Fosun’s global partnership program

Practices of partnership mechanism are often inseparable from innovative explorations of salary incentive mechanisms. However, the partnership mechanism is not identical to the salary incentive mechanism, nor is it a patent that only belongs to partnership enterprises. The word ‘partner’ conveys an emotional and spiritual perception to the staff. For the enterprise, it is a triple transformation that consists of corporate culture, management and governance structure.

The establishment of a partnership mechanism is mainly based on three considerations. First of all, the partnership mechanism should be conducive to the transmission of corporate culture. No matter what kind of industry the enterprise is in, or what kind of way the partners are combined, cultural heritage and values should always be consistent, such as entrepreneurial spirit, honesty and mutual trust, or the philosophy of self-cultivation in order to help the world. Second, the partnership mechanism should be able to optimize the management model, such as creating a flat and efficient internal business management model with cooperative sharing, and be able to embrace the wave of Internet economy. Third, the partnership mechanism should be improve governance structures, such as putting partners in charge on the board level, affecting the company's overall governance.

The cultural background of ‘Enterprise plus Profession’

On January 11, 2016, Fosun International announced that, according to the exercise price of 11.53 Hong Kong dollar per share, the company would grant less than 20 global core managers with 111 million shares of common stock options in total, accounting for 1.29% of the current Fosun International Equity. These global core managers were also the first batch of global partners of Fosun Group. At this point, the Fosun partnership plan was officially announced.

It is noteworthy that, the Chairman of Fosun Group, Guo Guangchang specially emphasized on learning the elite culture of Goldman Sachs in the announcement.

As we all know, Goldman Sachs Group was founded in 1869, and has been using a partnership mechanism to promote the development of the enterprise since then. Under this mechanism, not only Goldman's partners can enjoy generous bonus, but they can also invest in corporate private deals and buy company shares at a discount below the market price. But Goldman Sachs’ reward and punishment mechanism on the partners is also very clear. Thus, executives generally have a strong sense of risk and responsibility, forming a unique corporate culture of ambition and pursuing long-term value. In addition, the partnership mechanism is not a lifelong system, the number of partners is usually maintained at 300. Every two years there would be an upgrade of a quarter to one third of partners based on the main selection criteria of individual contribution and cultural adaptability. This non-tenure mechanism also ensures the continuous competitiveness between partners.

Thus, how does Fosun learn from Goldman Sachs and create its own partnership mechanism? If we think about the growth process of Fosun, it is not difficult to find that the company has been incubating the corporate culture that is needed from the beginning of their business - entrepreneurial spirit, and respect for professionals.

Unlike family business, Fosun is a joint adventure between classmates that started in 1992.

At the first place, Guo Guangchang and Liang Xinjun registered the Guangxin Technology Consulting, which majorly engaged in market research. In a year the company earned more than 100 million yuan. The company shifted to real estate, and soon earned 10 million yuan. During this period, Wang Qunbin and other partners joined the team, and changed its name to ‘Fosun’. In 1995, under the leadership of several co-founding partners, the company's research team launched the PCR diagnostic reagents for type-B hepatitis. By virtue of this product the company earned 100 million yuan, and established a nationwide network for pharmaceutical sales. In 1998, the Fosun Pharma was listed on the Shanghai Stock Exchange, and raised 350 million yuan. In the same year, the Fudi (formerly: Shanghai Fosun Real Estate Development Co., Ltd.) was established, transforming its business from real estate sales to development. Thus, their two main section of businesses were pharmaceutical and real estate.

In his letter to the partners in 2016, Guo Guangchang mentioned that the partners were unclear about the respective equity ratio until 1998, when Fosun Pharma was listed. But it is clear that this ratio is dynamic in order to have more partners to join. At the same time with defining the equity ratio, the consensus about the decision-making mechanism reached by co-founding partners is that, ‘leave professional matters to the professionals’, which has been followed since the early bio-pharmaceutical period. Respect for professionals laid a good cultural foundation for the establishment of Fosun's future partnership mechanism.

