Pickens Challenge Offers Insight on Corporate Japan
What if General Motors, instead of corporate raider T. Boone Pickens, had invested heavily in Koito Manufacturing, the auto parts supplier that has reluctantly come to symbolize Japan’s closed corporate structure? Would the world’s largest auto maker get a seat on Koito’s board?
“Very difficult,” said Takao Matsuura, Koito’s president. “They’d find out how we receive orders from our Japanese customers; I can’t imagine such a situation. We’d never let them put in an officer.”
No, there isn’t any rumor floating about that Pickens plans to unload his approximately $1 billion in Koito stock on GM in a “greenmail” scheme.
But Matsuura’s candid remark, made in a recent interview with The Times, betrays the insular mentality of Japanese corporate executives and the entrenched nationalistic attitudes that sometimes color Japan’s economic challenge to the United States.
It is precisely this brand of insularity that Pickens is attacking in an aggressive media campaign and in an ambitious program of lobbying American lawmakers. He recently bought full-page advertisements in major U.S. newspapers. The Texas oilman in June launched a full-court press on Congress after storming out of a raucous Koito shareholders meeting.
With Japanese companies making numerous acquisitions in the United States, especially in strategic high-technology industries, American critics contend that lack of reciprocal opportunities in Japan means that there is no level playing field in bilateral economic relations.
Yet principled rhetoric aside, the Pickens-Koito battle is a story without real heroes.
Pickens announced in March, 1989, that his Boone Co. investment arm had acquired a huge stake in Koito, an affiliate of Toyota Motor Corp. specializing in automotive lighting. His initial holdings, about 20% of Koito’s stock worth more than $800 million, made Pickens the largest shareholder--surpassing Toyota’s 19% stake. Declaring an interest in the “long-term management” of the Japanese company, Pickens later raised his share to 26% and repeatedly demanded a Koito board seat.
Koito refused. Company officials noted that Pickens obtained his shares from Kitaro Watanabe, a notorious stock speculator who had allegedly attempted to exact greenmail profits from Koito and Toyota in 1988.
Greenmail is the practice of buying large amounts of a company’s stock in anticipation that management--fearing that the buyer will gain control--will pay a premium to buy back the stock.
Koito hired a phalanx of American lawyers and merchant bankers to plot its defense. Pickens’ acquisition “makes no economic sense” in terms of conventional financing and return-on-investment wisdom, Koito argued. The only logical explanation is that Pickens never actually bought the shares but instead entered into a secret agreement to put on an act and bring U.S. political pressure to bear in support of Watanabe’s greenmail scheme, Koito contends.
Pickens has so far refused to reveal the financial arrangements leading up to his registration of Koito shares, prompting widespread speculation in the Japanese press that his motives may be dubious. A new law on equities disclosure, effective in December, will force him to show his hand.
Tokyo’s stock market crash and a crackdown on speculative bank lending might also put the crunch on Watanabe in coming months--if he does indeed, as the company contends, remain exposed with a $1-billion position in Koito.
“Watanabe is under a lot of pressure,” Matsuura said. “He’s running out of time.”
Pickens, meanwhile, has taken his case to the American public with newspaper ads that quoted sokaiya thugs heckling him at Koito’s June shareholders’ meeting with such phrases as: “America, you lost the economic war!” and “Yankee, go home!” and “Remember Pearl Harbor!”
“The Japanese were laughing at us,” the ads say, “because they know corporate Japan has it both ways. Japan can buy anything it wants in America, but closes its markets to America.”
Koito, however, contends that it was Watanabe who hired the sokaiya --professional shareholder-meeting bullies with close ties to organized crime--to discredit the company.
Yet even Matsuura acknowledges that Pickens may have some valid points when he criticizes Japan’s traditionally closed system, where corporate takeovers by foreign investors are almost unthinkable.
“American capitalism is very different from the kind of capitalism we have here,” Matsuura said. “America values only capital assets, while we think in terms of human assets as well. On that score, I can’t agree with Mr. Pickens.
“But I think we need to listen to what he says about our system being closed,” he added. “If it’s true, we need to open up.”
Still, Matsuura, one of three Koito officers who started their careers with Toyota, declined to answer when asked whether Koito would offer a directorship to a foreign investor who had become a major shareholder without arousing suspicions of a greenmail scheme.
General Motors, he explained, could never in theory position itself to demand a seat on the board because Koito has only Japanese customers--Toyota and all the other auto makers with whom the company does confidential development and design work.
“If it was a joint venture, it would be a different problem,” Matsuura said.
Koito does participate in a U.S. joint venture that sells parts to the Big Three auto makers as well as to Japanese companies that manufacture in the United States.
Matsuura and his aides and lawyers emphasized at the end of the interview that, although Koito could rule out offering a director’s seat to GM in such a hypothetical investment scenario, it does not mean that Matsuura “dislikes” GM.
Matsuura does not conceal his disdain for Pickens. He blames the American investor for poisoning the air with a “confrontational” approach.
Indeed, Pickens told the American public in September that it is “time to fight back” against Toyota and “corporate Japan.” He decried the so-called keiretsu system in which loosely aligned corporate groups have cross-shareholdings, interlocking directorates and sometimes exclusive business relations.
“Once again, Mr. Pickens is trying to manipulate public opinion for his own personal gain,” Koito responded in a statement. “He continues to wrap his greenmailing schemes in the mantle of U.S.-Japan trade relations. These tactics are outrageous and irresponsible.”
Weeks earlier, 18 members of the U.S. House of Representatives endorsed the Pickens complaint in a stinging letter to Japanese Trade Minister Kabun Muto.
And the U.S. Federal Trade Commission is apparently taking allegations about collusion in the Japanese auto parts industry seriously enough to launch an investigation into possible antitrust activities.
But Koito is not worried.
“We’re dealing with everybody fairly,” Matsuura said. “We have no sense of guilt at all about our keiretsu relationship with Toyota. We, in fact, receive absolutely no managerial direction from Toyota.”
No immediate solution is in sight in the dispute with Pickens, but Matsuura hopes to find a way to defuse the situation without paying greenmail to the American investor or Watanabe.
It would be “ideal” if Koito could offer its services in arranging a buyback of the shares by “friendly, stable shareholders,” he said. “But only if the selling price is reasonable.”
