The issue of succession is related to Gree Electric’s century-old foundation.
Dong Mingzhu, who is getting older, has no successors, which opens up the imagination for future power struggles at the board level of white goods giant Gree Electric Appliances. What is really fatal is that Dong Mingzhu needs to find her favorite successor before reversing Gree Electric's unfavorable business situation. Otherwise, Gree Electric will be unbearable. This predicament intensifies Gree Electric's sense of crisis.
All the controversies point to one point: how Gree Electric ensures its longevity. Building an everlasting business is also the vision of Gree Electric - "to create a world-class enterprise and achieve Gree's century-old brand". There are doubts about this.
Potential struggle for board power
Italian historian Croce said: "All history is contemporary history." This sentence goes further. The understanding is that if we cast our gaze on certain events in the past, there will be a pragmatic drive towards our perception of current reality.
In September 2018, Liu Qiangdong, chairman of JD.com, was accused of sexual assault. This was the Liu Qiangdong Minnesota Incident. After the incident, JD.com's stock price plummeted 20%. Discussions about JD.com and Liu Qiangdong continued to emerge. The focus of the discussion pointed to how a large enterprise's corporate governance can be more scientific and reasonable. The purpose is to ensure that the company's heavyweights cannot be affected by any incident. Under the premise of performing their duties normally, they can still ensure the normal operation of the board of directors, management, and company operations.
There have been many successful cases of corporate handovers in the past. In the 1990s, Jack Welch, the outstanding CEO of General Electric, revealed in his autobiography that he began to seriously consider his successor as early as 9 years before his retirement (1991). He said, "This matter It takes a lot of my thoughts almost every day." It is this understanding that ensures the smooth transition of the GE board of directors and the healthy operation of the business after Welch retires.
For another example, when Steve Jobs, the former CEO of Apple, was on his deathbed, he designated Cook as his successor, ensuring the smooth operation of Apple. Domestically, New Hope Group founder Liu Yonghao has handed over decision-making power to Liu Chang, Wahaha founder Zong Qinghou has handed over the decision-making power to Zong Fuli, and so on.
Some negative cases highlight the importance of the succession issue. Before the early 20th century, Colgate was once an outstanding daily necessities company in the United States. Its size and performance were roughly the same as those of Procter & Gamble. However, by the 1940s, Colgate had been far behind P&G. One of the important reasons was that The problem lies in the lack of successors, and the chairman hastily selected successors who were old and incompetent (then CEO Jim Collins described this as a "scourge" in his "Built to Last"), which ultimately led to Colgate's failure. Towards decline.
Today’s Gree Electric is also experiencing the same embarrassing moment as Colgate. In both companies, when the chairman of the board is getting older, there is an obvious gap in management. Regrettably, just when the outside world was worried that the successor of Gree Electric Appliances would be "difficult to give birth", the home appliance industry was "three-thirds of the world", and air conditioners were "fatigued", Gree was in the midst of hiring people. Two meritorious veterans - Wang Jingdong and Huang Hui - resigned one after another. . Dong Mingzhu, Wang Jingdong, and Huang Hui were once called the "iron triangle" of Gree Electric. Dong Mingzhu is 67 years old, Wang Jingdong is 51 years old, and Huang Hui is 58 years old.
At exactly this time, Gree Electric’s business encountered unprecedented major challenges.
One of the challenges is that Gree Electric’s position as the leader in the air-conditioning industry is no longer stable, and its air-conditioning moat is no longer as deep as before. At present, air-conditioning technology has become fully mature, and its competitors Midea and Haier have now invaded Gree Electric's core business hinterland through various efforts.
Data from Aowei Cloud Network shows that in terms of air-conditioning market share, Midea Group overall surpassed Gree in 2020. Online, Midea's 34.3, Gree's 29; offline, Midea's 34.7, Gree's 35.08, although Haier still remains overall It lags behind, but its market share still maintains pressure on Gree.
