Terrie's Take 904 - Old Man Funai and the Weakness of One-man Shacho Companies

Terrie's Take terrie at mailman.japaninc.com
Mon Jul 10 00:06:39 JST 2017

* * * * * * * * TERRIE'S TAKE - BY TERRIE LLOYD * * * * * *
A weekly roundup of news & information from Terrie Lloyd, a long-term
technology and media entrepreneur living in Japan.

General Edition Sunday, July 09, 2017, Issue No. 904

- What's New -- Old Man Funai and the Weakness of One-man Shacho Companies
- News -- Embryonic stem cells soon available for medical use
- Upcoming Events
- Corrections/Feedback
- Travel Picks -- Alice in Wonderland in Harajuku, Cat Island in Miyagi
- News Credits

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On Friday, the stock price of Funai Electric hit its highest point in 
the last 18 months, gaining 2.83% to end the day at JPY1,053 per share. 
This was rather surprising to us, because while the price represents 
favorable news on recent deals and generally favorable financial 
results, at the same time, on Tuesday the firm's iconic founder, Tetsuro 
Funai ("Old man Funai" to many), died at the age of 90. At that age you 
would expect that Mr. Funai would have been well out of the company thus 
allowing the firm to run on its own merits (and thus insulated from the 
eventual passing of its founder), but things are not that simple.

In fact, Mr. Funai retired from the CEO role of Funai Electric in 2008, 
at 81 years old, and the company was run by a long-term trusted 
lieutenant. But after his retirement and a nice but temporary 100% bump 
in stock price, the lack of new technology to replace Funai's staple 
businesses of TV and VCR/DVD manufacturing started to eat away profits, 
and in 2012 the stock fell to its current low average of JPY1,000 or so. 
The Funai board tried a variety of rejuvenation strategies, including 
buying brands in sectors with razor-thin margins which the owners were 
trying to get out of - like Lexmark's ink jet printer division - and in 
the process also burned through 3 different CEOs. However, in the end it 
took the return of Mr. Funai to the business to put the company back on 
a stable footing. His final achievement before passing was to 
re-introduce the Funai-brand LCD TVs into Yamada Denki stores across Japan.

But now he is gone.

Our take is that while shareholders may currently cheered by the fact 
that the company seems to be on the mend, in fact, it were us, we'd be 
dumping the shares per one simple premise - the driving force of the 
company is gone. The problem for Funai, like many electronics companies 
started after WW2, is that Mr. Funai ruled his company with an iron fist 
and he was part of a generation of "One-man Shacho's" who made sure that 
none of their employees got any strange ideas about just whose company 
they were working for. Other such top-down run companies have included 
Honda, Matsushita, Sony, Kyocera, and Fanuc.

However, unlike these other companies, which although after the passing 
of their founders (well, Kyocera's Inamori and Fanuc's Inaba are still 
around) had their existential threats and were able to overcome them 
thanks to a deep pool of management experience and relatively 
diversified businesses, Funai has always been laser focused on just a 
few products, and their market positioning has been one of cost-cutting 
rather than product innovation, which means a lack of emotional depth 
and vision within the management.

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[...Article continues]

We heard a story a few years ago about just how autocratic and strict 
the management methods of Mr. Funai were, which in the beginning no 
doubt contributed significantly to his success in what essentially has 
been a manufacturing and trading business. Even as he turned 80, Mr. 
Funai would gather all the senior managers every morning in the office 
at 08:00, and would spend an hour with them going over the business and 
specific actions and problems that each division was facing. Notably, he 
insisted that every manager know their business well enough that they 
didn't take notes in or at those morning meetings. This was apparently a 
source of huge pressure for those attending, and no doubt caused many 
rising stars to leave the firm the closer they got to Old Man Funai's 
orbit. At the same time, you have to respect Funai's own personal mental 
acuity and physical stamina.

One-man Shacho's are not just an electronics company phenomenon, but are 
most commonly found in those sectors in Japan which are tied to 
innovation and which are largely free of incumbents. Currently, you can 
find many such operators in the Internet space, and it is probably no 
accident that many of these people have very similar problems to those 
that the Funai company is facing. Fundamentally a One-man Shacho (and of 
course it could be a woman CEO) runs the company as their fiefdom and 
will do with it what they want. Whether this disadvantages the 
shareholders and whether it breeds a generation of "yes men" around them 
that weakens the company, is of little concern. We have had the 
unfortunate experience of having to deal with a number of these types of 
company owners over the years.

