Table Speech

Initiation Speech

October 28, 2009

Mr. Norihiko Tanikawa
Mr. Yoshifumi Kobayashi

“What I have learnt from Japanese Companies”

Mr. Norihiko Tanikawa
Chair of Directors, Eizai Co., Ltd.

 The topic of my speech today is ”ball bearing,” a field of my vocational classification, and the characteristic of the Japanese companies.

 As you all know, a “bearing” smoothens rotation and is widely used in everyday life. Each household uses on average 30~40 bearings in a washing machine, a vacuum cleaner or PC. Industrial use of bearings include machine tools, windmills for wind-power generation, wheel axles of the Bullet Train, automobiles, satellites and medical CT scanners etc. They come in various sizes and varieties, from 0.3mm-diameter to the 6meter-diameter bearings used for excavators digging the Euro-tunnel. The ball used in a ball bearing is almost an absolute sphere with a minimal unevenness.

 The core technology used in the bearing industry is called “tribology” which controls friction. Leonard da Vinci invented the bearing and in his 13,000-page-notebook he drew sketches of bearings almost identical to what we use today.

 Let me touch upon the history behind the bearing industry in Japan. Mr. Zenjiro Yasuda, a banker of the Yasuda Conglomerate, foresaw industrialization in Japan and the boom of factory facility construction. He planned for domestic production of Western nails. In preparation, Mr. Yasuda decided to send a researcher overseas. Mr. Takehiko Yamaguchi, a 27-year-old young gentleman from Kagoshima, was chosen and sent to Europe for 2 years. Upon return, Mr. Yamaguchi founded the western nail manufacturer in 1897, a trading company for machine tools in 1906, the liquid oxygen manufacturer in 1910, and the very first “bearing” manufacturer in 1914. It is quite interesting to know that all four of them are still in business as long-running companies, of which three are listed on the 1st section of the Tokyo Stock Exchange.

 Companies having long business history are one of the characteristics of Japanese companies. Of the 1701 companies listed on the 1st section of the Tokyo Stock Exchange, 448 companies (26.3%) have a long-running history of over 70 years. Another survey shows there are some 15,000 companies with a history of over 100 years. The oldest company in the world is in Japan, and it is Kongo Gumi Co., Ltd. in Osaka, founded in 578A.D. and in business for 1431 years.

 I personally believe that the following three factors are keys for long-running companies: 1) priority in craftsmanship, 2) flexibility allowing constant changes and 3) Japan being a country at peace. The 3rd factor is often overlooked, but we must not forget that peace is the crucial condition for long-running business. Japan has enjoyed a long history of non-invasion and free from civil wars, with only a few exceptions. History proves that regions under colonial rule or wars have no long-running companies.

 In the Object of Rotary, it is stated that Rotarians aim for “the advancement of international understanding, goodwill and peace through a world fellowship.” I wish to be of some help for peacekeeping by actively getting involved in Rotary activities with a spirit of service.

“How to Hand Over Business”

Mr. Yoshifumi Kobayashi
Partner Lawyer, Mori, Hamada & Matsumoto Law Firm

 The topic of my speech is on business succession, which is getting more and more difficult today in the time of declining birthrate. I will center on legal issues, assuming there is already a designated successor. Let me remind you that the options I will illustrate are not absolute, and more suitable measures might be chosen to best match the business condition of each company. Now, let me elaborate on possible scenarios of making your child your successor.

 The first option is MBO (Management Buyout), suitable for business generating abundant cash flow. First, your child will establish the SPC (Special Purpose Company), which will borrow the acquisition funds to buy out stocks of his/her parent’s company. This will make your child the owner of SPC with both the loan and stocks. The next step is to consolidate the parent company and the SPC, thus making your child the owner of the stocks and shifting the acquisition loan to the debt of the consolidated company. You can pay back the debt by the abundant cash flow.

 Next option is making your child launch a new business with a small capital fund. After a short while, you will find out whether this new business is likely to succeed or not. If it proves to be a success, you make your child’s business buy the stocks of the original company. If not, the new business will be closed or bought by the original company.

 If your company has both profitable and non-profitable businesses, with a marginal surplus, you can sell it to your child while your stock evaluation is still low. Then you can either close the non-profitable business or sell it to the third party and keep only the profitable business.

 Another option is the golden stock. You can now issue classified stocks, with different dividend and voting right conditions, under the current Company Law. If you halve the stocks into ‘voting stocks’ and ‘nonvoting stocks,’ you can generate funds for inheritance tax by selling your ‘nonvoting stocks’ after inheritance, thus securing the voting right of your successor. This is also applicable to listed companies, as companies can now list their ‘nonvoting stocks’ in addition to common stocks.

 If the non-successor inheritors end up possessing part of the stocks, you can forcibly claim the inheritors to sell them to the company under the current Company Law. This will prevent stocks being inherited and dispersed to minority stockholders.

 Please note that the new business succession fund scheme, introduced by the Organization for Small & Medium Enterprises and Regional Innovation, began in 2006.