Management

Tim Culpan is a technology columnist for Bloomberg Gadfly. He previously covered technology for Bloomberg News.

Turns out that getting caught in a sanctions scandal, being publicly shamed by the U.S. government and facing the risk of losing your key suppliers is a good enough reason to replace your chairman and president.

In a fit of corporate accountability rarely seen in the region, Chinese smartphone maker ZTE announced late Tuesday that its chief technology officer, Zhao Xianming, will take over both roles, effective immediately.

Zhao's appointment ends Hou Weigui's reign atop the company he founded three decades ago and halts Shi Lirong's rise up the ranks to president, a post he'd held for the past six years. The shakeup came after Shenzhen-based ZTE was investigated for breaking a U.S. embargo on exports to Iran. Since the U.S. Department of Commerce can't do a lot to punish a non-U.S. company directly, last month it instead went after ZTE's North American suppliers of critical components. No supply means no products, which means no revenue.

U.S. authorities have been investigating ZTE since at least 2012 for allegedly buying U.S. hardware and software before shipping it to Iran, Reuters reported last month. ZTE is accused of having allegedly devised ways to get around the sanctions by using front companies. 

No Pulse
ZTE's stock has been halted amid investigations into sanction breaches
Source: Bloomberg

Shares in ZTE were suspended the same day as the Reuters report, and the company has said it's cooperating with U.S. agencies. As if a public shaming, threat to income and trading halt weren't enough to frustrate shareholders, the investigation and supply-ban forced ZTE to delay the release of its 2015 financial results.

ZTE has grand plans to build a brand in the U.S. -- as evidenced by sponsorship deals with the Chicago Bulls, Houston Rockets and the Golden State Warriors -- so it knows that blithely ignoring Western sensibilities about good corporate citizenship can't have been a smart move.

In a March 22 statement, ZTE said it would ``continue serving its major stakeholders as it works with the U.S. authorities to reach a permanent resolution." 

According to the Wall Street Journal, removing executives involved in the alleged violation was one of the preconditions to an agreement with the U.S. Two executive vice presidents were also to be replaced as part of the deal, the WSJ reported April 2.

Now that ZTE has carried out its spring cleaning, here's hoping its embrace of corporate accountability is permanent. 

This column does not necessarily reflect the opinion of Bloomberg LP and its owners.

To contact the author of this story:
Tim Culpan in Taipei at tculpan1@bloomberg.net

To contact the editor responsible for this story:
Katrina Nicholas at knicholas2@bloomberg.net