Koito Case

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Koito-Pickens-Toyota Case

Question 1
The Japanese corporate governance system differs vastly from the US system. Discuss corporate governance issues that may arise under the Japanese keiretsu.

The corporate governance system in Japan is widely different from the US one insofar as it mostly involves a unique business model called “Keiretsu”. A Keiretsu is a form of corporate structure that groups a set of companies with interlocking board of directors and common business interests. Thus, due to its particular structure, some governance problem may arise under this Japanese Keiretsu:

a) Issues from the perspectives of financiers
Because the business is considered almost like an extended family, the financing may become political and the Japanese Keiretsu will almost always give favor to members of their Keiretsu. This could lead the financiers, for instance, to finance a company member of their Keiratsu they wouldn’t have finance otherwise. As far as the potential financiers are concerned, the main issue is the difficulty to enter and invest in the Keiretsu. Getting financial information about the Keiretsu firms could be complicated insofar as the financial and accounting statements are not disclosed. Thus, such discretion could lead to an ambiguity or a lack of understanding from an outside perspective. Actually, the keiretsu are just trying to protect themselves from what they fear the most that is to say the yakuza and the greenmailing. b) Issues from the perspectives owners

As mentioned above, the keiretsu are suspicious towards the “outside” and this behavior may make foreign owners face some difficulties. Because the keiretsu system is much more in favor of inside shareholders than the outside ones, the former may find some difficulties to make the most of their shareholder rights. And this can maybe explain why the outside shareholders are often a minority in comparison with the shareholders of the keiretsu. Moreover, even if one of the outside owners becomes the biggest one, as T. Boone Pickens did, he may not be able to use his rights as he hoped. c) Issues from the perspectives suppliers

One of the main issues for external suppliers is to the relationship between OEMs and suppliers that often leads to dumping on the prices and enables the outside supplier to compete with such cheap prices. As far as the integrated suppliers are concerned, the exclusive partnership with the keiretsu they belong enables them to do business with another leading firm and to gain market shares. d) Issues from the perspectives employees

On the one hand and in case of horizontal integration, the very structure of a Keiretsu can lead into a confusion in management. The management transfers are so frequent that employees do not understand for which company they really work for is. One the other, the strong stability that comes out from this system could lead to a lack of action and performance from employees.

Question 2
What were T. Boone Pickens’ motives when he bought the share? In the eyes of many, Mr. Pickens was only acting as a front man for Mr. Watanabe, a well-known green mailer in order to pave a way to gain power and control over the corporation. Mr. Pickens denies all these accusations of greenmailing by claiming that he bought the share to carry out a “test case” in order to evaluate the accessibility of the market. In others words, his initiative has the only aim of checking whether the United States could make, in the future, profitable investments in Japan depending of the degree of welcome of the market. Moreover, it is not implausible to think that one motive of T. Boone Pickens was the quest of profit. It should be borne in mind T. Boone Pickens targeted Koito as an undervalued investment opportunity in so far as he anticipated a Koito stock rise due to the tight link between Toyota and Koito. The good performances of Koito stock combined with the rise of the net income and sales reinforce this idea...
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