Pop quiz: Name a Japanese company with a US educated CEO.
Better yet, name one with a CEO and a Chairman who both have MBAs from different, well respected US Universities? Let’s narrow it down a little further for you with another hint: the company makes a habit of hiring “rejects” from other companies into its management team.
So how many of you are assuming that I’m talking about a little dot com that you’ve never heard of? What if I told you that the company has sales of 1.3 trillion yen and probably made either your toilet or your bath!?
Still can’t place the name? Don’t worry – most people can’t. They’ve changed their name so many times over the past few years that even Japanese wouldn’t recognize their brand name. Their official name is JS Group (住生活) although their operating company is known as Lixil and they used to be called Tostem-Inax. Clearly they have no understanding of the importance of an easy to remember company name but boy do they have an interesting set of people sitting behind the steering wheel.Let’s start with the Chairman, Yoichiro Shioda (潮田 洋一郎). Being the son of the founder of Tostem, the largest company in the motley crew group of building material/renovation related companies in their portfolio, most people wrote him off as soon as he replaced his father as CEO three years ago. He was undoubtedly handed the job on a silver platter. Besides having an MBA from Chicago, he is a real man of culture (loves tea, poetry, piano, etc) and has been quoted as saying that he wants to lead his later years like Faust!
After only two years at the helm, Shioda had the guts to become chairman and choose someone from outside of the company (and outside of his family!!) to replace him as CEO. Better yet, the new CEO, Yoshiaki Fujimori (藤森 義明 / MBA from Carnegie Mellon), is the former head of Japan GE (and rumored to be the first ever Asian senior vice president to have been appointed at GE globally). Yes, I do mean “that” GE. Although it is in Japanese there is an interesting interview with Fujimori while he was at GE here describing him as more American than Japanese. You don’t hear that too often in Japan Inc.
But perhaps what is more interesting is what Shioda did to the rest of the management team while he was CEO. Of the 9 people on the board beside himself, five are non-executive directors (from unrelated industries) and two are recent additions to the company from other companies (Fujimori and Tsutsui mentioned below). Talk about an independent board. In fact, he has made three very controversial appointments (in addition to Fujimori) of external people to key roles. This is the bit that I love. All three of them would broadly be referred to as failures in their most recent jobs. It is rare enough for a Japanese company to put “outsiders” on the board but even rarer to select “outcasts” from other companies. (Either Shioda is a genius or he is masochistic…)1) Takashi Tsutsui (筒井 高志) – Former CEO of JASDAQ and an ex-director of Nomura. Tsutsui helped broker the JASDAQ merger with OSE (Osaka Stock Exchange) in 2008 but quit suddenly at the start of 2009 after disagreeing with OSE on strategy. He joined JS in June 2009 and is now the board member in charge of M&A/IR/PR. He was directly involved in their failed attempt to buy the Yokohama Baystars baseball team from TBS (yes it is really starting to feel like a dot com isn’t it!). He is also a Director and Vice President. 2) Toshimasa Iue (井植 敏雅) – Former CEO of Sanyo Electric and Grandson of Toshio Iue, the founder. Goldman Sachs fired him as soon as they took control of the company in 2007. He was involved with Sanyo’s attempts to work with both Nokia and Haier and so joined JS in Feb 2010 to help with their international strategy. Apparently Shioda hired him because there are “very few CEOs who have experienced as much carnage as he has.” I like that. He is a Director and Vice President. 3) Shinichi Tanzawa (丹澤 信一) – Former CFO of Fanuc who became a board member (of Fanuc) in his 40s! He was ousted from the leadership race in 2008 by the current President, Seiuemon Inaba. He wasn’t fired… he was just suddenly appointed to the sales team in Nagoya – love it, eh! Apparently both Yoichiro and Tanzawa studied Economics at Tokyo University and met through the old boy network. (By the way, Fujimori was also a graduate from Tokyo University – I’m sure it is no coincidence.) Tanzawa isn’t on the board, but he joined in Feb 2010 a Director and is in charge of group strategy.
So besides making baths, what does JS do? The Japanese building and housing material industry is made up of hundreds of small companies specializing in one or two products. JS Group is attempting to be the first conglomerate who can manufacture everything needed to build/renovate a house or building. It started with the merger of Tostem (aluminium sash) and Inax (bath, toilets) and has since digested Toyo Exterior, Nittan, Sunwave, Shin-nikkei, Hivic, Kawashima Selkon textile, Wuxi Moritec Special Door, the Asia-Pac business from American Standard (did they make your toilet?) and Permasteelisa (an Italian manufacturer of curtain walls). They’ve also started joint ventures with Sharp, Secom, Haier and LG. Most of these transactions happened while Shioda was CEO.
While it is generally hard to get insight into the politics behind Japanese mergers their acquisition of Shin-nikkei was particularly noteworthy. Shin-nikkei management openly chose JS over Sankyo-Tateyama (a competitor who they had already signed an agreement with) because they felt that only JS was moving fast enough to survive in the industry. Talk about a stamp of approval from an insider.
The stock market has clearly taken a liking to the Shioda story. The share price doubled while he was at the helm although it was hit hard when the company revised down last October due to the impact of the Thai floods, Fukushima earthquake and greater than expected costs related to integrating the companies they have purchased through M&A. At 0.88x PBR the stock doesn’t feel expensive but then again the whole of Japan (TOPIX) is trading at a mere two thirds of its liquidation value so which Japanese stock isn’t cheap right now? We are not investment advisors. We don’t own the stock. We are not offering any advice to buy or sell. We just thought it was an unusual story in the closed and incestuous world known as Japan Inc.
Tell us what you think in the comments section below. You can’t get much more domestic than the building industry and it is pretty hard to get excited about anything relying on Japanese GDP growth. JS probably has the highest likelihood of being the “last man standing” in a perpetually contracting industry but that isn’t very sexy. That said, how realistic is it to believe that JS (or any other international company for that matter) could break into the building supplies market in any other country? I hope that we haven’t heard that last of Fujimori but something tells me that it will be an uphill battle.