Lenovo, China’s largest personal computer manufacturer, had just replaced its American chief executive officer (CEO), the third replacement since the company’s 2005 acquisition of IBM’s personal computer business. The leadership shakeup was seemingly caused by the worsening conditions in Lenovo’s key target market and the company’s subsequent disastrous financial loss, but, in reality, the reasons were more complicated. Lenovo was dealing with the most challenging internal issues that a globalizing Chinese company could experience: retaining international executives under severe distress, integrating two companies with distinct cultural roots, and dealing with changed power relations on the board, including the awkward relationship between a Chinese executive chairperson and a foreign CEO.
Piron Smart Technologies Co. Ltd., a private enterprise located in an underdeveloped region of China, was transitioning from being a founder-centered to a professionally managed firm. In the summer of 2010, the founder and chairman of Piron attempted to hire a senior executive from a Western multinational firm as chief operating officer, with the promise of a later promotion to chief executive officer (CEO). The candidate turned down the offer and demanded to be appointed CEO from the onset, leading to a conflict between the newly arrived CEO and the insiders passed over in Piron’s search for a CEO. See supplement 9B15M016.
Situated in Beijing, Tenglong Ltd. is a typical non-state-owned listed firm in China. After its initial public offering, the founder has retained majority ownership and operation control by serving as both chairman and chief executive officer. An independent director of the company is worried about its corporate governance practice. What puzzles him most is the fact that, despite the apparent weaknesses of the board, the company itself is doing very well in the market. As he reflects on his experience, he cannot help wondering whether there is anything wrong with the board and what an effective board should and should not do.