Speak to the IROs at Sony and Itochu and find that their IR strategies are feeding back into the way the businesses are run
Tsukada Nakajima of the Itochu Corporation is one of those rare individuals who span the gap between Anglo-American and Japanese investment practices. The very nature of business at Itochu - one of the great sogo shosha, or trading companies, set up in 1858 to take advantage of the original opening up of Japan to foreign trade - means it has always had an outward looking perspective.
Now Itochu is party to the opening up of Japan to western IR concepts. The multibillion dollar international trading company has been actively seeking foreign investment for the last eight years and 10 per cent of its shares are now in foreign hands. More are still being sought: 'We are now targeting for Global 96, so we have to internationalise ourselves and adopt western ways,' says Nakajima, referring to Itochu's medium-term management plan. With a gross trading profit of $5.6 bn on a turnover of $186 bn, the company is listed in Japan and Luxembourg, and a New York ADR is currently under consideration.
Nakajima, who has been general manager of the company's investor relations department since April last year, is very conscious of the distinctive nature of Japanese corporate culture. 'In the US, the power of shareholders is strong,' he says. 'But in Japan most companies think that they exist for their employees and their families, and the shareholders are, at best, second in line.'
He admits that the growth of institutional investment in Japan is affecting attitudes but says, 'Most managements here do not like such pressure. From my point of view, American investors are more active, mainly in corporate governance, and they are very keen to get information and keep communication with the company.' That may be equally true of managements elsewhere, but western executives tend to keep such dissatisfaction more discrete.
Itochu's outgoing IR urge began eight years ago with what has since become a regular roadshow through Europe, touching down in London, Paris, Frankfurt and Zurich every year, and adding Edinburgh to the itinerary every three or four years. Nakajima says there is no precise target for foreign investment levels at Itochu. 'We can't find what would be an appropriate ratio to match now that we are an internationalised global activity. But we are up to double digits, and many foreign investors now know our name.'
So which investors does Nakajima generally meet? 'It's case by case,' he says. 'Mainly our investors are Japanese, but in Japan they generally have their own research departments, so we rarely meet them. Japanese investors are mainly financial institutions, and we have very close relations with them and explain our situation constantly, so we don't need to meet them. But recently many foreign investors have come here, and the securities houses ask them to meet us,' he says, highlighting the heavy reliance on brokers to do the IR legwork in Japan.
That habit seems to be readily carried to overseas operations. 'When I was in London this September,' Nakajima recounts, '{the institutions}said they didn't need to talk to our company; instead I talked to the securities house analysts, so they can get information from them. It is difficult to contact individuals so our target is institutions, who normally contact us through the analysts.'
Back in Tokyo, Nakajima sees a range of interested people. 'I try to expand on the annual report, with more information for the analysts. And some US investors have a branch in Tokyo, so we can talk to their people over here. The securities departments arrange visits and bring them round; and I arrange meetings and presentations with our business departments - over our plans for multimedia, for example. That's a big issue so we have many questions from analysts about it.' Perhaps one way of dealing with those questioners might be to refer them to the company's home page on the Web: http://www.iijnet.or.jp/ITOCHU.
An interesting side effect of attracting foreign investors to Itochu's stock is that the financial information the company now has to generate has turned out to be useful as a management tool. 'Itochu's top management are very keen to know our figures. Our management wants to know, needs to know, these figures, so they are happy we now have to compile them. It's still a new approach for Japanese management.'
Despite this enthusiasm, the traditional fear of non-conformism remains. 'Our price to book ratio is almost average on the TSE, so our company's reputation is sound,' says Nakajima proudly - where a western counterpart might sound more apologetic. However, he adds that the nine trading companies in Japan trade below average, with Itochu at the top of that group. And he notes sternly: 'It is not our target to artificially lift up our share price. We don't have to do so. We just have to think of whether the share price is appropriate or not.'
The IR department at Itochu has just two staff. 'We are part of corporate communications, but we have a direct line to the president. I have direct access to our CEO, and to any other department as appropriate - accounts, finance, planning etc for when we need figures.' explains Nakajima.
Nakajima came from the finance and capital market branches and, as with many IR officer appointments in Japan, his was not anticipated. 'To be honest, I was surprised when I got the assignment in April, but I do enjoy it.' He has found his earlier ten years experience as a foreign exchange dealer useful: five years in London and a year in Paris, with frequent visits to Zurich and Frankfurt, helped prepare him for the wayward wants of western money people.
He is now a planning board member of Jira, the country's IR society, 'And we are working to expand our concepts of IR, which is developing, not rapidly, but step by step,' he says. 'Many companies have understood the importance of IR, and I can do something with Itochu.'
Sony is no recent convert to western investment, which may explain in part why it won the Investor Relations magazine award for the Asia-Pacific company with the best IR programme in the UK market last year.
Indeed, Sony has always stood apart. Small and outside the cosy cartels of interlocking financing, in the early 1960s under founder Akio Morita it became the first Japanese company to go to the New York Stock Exchange for the capital it couldn't raise at home.
Today Sony has an unusual investor make-up that enjoys an unprecedented level of IR activity for Japan. Foreigners hold 27 per cent of the equity and individual Japanese shareholders hold a further 23 per cent. In the early 1980s the foreign stake was up to 45 per cent, but profit taking and the collapse of the bubble economy have combined to pull that back.
Yuji Yamasaki has been manager of the Capital Market and Investor Relations department at Sony for a little over a year. Before that he was in Thailand managing a semi-conductor subsidiary. Sony is still a Japanese company in which corporate rotation takes precedence over function.
