Family Businesses and IPOs:
The Case of Idemitsu Kosan
Minoru SHIMAMOTO
Hitotsubashi University
A Venerable Firm
Idemitsu Kosan
Headquarters
2
A Venerable Firm
Idemitsu Kosan




Founded in 1911
The 2nd largest petroleum company
in Japan
Sales: nearly 4,000 billion yen (38
billion dollars)
Non-listed until 2006
3
A Well-Known Firm
Idemitsu Kosan
Service Station
4
A Well-Known Firm
Apollo mark
5
A Serious Financial Crisis
Debt Reduction
interest-bearing debt
Nearly 2,500 billion yen
(30 billion dollars)
2,500
1,500
1,000
500
2007
2006
2005
2004
2003
2002
2001
2000
1999
1998
1997
1996
1995
1994
1993
1992
0
1991
billion yen
2,000
year
6
Repayment & Recovery
Debt Reduction
interest-bearing debt
Nearly 2,500 billion yen
(30 billion dollar)
2,500
Recovery plan &
planned repayment
billion yen
2,000
1,500
IPO
1,000
2007
2006
2005
2004
2003
2002
2001
2000
1999
1998
1997
1996
1995
1994
1993
1992
Return from
0
the crisis
1991
500
year
7
Repayment & Recovery
Debt Reduction
interest-bearing debt
2,500
What happened
during this period?
1,500
1,000
IPO
500
2007
2006
2005
2004
2003
2002
2001
2000
1999
1998
1997
1996
1995
1994
1993
1992
0
1991
billion yen
2,000
year
8
Excellent Performance: V-shaped Recovery after 2000
Idemitsu Sales and Profit
(Excluding Subsidiaries)
4500
1993
3500
200
Recovery
Plan
Peak of the
debt
3000
2006
IPO
150
2500
2000
100
売上高
営業利益
経常利益
1500
1000
50
500
0
2007
2006
2005
2004
2003
2002
2001
2000
1999
1998
1997
1996
1995
1994
1993
1992
1991
1990
1989
1988
1987
0
1986
十億円：売上高
1999
十億円：利益
4000
(Source) Nikkei NEEDS Financial Quest.
9
Maintaining Profits
Idemitsu Sales and Profit
225
IPO
200
4000
2002
3500
President
Tenbo
175
3000
150
2500
125
2000
100
1500
75
1000
50
500
25
売上高
営業利益
経常利益
2010
2009
2008
2007
2006
2005
2004
2003
2002
0
2001
0
十億円：利益
十億円：売上高
(Including Subsidiaries)
2006
4500
10
（出所）Idemitsu株式会社『ファクトブック2010』2010年6月11日。（注）2010年度の営業利益は予想値。
Japan’s Second Largest Oil Company
Gasoline Market Share
(March 2011)
Others
13%
JX Energy
27%
Syowa
10%
Tonen
10%
JX Metal
12%
Idemitsu
15%
Cosmo
13%
11
Summary
Founder
Sazo
12
Summary
1885-1981
Founder
Sazo
Founder’s Son
Shosuke
13
Summary
Debt
1885-1981
Sazo
Bubble Economy
in the 1980s
Shosuke
14
Summary
Debt
1885-1981
Globalization
in the 1990s
Sazo
The Big Bang and
Financial Crisis
Shosuke
Fear among Banks
15
Summary
1885-1981
Sazo
Tenbo
Shosuke
16
Summary
1885-1981
Idemitsu’s IPO Plan
Sazo
The Recovery Plan
Tenbo
Shosuke
17
Summary
Sazo’s Principles of Management
Sazo
Tenbo
The Recovery Plan
18
2007
2006
2005
2004
2003
2002
2001
2000
1999
1998
1997
1996
1995
1994
1993
1992
1991
1990
1989
1988
1987
4000
3000
2500
2000
100
1000
0
十億円：利益
2007
2006
2005
2004
2003
2002
2001
2000
1999
1998
1997
1996
1995
1994
1993
1992
1991
4500
1986
十億円：売上高
billion yen
Summery
interest-bearing debt
2,500
2,000
Debt
1,500
1,000
500
0
year
Sales &
Profit
200
3500
150
Tenbo
売上高
営業利益
経常利益
1500
50
500
0
19
Sazo Idemitsu (1885-1981)
20
A Communitarian Firm
History of Idemitsu

