Leadership Shakeup: Chinese Beverage King Wahaha's Heiress Resigns Amidst Allegations and Internal Turmoil

Familial Succession Practice Challenged at Wahaha: Chinese Beverage King's Heiress Resigns Amidst Allegations and Internal Turmoil

On July 18, a close source to the Wahaha Group confirmed the resignation of Zong Fuli, the daughter of Wahaha’s late founder Zong Qinghou. This unexpected development has stirred discussions about the future direction of the company and the longstanding practice of familial succession in Chinese enterprises.

Zong Fuli, who assumed leadership roles within Wahaha and its associated companies following her father’s death in February 2023, has tendered her resignation. The news broke when a resignation letter, allegedly signed by her, circulated on social media. Dated July 15, the letter cited concerns raised by shareholders and the local government regarding her management of the company. This scrutiny has made it difficult for her to continue in her roles as Vice Chairman and General Manager of Wahaha Group.

Adding to the turmoil, there were accusations of her misappropriating significant assets from Wahaha to Hongsheng Group, a company she fully controls. Although these claims have not been verified, they have intensified the scrutiny on her tenure and management style.

Zong Fuli’s resignation is also linked to broader management issues. A long-time employee mentioned that her leadership was marked by frequent changes in middle and upper management, leading to dissatisfaction among the workforce. Additionally, her strategies and decisions were not always communicated effectively to the staff, causing further unrest.

Key Takeaways

1. Resignation of Zong Fuli: The daughter of Wahaha’s founder steps down amid internal disputes and external scrutiny.
2. Management Criticism: Employees and insiders have voiced concerns over frequent managerial changes and a lack of alignment with development outcomes.
3. Asset Misappropriation Allegations: Unverified reports claim Zong Fuli transferred Wahaha’s assets to her own company.
4. Corporate Governance Issues: The incident highlights ongoing challenges in corporate governance and succession planning within Chinese family-run businesses.
5. Unclear Future Leadership: The resignation leaves a leadership void, raising questions about who will steer the company forward.

Analysis

Zong Fuli’s resignation marks a significant moment for Wahaha, one of China’s largest beverage companies. Her leadership has been contentious, characterized by rapid managerial changes and criticism from long-time employees who felt left out of the company’s growth. This dissatisfaction was compounded by accusations of her diverting company assets, although these claims remain unverified.

The root of these issues lies in the company’s governance structure. Wahaha, despite being privately held, has a complex ownership structure with significant shares held by the local government and an employee union. Zong Qinghou’s death left a leadership void that Zong Fuli was expected to fill, but her authority has been continually challenged.

This situation underscores the broader challenges faced by family-run businesses in China. As these companies grow and operate in increasingly competitive and transparent environments, the traditional practice of familial succession is being questioned. Professional management practices and stronger corporate governance are becoming essential to sustain growth and maintain stakeholder trust.

Recent Developments and Context

• Government Involvement: The Hangzhou Shangcheng District State-owned Assets Supervision and Administration Commission (SASAC) is currently investigating the allegations against Zong Fuli. They have not confirmed the authenticity of the resignation letter or the reported misappropriation of assets.
• Company Operations: Despite the internal turmoil, both Wahaha and Hongsheng Group continue their operations. Recent projects, such as the Guangzhou pure water plant and expansions in Xiamen and Wuhan, are ongoing.
• Management Changes at Hongsheng: Prior to her resignation, two directors at Hongsheng Group, Shi Lijuan and Shi Youzhen, who are closely related to Zong Fuli, stepped down. Her position was also altered from Chairman to Executive Director.
• Ownership and Structure: Wahaha’s major shareholders include Hangzhou Shangcheng District Cultural and Tourism Investment Holding Group Co., Ltd., which owns 46%, Zong Qinghou personally with 29.4%, and the company’s employee union with 24.6%.

Historical Background

Founded in 1987 by Zong Qinghou, Wahaha started with just three people and a loan of 140,000 yuan. Under Zong Qinghou’s leadership, it became one of China's top 500 enterprises, leading the industry for over two decades. The company's revenue reached approximately 500 billion yuan in 2023, although it faced slight declines compared to previous years.

Did You Know?

• Zong Qinghou’s Legacy: Zong Qinghou was not only a business magnate but also a significant figure in China’s economic reforms, known for his pragmatic approach to business and his hands-on management style.
• Private vs. Public: Unlike many large corporations, Wahaha remains a privately held company, allowing it to avoid the pressures of public markets but also limiting its transparency.
• Family Dynamics: The resignation of Zong Fuli brings to light the complexities of family dynamics in business, particularly in traditional Chinese family-run enterprises where succession planning often stays within the family.
• Hongsheng Group: A closely associated company, Hongsheng Group, led by Zong Fuli, has been integral to Wahaha’s production but now stands at the center of the asset misappropriation controversy.
• Market Presence: Despite internal conflicts, Wahaha remains a major player in China’s beverage market, recently achieving an annual revenue of approximately 500 billion yuan.
• Strategic Shifts: Despite internal conflicts, Wahaha has been focusing on expanding its product line, including the introduction of new beverages and healthier options to compete in the growing market for health-conscious consumers.
• Employee Ownership: The unique ownership structure, where employees hold a significant share through the union, reflects Wahaha’s attempt to maintain a stable and loyal workforce.

This episode at Wahaha is a microcosm of the evolving corporate governance landscape in China, where traditional family-led business practices are increasingly being challenged by modern governance standards and market pressures.