'I had never worked at HQ before, so when this position came up I thought it might be very interesting,' says Yamasaki. 'It's different. It's a new challenge. I tried to learn what IR was about - it involved a lot of learning about securities laws, and of course you need to know a lot about your company. You are also always under a lot of pressure, since you have to keep the investors well-informed.'
Quite so. And it also seems to imply acquiring a sense of corporate history. 'The roots of our IR effort go back to 1961 when Mr Morita himself prepared for issuing an ADR in New York. He spent a lot of time in the US and had to make a roadshow to explain about the company. '
However, Yamasaki could not put his finger on what would surely be an impressive number to hit potential investors with - how much one of those $17 units Akio Morita sold in 1961 would be worth today, following three decades of expansion and success. 'A lot,' was the best he could manage.
There are now some 16 staff in the combined Capital Markets and Investor Relations Department in Japan alone, with additional IR personnel in New York and London. 'Sony is listed on almost every stock exchange so it takes a lot of effort,' Yamasaki explains. But he seems happy enough, with no complaints about access. 'Our section is very close to the top, an independent department,' he says. 'We always have information and access to all the other departments.'
But in the US, at least, analysts don't seem quite as happy with Sony's investor relations efforts as Sony itself is. One trenchant American critic, a New York pundit who preferred anonymity, declared: 'As far as I'm concerned, basically Sony doesn't have an IR department. With all these write-offs in the entertainment sector and the sacking of Mickey Schulhof, they were just not getting through to investors - and that's reflected in the stock price.' He added that Sony's New York presentation last April was poorly attended - and poorly presented: 'Sony is a major company, so it was not lack of interest - it was poor IR.'
Most of the other analysts contacted by Investor Relations were equally critical and equally determined to remain anonymous. One exception to the anonymity rule was Sarkis Izmirlian of JP Morgan, who compared Sony unfavourably with Matsushita, whose IR effort he praised as highly effective. 'Sony has been very disappointing with its IR. It needs to improve and to communicate more with investors,' he said in measured tones.
According to Yamasaki's assistant in Tokyo, Ken Yoshido, who has been working in the IR field for ten years, Sony does nevertheless make a serious effort to look after the needs of its foreign investors. Some Japanese companies rile international shareholders by sending out notices of annual meetings too late to arrange attendance and by mailing proxy forms in Japanese only. Yoshido, on the other hand, who is responsible for arranging Sony's meetings, takes the trouble to send out both the invitations and the proxy forms in English as well as Japanese, although he notes: 'There isn't a huge attendance from abroad.'
Yamasaki and Yoshido are both members of Jira, although one feels this may be as much out of duty as enthusiasm. Conceding that they are not especially active in the organisation they say, 'We'd rather go out and talk to our investors - that's more beneficial to us.' Similarly, Yamasaki refuses to be drawn on how the company differs from its compatriots. 'We never really compare ourselves with what others are doing; we just do what we feel is necessary.'
But despite his reticence, there is little doubt that Sony has broken new ground for Japan. Last September, for example, the company began issuing stock warrants to top executives. 'If they own shares, they have incentives,' Yamasaki says. 'Their thinking will be in line with shareholders' and they will look at the business from the point of view of shareholders. They will be more aware of stock market movements, so they will think in terms of how they can provide value and benefits for shareholders.'
This move certainly represents a big step towards the Anglo-American model, in which executives often have a close financial interest in their companies' share prices. But is Sony concerned about possible negative consequences - golden parachutes, short termism and all the other sins sometimes blamed on lush executive packages? 'No,' smiles Yamasaki. 'In Japan they work for a company for a long time so the situation and the thinking are different.'
It does, nevertheless, suggest a shift of corporate attention away from the workforce and towards the stockholders. 'I don't think we should make such rankings,' Yamasaki responds firmly. 'They are all equally important. The company runs on people: we need them as well.'
Shareholders are people as well, of course, and the high proportion of individual domestic shareholders makes a heavy demand on the IR effort at Sony. It holds quarterly shareholder information meetings for retail investors in different Japanese cities, attended by some 5-600 people and arranged by its securities house. 'So far as I know, we are the only people to do this in Japan,' claims Yamasaki. The courting of retail customers may not involve dispensing free multi-media units, 'But we give out 500 telephone cards,' says Yamasaki, and the company showcases new products at the meetings. 'We also give souvenirs at our annual meeting.'
Tailored Approach
Sony's shares are traded at higher volume than most Japanese stocks which tend to be closely held by institutions. 'We do have some traditional Japanese cross linkings, but post bubble individual investors are looking at the situation. In the 1980s very low bank rates led to a lot of money being put into stocks. Psychologically it needs some kind of stimulus. Many of them have stayed with us. Foreign investors have dropped off a little, but for the US investors who stayed with us from before the appreciation of the yen, they made some money despite the bubble bursting. That's less so in the case of Europe, since their currencies did not depreciate quite as much as US dollars. So obviously our approach to these groups has to be tailored differently, but the trend is on the long term,' says Yamasaki.
Both Sony's IR pros prefer face-to-face meetings with analysts, but for larger meetings they have an eight minute in-house video. And Sony Drive, the group's page on the Web offers the annual report to netsurfers, as well as quarterly financial results. 'It's best to let the investment community know as much and as soon as possible,' says Yamasaki. 'In contrast with the old saying, more news is good news,' he announces with what could be taken as cheerful heresy for Japan. 'We do IR on a continuing basis. We give the situation when it is good, but you also need to talk to them more when it is bad. They need information about negative figures, too.'