2011 is the firm’s 100th anniversary

Idemitsu:







Is one of Japan’s pre-WWII international firms
Is a latecomer to the oil market that eliminated its latestarter disadvantage
Has a No-layoff Policy
Implemented an extremely difficult oil recovery project
Imports “Apollo” brand gasoline
Was the instigator of the Nishomaru Affair, competed
against the Oil Majors
Withdrew from the Petroleum Association of Japan when
opposed to regulation by the Government
21
Sacred and Inviolable
Sazo’s Principles of Management
Respect
 Paternalism
 Independence &
Empowerment
 Denial of the Greedy
Pursuit of Wealth
 Consumer-Centered
Business Mindset

人間尊重
大家族主義
独立自治
黄金の
奴隷たるなかれ
生産者から
消費者へ
22
Idemitsu is a Big Family
The Seven Wonders of Idemitsu
1.
2.
3.
4.
5.
6.
No
No
No
No
No
No
firing
forced retirement
labor union
time card
announcement of salary
peddling of labor for money
(The value of labor is greater than mere wages.)
7. No overtime pay
馘首なし
定年なし
労働組合なし
出勤簿なし
給料公示なし
給料は労働
の対価でない
残業代
受け取らず
23
Idemitsu's Financial Crisis
Expansive Growth Policy in the 1980s



Omni-directional expanding growth
policy
Collapse of Bubble Economy
Runaway growth of interest-bearing
debt
24
Omens of a Crisis
Idemitsu as an Entrepreneurial Enterprise

(1) Inviolable Management Philosophy


(2) Paternalistic Personnel System


(3) Freewheeling Corporate Strategy
25
Idemitsu’s Governance Structure
under Sazo (through the 1970s)



Each department chief negotiated
directly with the founder
The founder was responsible for all
major decisions
This arrangement was not rare (e.g. GM
in the early 20c.)
Only the Founder Knows Everything
26
Only Founder Knows Everything
Governance as an Entrepreneurial
Enterprise （until the 1970s）
Founder
Proposal
Oil
Idemitsu
Kosan
Approval
Proposal
Petrochemicals
Idemitsu
Petrochemicals
Idemitsu Petrochemicals was a wholly-owned subsidiary,
but operated independently
27
After the Founder’s Passing
Governance after Sazo
(in the 1980s)
Founder’s Son
Negotiation for
Investment
Negotiation for
Investment
Oil
Idemitsu
Kosan
Investment for measures
against Oil Liberalization
Petrochemicals
Idemitsu
Petrochemicals
Investment for development
into a General Chemical Firm
28
Idemitsu Group’s Overinvestment in the 1990s



Each division competed for
investment funds in the 1980s
Altogether, the amount was
enormous
Idemitsu Group’s investment
was not managed
systematically
29
Akihiko Tenbo
30
Akihiko Tenbo






1939:
1964:
1988:
1991:
2002:
2009:
Born in Tokyo
Graduated from the University of Tokyo
President, Idemitsu Europe
Accounting General Manager
President
Chairman
31
Rough Assumption of Continuously
Growing Economy


Idemitsu continued investing in
refineries and land procurement on the
scale of 100 billion yen per year –
entirely financed with debt.
One senior executive said to Tenbo:
“An Idemitsu accounting general
manager should simply collect money
without a word.”
32
Land Prices
1989-91
Stock
Land
33
Idemitsu Petrochemical’s
Losses (1993)