The source of a One-man Shacho's power to successfully intimidate their 
employees is generally rooted in two things: i) Japanese graduates 
coming into these companies are already used to a bullying culture at 
school, and so while being in such a company is uncomfortable it is not 
unmanageable. And ii) usually this kind of shacho has created a cash-cow 
business and the staff know that they are lucky to be riding a winning 
horse. So for them the need to get paid and eat is more important than 
any feelings they may have about the methods the boss uses to achieve 

Successfully dealing with these kinds of top-down companies is all about 
how close you can get to the CEO and be his or her "buddy". If you have 
something they want, and you have the time and willingness to deprecate 
your interactions so as to feed their ego, you can walk away with some 
very decent deals and a devoted remote workforce (i.e., their employees) 
to support you. The problem comes when your One-man Shacho partner 
decides that they don't like you any more or that you're becoming a 
competitive threat. Then suddenly, instead of an orderly and cooperative 
partner, you wind up with a CEO who makes increasingly unreasonable 
demands coupled with a phalanx of yes-men co-workers who suddenly can't 
make decisions on their own and have to keep referring matters upstairs. 
In the end, such a relationship is down to how much patience you have 
and how crazy/power obsessed the One-man Shacho is. One good tell-tale 
clue is to check that company's previous record of legal actions in 
local courts.

In Funai's case, the company has very shallow management resources and 
was mostly powered by Old Man Funai's trading mentality and the traders 
he employed. Now, without recruiting someone with very similar 
capabilities to take over the reins, we expect that the company will 
once again lose momentum and eventually become a takeover target. We 
give Funai Electric about 12 months before the cracks start to appear. 
And because the trader nature of the company is not really that 
attractive to fellow Japanese players, the likely buyers will be from 
Taiwan or Hong Kong.

In the meantime, Rest in Peace, Mr. Funai. You were one of Japan's 
post-War giants, a man of great self discipline, and salt of the earth.

...The information janitors/


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+++ NEWS

- Embryonic stem cells soon available for medical use
- Record fall in population
- GPIF shows greatest returns in two years
- World's most expensive bunch of grapes?
- Is Abe in danger of being ousted as PM?

=> Embryonic stem cells soon available for medical use

In a major advance for the use of embryonic stem cells in medicine in 
Japan, Kyoto University has said that in cooperation with Kyoto's Adachi 
Hospital it will make fertilized eggs from patients undergoing 
infertility treatment available to other medical institutions wanting to 
incorporate stem cell treatments for patients. The cells are expected to 
be used for a variety of conditions, including spinal cord repair, 
retina regeneration, diabetes treatment, and Parkinson's treatment. 
(Source: TT commentary from japantimes.co.jp, Jul 05, 2017)


=> Record fall in population

Japan's demographic tsunami is gaining momentum and the population of 
the nation's citizenry fell by a record 308,084 to 125.6m people. This 
was partly offset by a 7% increase (148,959) foreigners living in Japan. 
Both lower birth rate and aging were to blame. Births fell below 1m 
babies for the first time in 37 years, with 981,202 new registrations. 
Deaths increased to 1.3m. Japan is expecting its population to decrease 
by as much as 900,000 people a year by 2045. (Source: TT commentary from 
ft.com, Jul 05, 2017)


=> GPIF shows greatest returns in two years

The world's largest pension fund, Japan's Government Pension Investment 
Fund (GPIF), enjoyed a 5.9% bounce back on its assets, an amount of 
around JPY7.9trn, for the fiscal year ending March 31, 2017. As a result 
the GPIF's assets have now hit a record JPY144.9trn. Before too many 
congratulations are in order, it is sobering to think that the GPIF last 
year had its worst performance ever. losing JPY5.3trn. This time around 
the fund rose on the improvement in stock prices both locally and 
overseas. The fund's biggest equities investments were in Toyota, 
Mitsubishi UFJ, and Apple, while its largest debt holdings were in 
Japanese government bonds (JGBs) and United States treasuries. (Source: 
TT commentary from straitstimes.com, Jul 08, 2017)


=> World's most expensive bunch of grapes?