In fact, since 2019, Gree Electric has spent a lot of thought on the issue of consolidating its market share. First came the "quality war". In June 2019, Gree Electric publicly reported that Oaks' quality was substandard. Then came the "price war". In November 2019, Gree Electric took advantage of the "Double 11" to announce a profit discount of 3 billion yuan, which was actually a price reduction. On November 26, it officially announced a profit discount of 10 billion yuan; in May 2020, Dong Mingzhu carried out a live broadcast to sell goods. During this period, the price dropped again. Then there is the "service war". On March 6, 2021, Gree Electric launched a "ten-year warranty policy."
Behind these incidents that have repeatedly caused market controversy and industry shock, they reflect a specific reality - Gree Electric's market position in air conditioners is no longer stable. If decisive "offensive" measures are not taken, its market position may further deteriorate. Sliding down, this is essentially "attacking to defend".
Doubts follow. Can Dong Mingzhu revive the glory of air conditioning before his successor is established?
The second challenge is that the competitive landscape faced by Gree is changing, but its diversified business landscape has not made substantial progress.
Gree Electric’s competitive landscape has changed a lot from the past. In terms of industry, it is difficult for the air-conditioning business to reproduce its past rapid growth, and the market is entering an era of stock competition. In terms of technology, air conditioning technology itself has reached its peak of maturity; the development of information technology has pushed home appliances into the AIoT era. The biggest feature of this era is the integration of whole-house appliances, which naturally benefits those home appliance companies with more diversified business layouts, such as Haier, Beautiful waiting. The decline in market share of Gree Electric's air-conditioning business is inextricably linked to the trend of whole-house appliance integration.
The success of the technology, coupled with the development of AIoT information technology, has also given birth to a new generation of competitors like Xiaomi. Gree Electric looked around and saw that the competitors around it were far more powerful and difficult to defeat than before. No wonder some people commented that Dong Mingzhu, who led Gree Electric Appliances, "won the competition but lost to the times."
From a longer-term and healthier development perspective, Gree Electric needs to adopt a diversified strategic layout. Judging from the data, Gree Electric has made limited progress so far. Of Gree Electric's 200 billion yuan in revenue, 30% is trading revenue. After excluding this part of revenue, the proportion of air-conditioning revenue is still close to 90%. The high-end equipment and other businesses that Gree Electric has focused on developing in recent years account for an extremely low proportion.
The mobile phone and other businesses that Gree Electric has invested heavily in research and development in recent years have actually been a failure. Gree Electric's original intention to produce mobile phone business may be to find the most appropriate entrance in the AIoT era, but in this field, Gree Electric, which is good at "bulky" manufacturing, is obviously no match for Huawei, Xiaomi, and Apple, which almost dooms it. The mobile phone business died just after its launch. As of March 18, the total sales volume of Dasong mobile phones in Gree Electric’s “Dong Mingzhu’s Store” was only 4,781 units.
How does Gree Electric Appliances cultivate new profit growth points other than the air-conditioning business to achieve a diversified business breakthrough?
The third challenge is insufficient international presence. Gree Electric Appliances has always built itself into an international enterprise, but "good air conditioners, made by Gree" are still more domestic. Midea has Toshiba overseas, Haier has General Electric Appliances and Fisher & Paykel overseas, and Gree has no independent brand for overseas business. Judging from the data, Gree Electric’s overseas sales business accounts for only about 5%, and its products face difficulties in exporting overseas. Its competitors Midea and Haier are completely different. Midea's overseas sales business accounts for more than 40%; Haier's overseas sales business accounts for nearly 50%.
The urgency of international layout essentially reflects the objective demand of the weak domestic air-conditioning market.
How can Gree Electric break through in the future? There were rumors in the market that Gree Electric participated in the bidding for Philips home appliances in the Netherlands. From another perspective, this incident actually hinted at Gree Electric’s previous strategic lack of international layout. The reason is that Philips’ overall competitiveness in the home appliance business is average.