Ordinary loss of 27 billion yen (270
million dollar) in 1993 due to overinvestment
A Prompt re-structuring was necessary.
Idemitsu Kosan supported Idemitsu
Petrochemicals
Financial Institutions Began to Hesitate to Lend
34
The Origins of Idemitsu’s IPO
Idemitsu’s IPO Plan (1995)



Tenbo began to seriously think about
an IPO
In 1995, with President Akira Idemitsu,
Tenbo tried to convice Chairman
Shosuke of the necessity of an IPO
Chairman Shosuke’s reply: “No.”
35
Sazo rejected public capital markets.
Shosuke was his son.
Sazo's Stand Against Public Financing


Sazo

“After all, zero capital is ideal.”
“A public offering could cause
the fall of Idemitsu.”
Shosuke waited for five years to
approve the IPO.
Shosuke
36
Globalization & The Big Bang
The Big Bang (1996)





Collapse of the “Convoy System” (Banks had
been protected by the MOF)
Deregulation by the government
Reform toward Free, Fair and Global Finance
Intensified Competition between the Banks
This led to a credit crunch as bank’s struggled
to meet BIS capital-adequacy requirements
37
Unwanted Credit Rating
(1998)


Moody's assigned a “B2” to
Idemitsu in 1998
It was a kind of surprise
attack
AAA
Aa1
Aa2
Aa3
A1
A2
A3
Baa1
Baa2
Baa3
Ba1
Ba2
Ba3
B1
B2
B3
38
Fear Among Banks



The interesting-bearing debt still
reached about 2,000 billion yen in
1998.
Banks were afraid that Idemitsu
might not repay borrowed money.
In 1998, Tenbo began to contact
banks to discuss debt repayment.
39
Idemitsu’s Recovery Plan



In 1999 Tenbo decided to start the Idemitsu
Recovery Plan
Tenbo gathered leading middle managers
from each department cross-functionally
These middle managers used their area
expertise to help Tenbo formulate the grand
plan
Tenbo
Nakano
40
Idemitsu’s Recovery Plan
1.
2.
3.
4.
Reduction of fixed costs
Debt load reduction by selling noncore assets
Sale of non-core businesses
Enhancement of competitiveness
through alliance
41
Tenbo’s Campaign of Persuasion

Tenbo had to convince both the
Idemitsu Family and Employees of the
gravity of the crisis with actual data and
figures
Idemitsu Family
Idemitsu Employees
Internal Conflict
about IPO?
Tenbo kept silence
about IPO internally?
42
Idemitsu Family
AntiIPO
Chairman
Sazo
Keisuke
Shosuke
Akira
ProIPO
President
Tenbo
General Manager 43
Persuading Shosuke
Tenbo’s Point of View



An IPO is a tool, not a philosophy
If Sazo was alive he would permit an IPO, in
view of the now-mature stock market
A company’s role is not only to create profits
for stockholders but also to fulfill it’s social
responsibility. This is possible even after
listing on an exchange.
44
Sosuke’s Acceptance



In 2000, Shosuke admitted the
necessity of an IPO
Tenbo’s Words:
“It was not a one-shot meeting, we
discussed it many, many times. It was a
five-year meeting.”
In 2001 Shosuke resigned
45
The Recovery Plan and
Sazo’s Principle of Management(1)


A 10% pay cut for employees was
implemented between 1999 and 2002
The decision was to not to cut jobs but
rather to share the pain together
(→ Respect, Paternalism)
46
The Recovery Plan and
Sazo’s Principle of Management(2)


Idemitsu formed an employee stock
society in 2001.
80% of employees hold shares
(→ Rejection of the Greedy Pursuit of
Wealth)
47
The Recovery Plan and
Sazo’s Principle of Management(3)

The Seven Wonders of Idemitsu were
restricted by an internal control system
implemented in 2002.
(→ Independence & Empowerment)
48
The Recovery Plan and
Sazo’s Principle of Management(4)

