Many business books that tell the stories of how particular companies rose and fell bear the label ‘inside story’ but few deliver the insight expected by the reader. This, however, is not the case with The Inside Report on Softbank’s Warped Management, an expose of the Japanese software and publishing giant written by current and past employees under the pen-name Koichi Yoshida. The Inside Report starts off by addressing itself to the stockholders of Softbank, purporting to provide the full disclosure on the company which, it says, chief executive Masayoshi Son and Softbank executives have failed to do. Were it not for the tendency of Japanese journalists to take a successful company such as Softbank at face value, reporting whatever a company says, these facts might be more widely known, it says. The book is divided into three sections. In the first, it looks at information on Softbank gained through the annual general meetings and financial details released in the last year, particularly the financial reporting on the fiscal year ending in March this year. The conclusion drawn is that great attempts were made to hide the true financial state of Softbank, which is not as healthy as the company has suggested. The details of The Inside Report make fascinating reading. According to the book, Softbank is controlled by seven ex-Nomura Securities men, people skilful at ensuring that Softbank’s stock price is kept healthy. Even so, the stock price has fallen to around 5400 yen from around 9000 yen a year ago; and down from a peak of 30,000 yen in 1995. How Softbank was able to attract highly-paid stockbrokers to join its ranks is still a mystery, but the book claims that aside from the salaries paid by Softbank to these employees, they also receive an additional ‘under the table’ salary from Mr Son’s personal company MAC.
Seeds of downfall
The book claims that an incentive system for employees allowing them to purchase Softbank stock under preferential terms has been recently distorted so that employees lose rather than gain if the stock price rises; the original system is still in place for executives of the US subsidiaries however. In the final section, the book examines Softbank’s acquisition strategy over the past year. Softbank claims that every company it has acquired fulfilled a number of criteria: being a number one company in its industry, being a provider of digital infrastructure, being profitable in both the short and long-term, and having synergy with other companies in the Softbank group. Looking in detail at the acquisition of Kingston Technology last year, however, the book concludes that Kingston was neither a number-one company, nor a strategic fit in infrastructure terms – a conclusion also reached by other analysts. Finally, the most damaging chapter sensationally claims that the seeds of Soft-bank’s financial downfall are already sown. Mr Son’s personal company MAC, through which he holds 50% of the shares of Softbank, has been used for various purposes – such as purchasing the deficit-ridden divisions of the acquired companies so as not to impact on Softbank’s results, absorbing foreign exchange risk and bearing investment losses. However, the book says, MAC is now under financial threat itself and, if it falls, the whole Softbank business may also be under threat. Softbank, nevertheless, has a strong position in the Japanese software market, and its publishing base of computer magazines also seems relatively strong. Whether this is enough to support an empire of subsidiaries and venture capital investments in a diverse range of technology fields will depend on the business acumen of Son and his Nomura-men. Son is understandably, less than pleased about The Inside Report and has slapped a lawsuit on the publishers, Yell Publishing of Tokyo. Yell, however, says it stands by the truth of the publication and is ready to fight in court. But in early August, Son released financial details about his company MAC – in effect admitting the allegations in the book – and last week he announced the establishment of an Investor Relations department at Softbank.
Reviewed by Anita Byrnes. The Inside Report on Softbank’s Warped Management by ‘Koichi Yoshida.’ Publisher: Yell Publishing, Tokyo. Available only in Japanese.