ByteDance staff and investors were shocked when the founder stepped back

Zhang Yiming said he first discussed the resignation of ByteDance’s chief executive officer “with a small group” in March, but investors in the $ 200 billion start-up said they were surprised.

After a tumultuous year, the 38-year-old founder announced he would hand over his duties as CEO to staff on Thursday, even as his company prepares for a first public offering.

Although he stated in his letter that he was not so interested in “really managing people,” Zhang had in fact been the sole manager of ByteDance’s top leadership and had built the company, which owns the video app. viral TikTok, in a global challenge. on Facebook and Tencent.

He had even recently survived the company’s worst crisis: the U.S. government’s threat to ban TikTok.

“I was annoyed to hear that Yiming Zhang left his post, truly an amazing CEO,” he tweeted to Patrick Collison, the executive director of the $ 95 billion Stripe start-up. “To give you an idea of ​​the caliber of its execution: ByteDance was founded in 2012, it was reported to have generated $ 35 billion in revenue in 2020 and hired 40,000 people last year.”

ByteDance investors said they were surprised by the measure and could only point to Beijing’s recent pressure on the technology sector as an explanation.

Since the end of 2020, China has been controlling its technology giants through antitrust and other regulations. Zhang’s resignation follows that of Pinduoduo e-commerce giant Colin Huang in March, whose departure also surprised. Earlier this month, Ant Group CEO Simon Hu also stepped down, months after Beijing canceled its record double listing in Shanghai and Hong Kong.

“The government is weakening the central authority of all the leaders of the technology giants,” said Feng Chucheng, a partner at Beijing-based consulting firm Plenum.ai.

In his resignation letter, Zhang said he wanted to avoid the “CEO trap to become overly central.” This reflects a concern of the central government, which has long been concerned about the power of technology leaders.

For ByteDance, in particular, whose three main applications each day exceed more than an hour of average user time each day, “regulators have always been concerned about how it might affect public discourse. Propaganda is the party’s lifeline, “Feng added.

Beijing has published multiple guidelines on the governance of social media algorithms and the promotion of “positive” content. So far this year, regulators have criticized ByteDance for issues ranging from sexual content to deepfakes.

“Yiming is not very good at government relations [in China]”, Said one of his acquaintances. In 2018, ByteDance faced its first deadly moment or at the hands of the government, which criticized several applications for hosting” vulgar “content. ByteDance was forced to close Neihan Duanzi, a application to share jokes with 22 million daily users.But the company withdrew after a long public apology and hired more staff to manage government relations.

Zhang clashed with Beijing again in 2020, trying to meet the Trump administration’s demand that U.S. operations of TikTok be U.S.-owned. The Chinese government fired imposing export controls on relevant technology, while censors allowed a storm of criticism on social media to bring down Zhang.

Liang Rubo, a fellow at Zhang University, co-founder of ByteDance and head of human resources, will take over after a six-month delivery. Staff who have worked with Liang describe him as a faithful lieutenant for Zhang.

Although ByteDance staff in general were surprised by Zhang’s resignation, those who worked for Liang were even more surprised. “My colleagues and I never expected Liang to take over,” said a human resources employee, who said China President Zhang Lidong had “more power and courage” than Liang. “[Liang] the CEO doesn’t call me, ”another HR employee said.

Liang’s election suggested that Zhang Yiming “would rule behind the curtain,” a former human resources employee said.

The staff does not expect Liang to deviate from Zhang’s course, which is in itself a source of comfort. “We were all surprised,” a ByteDance engineer said. “But after discussing it for a while, everyone went back to work, because we think Liang would mainly take on Yiming’s plans and there shouldn’t be too many changes.”

Zhang’s departure exposes the fragility of ByteDance’s management structure and its centrality, and all senior executives report to him directly.

ByteDance declined to comment on whether Zhang would remain on its five-member board, with the other four seats assumed by investors.

The company has had the largest number of hirings in the history of technology, almost doubling its size in the last year and a half to more than 100,000 employees, and its applications have been hugely successful, generating revenue of $ 35 billion by 2020, according to two people familiar with the matter.

The next step was to be one successful IPO in Hong Kong or New York. Several people close to the plans said talks with Hong Kong Stock Exchange officials had advanced significantly earlier this year. But talks had slowed during this spring, according to people.

In April, the state-run China Securities Journal reported that ByteDance had begun a IPO process in Hong Kong. Although it was widely followed by other media, the original story was deleted one day later and state media were told not to republish the story, an unusual move for government censors, who do not usually intervene. in market speculation. ByteDance later said it was “not ready at this stage.”

“Zhang’s departure may help the company get enough government approval for its IPO,” Feng said. While the reasons for ByteDance’s hesitation over its listing plans remain unclear, political pressure would explain the previous censorship of its IPO rumors.

One of the people involved in the preparations said Zhang’s resignation was part of the “logical order” as the company moves toward the IPO. “He made the decision and obviously had to announce it before moving on to the next stage of the offer; he couldn’t have given up during the IPO.”

His move will also not affect the structure of ByteDance’s Chinese business, the source of most of its revenue. In March 2020, Zhang put operations in China under the leadership of Kelly Zhang and Zhang Lidong.

At the same time, he became global CEO and created an independent CEO position for TikTok, which is now held by Shouzi Chew.

His decision to back down could ultimately benefit ByteDance, said Li Chengdong, founder of Beijing-based technical consultancy Dolphin. “He defends both the company and himself in the face of a future attack.”

“Normally, a change of CEO is not good for the company, but it is a change of CEO with Chinese characteristics,” Li added. “Zhang could still stay in the lead.”

Additional reports from Nian Liu in Beijing, Tabby Kinder in Hong Kong and Hannah Murphy in San Francisco