The above three major challenges are the current practical problems that Gree Electric’s management headed by Dong Mingzhu must face head-on. It is difficult to imagine how Gree Electric’s mid- to long-term growth potential will be shaped in the future if a suitable solution cannot be found during Dong Mingzhu’s tenure. This will inevitably sow the seeds for future power struggles on the Gree Electric board of directors.
Yin Jian is not far away. More than 300 years ago, the overconfident Emperor Kangxi made a serious mistake in deposing the crown prince, which eventually led to the tragic struggle for power among the princes for more than ten years, which later led to the "nine sons seizing the legitimate sons". This incident brought great influence to the Qing Dynasty. Political stability has had a serious impact.
From openness to conservatism
Dong Mingzhu has contributed a lot to Gree Electric’s past success, and this has also made Dong Mingzhu successful. On the other side of the situation, there are many reports from the outside world that Dong Mingzhu is self-righteous and willful. The final result of this strengthening of the background is that Dong Mingzhu, and even Gree Electric Appliances, only trust the "Dong Mingzhu mechanism" in business operations and are unwilling to trust others. This is essentially a conservative tendency.
This conservatism is in sharp contrast to Gree Electric’s past openness. Gree Electric's great success over the past thirty years is of course inseparable from the hard work of Dong Mingzhu and its 80,000 employees, Dong Mingzhu's leadership and sales talent, and the open environment of Gree Electric at that time. Without the open and inclusive environment at that time, there would have been no Zhu Jianghong who defied all opinions, trusted and reused Dong Mingzhu; without the open environment, there would have been no successful shareholding reform of Gree Electric in 2005, and there would have been no subsequent dealer system (Jinghai Guarantee). ) entered the board of directors, completely stimulating Gree Electric’s business vitality.
The open environment has made Gree Electric a success.
It has also made Dong Mingzhu one of the most successful female entrepreneurs in China since the reform and opening up. However, as time goes by, people are surprised to find that Gree Electric is no longer as tolerant as before, and has even gradually become conservative.
The most typical manifestation of conservatism is that Gree Electric is labeled as Dong Mingzhu everywhere (it may be called the "Dong Mingzhu mechanism"). As an Internet celebrity entrepreneur, even at the age of 67, Dong Mingzhu still never misses any opportunity to be "on camera": Dong Mingzhu is the spokesperson for Gree Electric Appliances advertising, and Gree Electric's online mall is named "Dong Mingzhu's Store", and even Dong Mingzhu personally takes part in the live broadcast.
Such business behaviors can easily be associated with "personal heroism". Behind "personal heroism", what is highlighted is distrust of others, or excessive trust in oneself. confidence. From a structural perspective, this is essentially a conservatism complex that is unwilling to accept new ideas.
This conservatism complex has a fundamental conflict with Gree Electric's officially announced business philosophy, "A company without innovation is a company without a soul." In fact, this conservative style can bring positive results when the home appliance market is expanding, but it may not continue to be effective when the industry matures. Sales data also proves that this has not boosted Gree Electric's sales, and its market share is even declining.
The ultimate development of conservatism is that the current Gree Electric Board of Directors actually lacks a mechanism to check and balance Dong Mingzhu’s influence. After the second shareholding reform, Dong Mingzhu formed an authoritative position in Gree Electric Appliances, both at the shareholder level and the board of directors level, that was uncheckable and difficult to challenge. This was completely different from the restriction mechanism of Gree Group before the shareholding reform. In 2019, Gree Group withdrew from its status as the largest shareholder and only retained its shareholding status. At the same time, Dong Mingzhu consolidated her control over Gree Electric through a carefully constructed pyramid-style equity relationship.
We explain the above issues through the analysis of ownership structure.
