Episode 2 of Zong Fuli's Succession War

TMTPOST--The recent announcement of late Chinese legendary entrepreneur Zong Qinghou’s daughter's return to Wahaha’s management turned out to be a surprise to some market watchers. Many have asked me that if this signals a resolution to the company's ownership issue or her succession success. The following is my analysis of the resignation drama.

In a joint statement signed by Zong Fuli and stamped with Wahaha’s official seal, the term "return to duty" was emphasized. However, this does not signify her formal succession, as the family succession hinges on two critical factors: ownership control and operational authority. Her father had absolute operational authority, but she may have neither ownership control nor operational authority – per her resignation letter.

In the letter, Zong Fuli said that some shareholders have raised questions about the management of Wahaha Group following the passing of chairman Zong Qinghou and this has made it impossible for her to continue performing her management responsibilities.

According to the letter, Zong said she has submitted her resignation letter to the company and all shareholders, urging them to promptly appoint a new general manager in accordance with the company's regulations to ensure the normal operation of the group and protect the interests of the company, customers, and employees.

46% of Wahaha has been owned by state-owned entities, even at her father’s prime time and before Danone’s exit from its joint venture with Wahaha.

Zong Fuli's resignation letter stemmed from internal disagreement rather than external pressures from state-owned stakeholders. Zong Fuli used the resignation letter to show her significance to the company and then took back the letter, which indicates that no party involved is irrational and they all intend to compromise and find a win-win solution through intricate gaming. Meanwhile, it highlights a complex situation she faces as a professional manager in a family-founded and operated beverage corporation. With her return to duty, the path to effective leadership succession remains fraught with challenges.

In my view, there are four key challenges confronting Zong Fuli. First, Zong Fuli's ability to orchestrate a transfer of state-held shares into a new consortium aligned with market values, including the fair value of Hongsheng Beverage, a company pivotal to Wahaha's ecosystem. Second, how to ensure cohesion between Wahaha veterans, non-Hongsheng staff, and Zong Fuli's own team to mitigate potential internal conflicts remains a big issue. Third, Zong Qinghou had other children, so whether the distribution of inherited shares within the family can proceed smoothly remains uncertain. Fourth, there is a need for Zong Fuli to overcome longstanding operational challenges to elevate Wahaha to new heights under her stewardship, establishing her authority based on merits rather than lineage.

Wahaha's governance issues make it a compelling case study in Chinese corporate dynamics. As the drama unfolds, the focus remains on whether Zong Fuli can navigate these complexities to secure a prosperous future for Wahaha, setting a precedent for effective corporate governance in China.

Stay tuned for my further analysis on this unfolding story.