An effective production/distribution
system was established though the
closure of refineries and the reform of
distributors
(→ Consumer-Centered Business
Mindset)
49
Inviolable Management Philosophy
Sazo’s Principle of Management





Respect
Paternalism
Independence &
Empowerment
Denial of the Greedy
Pursuit of Wealth
Consumer-Centered
Business Mindset
人間尊重
大家族主義
独立自治
黄金の
奴隷たるなかれ
生産者から
消費者へ
50
Sazo’s Management Principles
Respect
Paternalism
Consumer-Centered
Business Mindset
Independence &
Empowerment
Denial of
Greed
51
Sazo’s Principle of
Management
No Layoffs
Respect
Paternalism
Internal Control
System
Effective Production/
Distribution System
Consumer-Centered
Business Mindset
Independence &
Empowerment
Strategic Alliance
Denial of
Greed
IPO
52
Sazo’s Principle of
Management
No Layoffs
Respect
Paternalism
Effective Production/
Distribution System
Consumer-Centered
Business Mindset
Independence &
Empowerment
Denial of
Greed
Internal Control
System
Strategic Alliance
IPO
10% Pay Cut
No M&A
Employee Stock
Society
53
Paternalistic Personnel System
The Seven Wonders of Idemitsu
1.
2.
3.
4.
5.
6.
No
No
No
No
No
No
firing
forced retirement
labor union
time card
announcement of salary
peddling of labor for money
(The value of labor is greater than mere wages.)
7. No overtime pay
馘首なし
定年なし
労働組合なし
出勤簿なし
給料公示なし
給料は労働
の対価でない
残業代
受け取らず
54
Modern Personnel System
The Seven Wonders of Idemitsu
1.
2.
3.
4.
5.
6.
No
No
No
No
No
No
firing
forced retirement
labor union
time card
announcement of salary
peddling of labor for money
(The value of labor is greater than mere wages.)
7. No overtime pay
馘首なし
定年なし
労働組合なし
出勤簿なし
給料公示なし
給料は労働
の対価でない
残業代
受け取らず
55
Debt Reduction
Source: Idemitsu Kosan
56
Concluding Remarks
(1) Reform by Professional Managers:



Idemitsu Kosan faced a financial crisis
in the mid-1990s
Tenbo gathered core employees crossfunctionally to formulate a recovery
plan
He immediately implemented a series of
managerial reforms
57
Concluding Remarks
(2) Financial Globalization

Financial globalization

This reform effort began as a an effort to
remedy weak points in Idemitsu’s
governance structure under pressure from
the globalization of finance
58
Concluding Remarks
(3) Governance Reform

Governance Reform

With the assistance of finance institutions,
professional managers were able to
fundamentally alter the governance of a
company that had been heretofore
completely controlled by the founding
family
59
Concluding Remarks


If capitalism’s driving force can be said
to be innovation, it is necessary to
fumble towards and find the best way
of effecting organizational change
during adversity
Idemitsu demonstrates one such way
60
The End

Thank you for listening.
61
Persuading Shosuke
Tenbo’s Point of View (2000)




A bankruptcy due to an overly-strict
interpretation of Sazo’s philosophy
would obviously violate Sazo’s precepts
and Idemitsu’s philosophy
And inconvenience Idemitsu’s
customers
And interrupt Japan’s stable supply of
energy
And cause employees to lose their jobs
62
Accounting Director’s Statement
at the Press Conference

“Idemitsu’s mottos are Respect and
Consumer-Centered Business Mindset,
and we have not pursued economic
rationality only.”
63
Rough Assumption of Continuously
Growing Economy



Many investment projects proceeded without
top management's approval.
Facilities and land (assets) increased in value
during the 1980s
As the value of land rise in the 1980s, simply
holding facilities and land appeared to be a
good strategy
64