After the second share reform, it seems that Hillhouse Capital holds 15% of Gree Electric's equity through Zhuhai Mingjun. Hillhouse Capital has the ability to propose director candidates, propose proposals, etc. to Gree Electric, but the reality is far from that simple. Zhuhai Mingjun is a limited partnership, and Dong Mingzhu holds 6.38% of Zhuhai Mingjun's equity through another partnership controlled by Zhuhai Gezhen. This means that under the legal mechanism of a partnership, Dong Mingzhu has enough room to restrain any proposals made by Hillhouse Capital against Gree Electric, although we are not very clear about the specific arrangements of this partnership agreement.
This also explains well why Hillhouse Capital, which has invested a lot of money and has a high shareholding ratio, has not assigned a director to Gree Electric until now. It's very simple. Hillhouse Capital is not a direct shareholder of Gree Electric, and all proposals need to be agreed upon at the partnership level of Zhuhai Mingjun before they can be submitted. Does Hillhouse Capital really have no demands?
After Huang Hui resigned, Dong Mingzhu publicly stated that Gree Electric needed people who "identified with Gree culture" in response to the doubts about the successor issue. So, did he agree with Gree's culture or Dong Mingzhu? What about the absolute authority of the Pearl?
On the issue of successor, Dong Mingzhu’s conservatism is also highlighted. As mentioned above, Dong Mingzhu, Wang Jingdong, and Huang Hui form the "iron triangle" of Gree Electric. But other than that, there is a lack of successors, and Gree Electric’s management is actually broken. With the resignation of Wang Jingdong and Huang Hui, Gree Electric Appliances now seems to be "fighting alone." Is it because Dong Mingzhu lacks trust in his subordinates, or is it really impossible for 80,000 employees to be carefully trained to take on major responsibilities? At the shareholders' meeting on January 6, 2019, when talking about the candidate for chairman, Dong Mingzhu asked Secretary Wang Jingdong and CEO Huang Hui, who were sitting on the left and right, "Can you two do it?" Wang and Huang later resigned.
The mobile phone business and even the failed acquisition of Zhuhai Yinlong are typical representatives of its operational conservatism. These seemingly offensive business diversification measures actually reflect Dong Mingzhu's "conservatism" and unwillingness to listen to the suggestions from around him. If Zhuhai Yinlong had not been vetoed by shareholders, it would have caused immeasurable heavy losses to Gree Electric.
Finally, we should admit that Gree Electric is still a very high-quality company. Since 1993, Gree Electric's revenue has climbed from 647 million yuan to 200.5 billion yuan today, with a compound annual growth rate of 23.67, which is rare in the development of Chinese enterprises. From a market value perspective, Gree Electric has a total market value of 350 billion yuan, which has increased 60 times in the 25 years since its listing, which is a miracle. Dong Mingzhu is a very great entrepreneur who has made great contributions to the development of Gree Electric and even China's home appliance industry.
At present, Gree Electric’s position in China’s air-conditioning field is still stable, and it is still at the forefront in terms of technological innovation. Gree Electric is also a company with a strong sense of social responsibility. The simplest fact is that after the outbreak of the new crown epidemic in 2020, it would rather endure the loss of shareholder interests than close 30,000 offline stores.
However, this does not mean that everything is correct. In fact, no responsible scholar, expert, or media is willing to see any major fluctuations in Gree Electric. All criticism is just for a greater journey!
Finally, let me mention a typical case in American business history. This case is recorded in "The Innovator's Dilemma" by Clayton Christensen. Sears, Roebuck & Co. was once one of the largest chain companies in the United States. At its peak, its retail sales accounted for 2% of the U.S. retail sales. It has been the largest retail company in the United States for almost the entire 20th century. However, due to its own arrogance, Sears completely ignored emerging business forms such as discount supermarkets and community centers. It was eventually surpassed by Wal-Mart in the 1990s and has now declined.
(The views in the article only represent the individual guests and do not represent any position. The mention of individual stocks is only for example analysis and does not make trading recommendations.)