In addition, Fosun also designed a set of mechanisms to avoid the risks of decision-making. In the seven members of its board, three directors are familiar with real estate, the other four are amateurs. The mechanism of one-person-one-vote is likely to lead to unprofessional leadership, or ambiguous decision-making. Thus, in its collective decision-making mechanism, the four non-professionals would express their doubts or reasons for objections, and the professionals would respond to them. After reflections on whether to take the views of non-professionals into account, the top-leader would make a final decision. In the decision-making mechanism, professionals and the top-leader enjoy a heavier weight on voting rights. Respect for professionals and democratic decision-making are agreed by participating decision makers, and these elements are precisely the most fundamental cultural soils that started the ‘partnership mechanism’.

Elite incentives on the capital platform

The rapid development of Fosun is due to the fact that the company seized its opportunities in the economic development of various periods. From 1999 to 2007, the M & A expansion period of Bosun took place. The listing of Fosun Pharma in 1998 allowed Fosun to see the possibility of using capital chain for their industrial expansion. In 2002, Fosun acquired Yuyuan Tourist Mart and got a relatively stable cash flow in the retail sector and adequate land assets. Coincidentally, Yuyuan has 53.33% shares of Tong Han Chun Pharmaceutical Factory. Fosun was engaged in the field of medicine for a long time, this acquisition could be described as a ‘hit two birds with one stone’. From 2003 to 2007, Fosun entered fields such as steel, mining, finance and strategic investment through a series of M & A, formed six sections of business with the original pharmaceutical, real estate and retail. These sections laid the foundation for the future double-wheeled driving development model of ‘Investment plus Insurance’.

With a continuous development, Fosun also introduced new partners. Ding Guo (responsible for finance) and Qin Xue Tong (responsible for law affairs) supplemented the company's financial, legal and other abilities, which formed a complementary advantage with co-founding partners who focused on business development .

On July 16, 2007, Fosun International, the parent company of Fosun Group, successfully listed on the Hong Kong Stock Exchange. Through the double-engine development model of ‘Capital plus Industry’, Fosun International holds 7 A-share listed companies, owns the Hong Kong-listed red chip company Fudi and has more than 100 subsidiaries. Its territory covers real estate, steel and pharmaceuticals, etc.

At that time, Fosun is still focusing on heavy-assets. From 2008, Fosun Group started to selectively acquire foreign high-quality enterprises, and seek for internationalization with the investment model of ‘China dynamics grafting global resources’, approach to a double-wheeled giant investment group with ‘insurance as the core of comprehensive financial capacity’ and ‘global industrial integration capacity rooted in China’.

In the layout of its insurance business, Fosun was acting boldly and orderly. In 2012, Fosun acquired Fidelidade, which is the largest insurance group in Portugal. It was the first step for Chinese companies to enter the field of international insurance. In 2015, Fosun once again took a shot at overseas insurance business, this time acquiring Ironshore and MIG.

In the process of global industrial integration, Fosun made its investments around the sectors of health, "leisure" or well-being and many others. With regard to the sector of health, Fosun bought shares of United Family Medical in 2009, and created the high-end pension agency Star Fort with Fortress in 2012. By the end of 2015, Fosun had invested in 13 hospitals, 2 professional care units and 7 private clinics with a total of 3777 beds. With regard to the theme of leisure and well-being, Fosun has invested in the global high-end travel chain brand, Club Med, becoming the largest strategic investor of that company, and completed the financial statement in 2015. In 2013, Fosun invested in the Atlantis Hotel in Sanya which is the first in China and the third in the world, for the further global layout in travel & leisure investment. In 2015, Fosun invested in the British leisure travel group, Thomas Cook, the Canadian National Antique Circus and the British high-end brand of baby products, Sliver Cross, and so on. In addition, Fosun's Hollywood studio company, Studio 8, has already produced four new films, including two new films directed by the famous director Li An; Fosun's Yuyuan Tourist Mart has successfully acquired a first-class ski resort in Hokkaido, Japan. It is the largest operation in the Japanese market in the fourth quarter of last year.

By looking through Fosun's entire entrepreneurial process, we understand that before 2008, Fosun's development was characterized by deepening the core industry and transforming into a diversified industry group. Based on the compensation strategy of diversified industrial groups, supported by special incentives needed by the development of core industry, Fosun Pharma is a typical representative of this period. With the changes in strategic environment, the rapid development of Fosun has to face the business transformation, and the transformation of its talent mechanism has become increasingly important as well. When the company started, Fosun was solely relying on the core team members to make decisions. The traditional management model of the staff is not demanding, a normal talent strategy was enough. When the company entered the diversification stage, the professionals and top-executives had become the indispensable backbone, so naturally an elite talent strategy was in need. Today, Fosun has entered a new stage of globalization; ‘Insurance plus Investment’. It requires a global partner mechanism led by international, entrepreneurial spirit.

