ZTE heads for stormy AGM on June 29, names new directors

ZTE US business
ZTE today announced that it will conduct the annual shareholders’ meeting (AGM) on Friday, 29 June 2018 to decide the new board.

The developments follows the agreement between the US and ZTE to remove the board and the top management and make huge fine as part of the settlement to unblock the 7-year ban on component supplies to the China-based telecom equipment and smartphone maker.

ZTE did not reveal the name of the new CEO or chairman or the action plan to appoint a new team under a new CEO as part of the settlement with the US. ZTE will conduct the AGM in Shenzhen, China. The AGM will be stormy because ZTE’s shares tumbled about 40 percent in Hong Kong and the maximum permissible 10 percent in Shenzhen.

At present, ZTE has two executive directors, Yin Yimin and Zhao Xianming; seven non-executive directors, Zhang Jianheng, Luan Jubao, Wang Yawen, Tian Dongfang, Zhan Yichao, Wei Zaisheng and Zhai Weidong; and five independent non-executive directors, Richard Xike Zhang, Chen Shaohua, Lu Hongbing, Bingsheng Teng and Zhu Wuxiang.

ZTE indicated that it will elect Li Zixue, Li Buqing, Gu Junying, Zhu Weimin, Fang Rong as non-independent directors and Cai Manli, Yuming Bao, Gordon Ng as an independent non-executive directors.

ZTE said it will make changes to Articles of Association removing the condition that the chairman of the company must be elected from directors or members of the senior officers of the company who have served for three years or more. This indicates that ZTE will be able to appoint a chairman outside the company.

Meanwhile, a Reuters report has identified challenges and opportunities for the new ZTE in the global smartphone and telecom network market. The Chinese telecommunications company lost nearly $3 billion in market value after its reprieve from a death sentence imposed by the Trump administration.

First, ZTE can find decent leadership and stay out of trouble – if a 5G rollout holds real promise.

Second, ZTE must pay a $1 billion penalty and put another $400 million into escrow in case of further violations. It also agreed to overhaul its executive team and board. In the meantime, ZTE almost certainly lost contracts and suffered brand damage that will erode the bottom line.

The financial penalty again looks manageable: ZTE, 30-percent backed by Chinese state-controlled enterprises, had over $4 billion of cash on hand as of March.
Third, a leadership vacuum and the broader reputational hits could be troubling for the fourth largest telecom equipment maker in the world.

Baburajan K