Koito Manufaturing

Case Study 4: Koito Manufacturing, Ltd.

Group 5: Mallory Erickson, Maninder Kaur, Rochelle McElroy

Executive Summary

Koito Manufacturing, Ltd. was part of Toyota Motor Corp.’s kyoho-kai, or Club for Co-prospering with Toyota. As such, the company was linked to all members in Toyota’s supply chain through the cross-ownership of equity shares. When T. Boone Pickens, Jr, an American corporate raider, suddenly acquired 20.2% of Koito’s stock in April 1989 from an unknown source he displaced Toyota as Koito’s majority shareholder. It was suspected he was in cahoots with known greenmailer Kitaro Watanabe but Pickens argued he wanted to open Japan to international investment. He put increasing pressure on Koito’s Board to let him take an active role in the company’s governance.  Japan’s form of corporate governance

Problem Statement

        Corporate governance in Japan is rooted in Japanese history and culture. As such, it focuses on the group dynamics of all stakeholders within a given industry. Shareholders accept only incremental returns on capital.  How will Japan’s corporations respond when confronted by international pressure to focus on optimizing shareholder wealth instead? Will the international community accept Japan’s corporate governance model?

Analysis

Corporate Governance, Keiretsu, & Takeovers in Japan

Japan’s form of corporate governance is unique as it is a reflection of its history and culture. It is characterized by its lack of board independence due to the limited number of outside directors, insufficient disclosures, and prevalent cross-company shareholding. The board does not focus on maximizing shareholder returns, instead opting for a holistic familial approach to governance were the corporation is viewed as part of an extended family whose members include all stakeholders: employees, suppliers, customers, creditors, and shareholders. “The obligation to shareholders is met by a reasonable return on capital which is all the institutional investors, who are the most important shareholders, expect. The rest of the wealth generated by the enterprise is retained on behalf of other constituencies, the most important of which are its members – those working in the enterprise” (Gregory, 1989, p. 110). This approach is rooted in the group culture of Japan, summed up in the proverb “the nail that sticks out gets hammered down.” Companies are frequently rendered interdependent through the exchange of equity shares amongst business partners.

In 1990 shareholders with 1% entity interest in a given company could add items to the agenda at shareholder’s meetings. Those with 3% ownership could call special shareholders meetings and apply to court to remove a director. Owners with a 10% stake that they’ve held for at least 6 month could request to inspect the company’s accounting records and apply to court to appoint a special director. Finally, shareholders holding 34% of shares could purpose special shareholder resolutions. Regulation of tender offers was required if the offeror acquired more than 10% of the shares outstanding or if the interest was nonbeneficial. Although advance review of proxy statements was not required, approval from the Ministry of Finance was necessary, with the offer becoming valid 10 days after acceptance.