From ‘Company plus Employee’ to ‘Platform plus Individual’

The investment model of ‘China grafting global resources’ is the search for customer needs and pain points. To do this, Fosun requires the best companies and teams of the world, but also internal teams to provide products which can meet the customers needs. Individuals with a global vision, with an understanding of the capital market and the development of the industry are scarce resources everywhere. Such talents are characterized by high payment and high position in the original field. They are also the targets of major companies.

Fosun must be able to set up a mechanism, in order to manage the talents as assets, to preserve and increase their value. As early as Fosun introduced the global partnership mechanism, the Group's related business sector has begun to practice the business partner mechanism. The core idea is to transfer the professional managers into entrepreneurs.

At the beginning of 2015, Fosun began to implement the Fosun Professional Committee system. The committee is the decision-making and professional deliberative institution of Fosun Group, in charge of investment, finance, management and withdraw. It is mainly composed of MDs (Managing Director) / ED s(Executive General Manager) of each business line. In addition, these people are also business partners. The purpose of this committee is to strengthen the cooperation of the various business segments within the Group, and to take into account the gains and losses of projects from the perspective of the Group rather than individual department. The flattening and net reorganization of this organizational structure has laid a solid foundation for Fosun's global partnership mechanism.

In 2016, Fosun officially announced the Global Partner Program.

The global partner selection criteria stressed that, partners must be in a ‘entrepreneurial state’, in constant innovating and striving state. It asks for extraordinary wisdom, abundant physical strength and learning ability. With regard to the specific selection mechanism, the candidates have to pass through certain qualitative and quantitative indicators, which are the basic requirements. Existing partners and related organizations can participate in the nomination, then the nominees shall be reviewed. The most important factor is that, whether the candidate is consistent with the cultural values of Fosun, whether he acknowledges Fosun's mission and vision from the depths of his soul. The non-tenure system ensured that the global partners can maintain a long-term vitality.

With regard to the incentive mechanism of its global partners, Fosun adopted the system of options in order to encourage partners to create more incremental value on the basis of existing businesses. With regard to the arrangement of the proportions, Fosun adopted a gradually stepping-up system, which requires that partners must have a sustained contribution and willing to grow with Fosun in the long-term. Each of the global partners shall be entitled to act for the first time five years after the date of granting, and the maximum number is only 20% of the total; at the end of sixth year, the partner will have another 30% in addition. The partner will have the full entitlement for the right to exercise options at the end of seventh year. Of course, there is an important prerequisite for the exercise of the granted options, which is that being a member of the global partners without being removed by competency assessment. (See table)

Compared with Fosun's core staff award program with stock equity which was launched in 2015, the global partner incentive program with options is significantly different.

The stock equities are awarded annually to the core manager and business backbones of Fosun. It is still based on the position of ‘Company plus Employee’, and the individual incentive quota is taken from the perspective of the overall salary competitiveness of employees. The options are awarded to the top partners of Fosun, based on the position of ‘Platform plus Individual’, the amount of personal incentives is taken from the perspective of partners’ resources and value contributions. (table 2)

In addition to the differences in salary incentives, Fosun's requirements and positioning expectations for global partners are also different from professional managers. At present, the average age of Fosun's first patch of global partners is 48, and the youngest partner is only 37 years old. Selected candidates came from both business line and functional line. In addition, the Portuguese insurance company's foreign executives are also included, which reflect the characteristics of diversification and globalization. Regardless of their ages, geographical locations and professions, every global partner will participate in major decisions on all lines of the Group. The head leader of the field is responsible for major decisions on relevant business line, which reflects the professionality of Fosun Group.

Interestingly, despite of their important positions in the group and far-reaching impacts on the group's development, the global partners are called ‘classmates’ just like any other employees. The flattening of the corporate culture achieved an internal business management platform model of cooperation and share, flat and efficiency.

(About the authors, Ni Baijian, is the head of the China Executive Compensation Research Center of Aon Hewitt China. Liu Qian is the manager of China Executive Compensation and Company Management Consulting of Aon Hewitt China. The original article was published in the ‘CEIBS Business Review’.)

Original article