dangerous low. To some extent, Huawei has gotten caught in the crossfire.

Nevertheless, it's becoming harder and harder for the company to paint itself as an entirely innocent victim. The list of accusations and scandals in which Huawei has been embroiled is already long, and the resulting list of questions swirling about its operations is getting longer. Even if you don't buy claims that Huawei presents a dire security threat -- which, so far, has remained in the hypothetical -- companies and countries have to ask themselves: Is there fire where there's smoke?

Let's face it: Huawei's sinking reputation isn't merely a victim of geopolitics. Way back in 2003, Huawei admitted copying some router software code from Cisco Systems Inc., which had sued the Chinese firm. Huawei had to remove the pilfered property. In 2010, Motorola Solutions Inc. sued Huawei for stealing its trade secrets, a case that was later settled. Now, part of the latest indictment accuses Huawei of snatching robotics technology from T-Mobile USA Inc.. A Seattle court already ruled in favor of T-Mobile in the dispute in 2017. And, earlier this month, authorities in Poland arrested a Huawei employee on accusations of espionage. Huawei quickly fired the employee and stated his alleged actions had nothing to do with the company.

Perhaps Huawei is always being wrongly blamed. Yet few companies of such size and consequence have attracted such a litany of accusations of rule-breaking. It wouldn't be a particularly large leap to conclude that Huawei's management has failed to instill a proper code of business ethics in its employees. If you believe the U.S. indictment, they're guilty of much more than that. The Justice Department claims Huawei managers offered bonuses to staffers who successful stole trade secrets from other companies.

That suggests that alleged stealing was not the unsanctioned action of some rogue employee, but an organized effort by the company to plunder its rivals. Scott Kennedy, director of the Project on Chinese Business and Political Economy at the Center for Strategic and International Studies in Washington, D.C., deemed that the “most damning” element in the indictment. (Huawei had no further comment on this part of the charges.)

Then, too, naming Huawei Chief Financial Officer Meng Wanzhou, daughter of the company's founder, in a different set of charges -- for her alleged involvement in misrepresenting Huawei's business with Iran -- implies that the suspected illegal activity is taking place at very senior levels. (Meng is facing extradition to the U.S. to face the charges.) Indeed, acting Attorney General Matthew Whitaker claimed that criminal activity “goes all the way to the top of the company.”

Maybe these repeated infractions are a consequence of a drive to succeed that fosters an end-justifies-the-means mentality, enhanced further by a Chinese business environment that lacks proper rule of law. Huawei's management, though, seems to have compounded the problem by creating a corporate culture of secrecy and opacity. Even as accusations against Huawei mounted, its executives generally avoided public appearances and failed to address nagging questions about the privately held company's ownership and origins. Technically its employees are also its shareholders, but how the management system actually works remains clouded in mystery.

Recently, Huawei's top brass has tried to become more transparent. Even its notoriously reclusive founder, Ren Zhengfei, stepped out from behind the curtain to address the media earlier this month. And, certainly, some of the headwinds Huawei is facing stem from the fact that it's a Chinese company. No matter how fiercely its executives deny they would spy for Beijing, the rest of the world knows how difficult it would be for any mainland company to say “no” to the Communist Party.

But the firm's problems lie deeper, in a management style and method that seems conducive to bad behavior. With more and more countries scrutinizing the company's activities and rejecting doing business with it, Huawei can't afford not to fix those issues.

To contact the editor responsible for this story: Nisid Hajari at nhajari@bloomberg.net

This column does not necessarily reflect the opinion of the editorial board or Bloomberg LP and its owners.

Michael Schuman, who is based in Beijing, is the author of "The Miracle: The Epic Story of Asia's Quest for Wealth" and "Confucius and the World He Created."

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