A bunch of prized Ruby Roman red grapes were auctioned off on Friday for 
a record JPY1.11m, approximately JPY37,000 per grape. The grapes, a 
high-brix variety developed in Ishikawa-ken about ten years ago, were 
purchased by the delighted manager of the exclusive onsen Kagaya, which 
is also located in Ishikawa-ken. Each Ruby Roman grape weighs 20gm or 
more, and the prefecture expects to sell 23,500 bunches for about 
JPY139m (i.e., for a more reasonable but still pricey JPY5,900/bunch). 
(Source: TT commentary from the-japan-news.com, Jul 07, 2017)


=> Is Abe in danger of being ousted as PM?

Readers outside Japan may not know that PM Abe's LDP political party 
suffered a stunning defeat last Sunday (July 02) at the hands of Tokyo's 
new woman governor, Yuriko Koike and her new "Tokyoites First" party. 
This is the first really serious setback for Abe and the LDP since he 
won a landslide victory over the opposition DPJ party back in 2012. 
Koike got elected on several factors: 1) She is the first credible new 
challenger since the 2012 landslide, 2) Abe has been caught up in a 
number of embarrassing scandal accusations, and 3) the LDP's Tokyo 
leadership came across as an "old boy" network looking after themselves 
at the expense of the tax payers. The Nikkei summed up the loss as being 
caused by: "Arrogance, complacency, fragility." Political commentators 
say that although Abe's hold on power has been weakened, potentially 
derailing his efforts to rewrite the constitution, but in the absence of 
any serious contenders he is expected to stay in power at least until 
his second term as the LDP leader ends in September 2018. (Source: TT 
commentary from reuters.com, Jul 04, 2017)


NOTE: Broken links
Some online news sources remove their articles after just a few days of 
posting them, thus breaking our links -- we apologize for the inconvenience.



---------- ICA Event - Thursday 27th July -----------------

Speaker: John Kirch - Regional Director North Asia of Darktrace
Title: "Leveraging Artificial Intelligence to detect New, Emerging Cyber 
Threats in Realtime "

Details: Complete event details at http://www.icajapan.jp/
Date: Thursday 27th July, 2017
Time: 6:30pm Doors open
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ups at the door!!!!!!!
RSVP: By 5pm on Monday 24th July 2017, Venue: Room F, 9F, Sumitomo 
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No corrections today.



=> Alice on Wednesday, Harajuku, Tokyo
An Alice in Wonderland themed boutique

There are so many things to do in Harajuku: a visit to the Meiji Shrine, 
a walk down the popular fashion street Takeshita Dori, and window 
shopping around the larger streets, where popular brands from all over 
the world have built their flashy multi-floor branches. Luckily for 
those Alice in Wonderland fanatics, Harajuku will also be your go-to place!

"Alice on Wednesday" is tucked away near the entrance of a small street, 
only a 7-minute walk from Takeshita Street. The store explains its name 
choice: turning the boring day of Wednesday into a wonderland-filled 
day. It is an Alice in the Wonderland themed shop with snacks, jewelry, 
and accessories. It is very much like the accessory shops found along 
the Takeshita street, with most of its customers browsing the jewelry 
section of the store. Pleasantly unlike most accessory shops in 
Harajuku, its products are moderately priced and less likely to frighten 
those who have accidentally discovered the shop.The store's facade is 
designed showing four different sized doors. Customers enter through the 
smallest door and are transported to Lewis Carroll's whimsical world.


=> Cat Island of Tashirojima, Miyagi
Feline paradise south of Ishinomaki

Cat Island, otherwise known as Tashirojima, is located 50 min south of 
Miyagi's Ishinomaki area, accessible by ferry from the mainland. There 
are over 600 cats living on the island - six times the number of human 
residents! With the island's population slowly declining over the years 
and average age of its residents slowly rising, the island is 
nonetheless supported by its small fishing port and several local 

The two main areas include Oodomari to the north and Nitoda to the south 
- the latter village the primary destination for visiting tourists from 
the mainland. Venturing inland you can also find several points of 
interest, including the Cat Shrine and Manga Island area.The Cat Shrine 
is said to have been built by local fishermen in honor of a cat that 
died in a fishing net accident.




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Written by: Terrie Lloyd (terrie.lloyd at japaninc.com)

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