|
|
 |
 |
Japan's Debt DoctorNovember, 2003 by Bill Snyder Faced with resuscitating the nation's debtor companies, Kazuhiko Toyama, MBA '92, brings past success and an understanding of market forces to the task.When one of Japan's leading manufacturers of printing equipment filed for bankruptcy in 2001, many people wrote off the company. After all, Tokyo-based Akiyama Machinery Manufacturing Corp. had emerged from a previous bankruptcy just eight years before, and the faltering Japanese economy wasn't likely to supply many potential buyers. But an Akiyama customer, fearful that it would lose its major supplier, looked to turnaround specialist Corporate Directions Inc. and its president, Kazuhiko Toyama, for help. Toyama studied the company and agreed that it was worth saving. The 43-year-old Stanford graduate, MBA '92, helped structure an unusual deal that led to a purchase by Shanghai Electric, a leading Chinese company employing more than 100,000 people. It was a risky and imaginative solution. But it paid off. Akiyama is once again a profitable company. Now Toyama is facing a much bigger challenge, one that puts his reputation as a corporate ER doctor squarely on the line. In April, he was named chief operating officer of the Industrial Revitalization Corp. of Japan (IRCJ), a new government agency charged with helping to salvage at least some of the approximately $320 billion in bad loans that are crushing the banking system. Backed by a government guarantee of 10 trillion yen (U.S. $86 billion), the IRCJ has five years to guide debtor companies back to economic health. The IRCJ will buy the loans of selected debtor companies at a substantial discount, what Toyama describes as a haircut, and revitalize them by restructuring their operations and, if necessary, their management. Sound like a bank bailout in a fancy wrapper? Toyama denies it. "This is not like the S&L crisis in the United States," he told Stanford Business. "The problem has spread far beyond the financial sector." Overburdened by debt and hampered by outmoded employment policies, Japanese industry has been underinvesting for years, Toyama said. "It's a disease that we needed to treat 12 years ago." For Toyama, a father of two, one of the worst symptoms of the disease is the lack of opportunity for young people—unemployment among Japanese in their late teens and early twenties now stands at about 10 percent. And many more young people work part time or hold one short-term job after another. This state of underemployment has become so prevalent the Japanese have coined a new word to describe these workers: "freeter," a combination of the English word "free" and the German word arbeiter (laborer). "Our mission is to save the heritage of industry for the future. The tradition of passing on know-how and technology from generation to generation is dying," Toyama said. The fix won't be pain free for creditors, managers, or employees. Asked about his strategic view of the recovery, Toyama frequently talks about Carlos Ghosn, who took over as CEO of Nissan in 1999 when the automaker was deeply in debt. Ghosn transformed a $5.5 billion loss in fiscal 2000 to a $2.7 billion profit the next year-above analysts' expectations. He trimmed billions from Nissan's $20 billion debt and boosted the stock price 30 percent. But to do so, he cut 23,000 jobs in a country where lifetime employment is the norm, closed factories, and ended decades-old contracts with suppliers, according to Bloomberg News. "The question," Toyama said during a Bloomberg panel discussion in early July, "is within five years how many Nissans we can create." Substantial numbers of employees of companies rescued by IRCJ may well find themselves unemployed, he acknowledged during his discussion with Stanford Business, adding that those who lose jobs "are leaving situations where they are no longer needed, but [they] might have another chance for life fulfillment in a revitalized economy." Still, the sacrifice will be a shared one. Case in point: Kyushu Industrial Transportation Co., a bus company with a $480 million debt that is one of the IRCJ's first rehab cases. The agency expects creditors to eat a substantial portion of the debt and management to step down. Toyama's rise to prominence is no surprise to those who knew him at Stanford. "He's smart, he's serious, he's assertive," said Jeff Donnelly, a 1992 Stanford MBA who remains in contact with his former classmate. Donnelly, now a general manager at semiconductor equipment maker KLA-Tencor, recalled that other students, particularly those from Japan, looked to Toyama for leadership. While at Stanford, the two men jointly developed a paper contrasting Japanese and Silicon Valley management styles. Although Toyama's English is excellent (he lived in Australia for part of his childhood), he convinced Donnelly that a native speaker should do the actual writing. The episode illuminates an important facet of Toyama's character: His ego is strong. Many business people in their thirties would be embarrassed to concede that some of their skills are less than perfect, but Toyama realized that reaching his goal was more important than losing a bit of face. The paper got a good grade and 11 years later, "a lot of what we said still rings true," Donnelly said. Toyama passed the bar and received a law degree from Tokyo University in 1985, but like many successful Japanese businessmen, he had little interest in becoming a lawyer. "People of my generation [and social class] had few options other than being a salary man," he said. But being a white-collar worker for one company for his entire career was not the life Toyama wanted. His training in law helped him land a job in Tokyo with the Boston Consulting Group. Toyama then joined Corporate Directions, a business consultancy, and saw the need for a more focused education. Why Stanford? "I was very much attracted by the GSB's environment, particularly its closeness to Silicon Valley and its background of high tech/IT, and traditions of entrepreneurship," he said. The good weather, golf course, and proximity to San Francisco didn't hurt either, Toyama added. When Sadakazu Tanigaki, minister in charge of industrial rehabilitation, named Toyama chief operating officer of the newly created IRCJ, his reputation as a turnaround artist alleviated some of the concerns about Toyama's comparative youth. After all, many high-ranking Japanese officials are nearly twice his age, and Toyama has never led a large industrial or financial enterprise. One argument in favor of his appointment: Toyama's success with Akiyama. Akiyama International Co., as it is now called, is already profitable, according to a recent story in the Washington Post. It has trimmed production costs by 15 percent through aggressive bargaining with suppliers. It has instituted a merit-based pay system that eliminated perks for senior employees while creating opportunities for younger ones, the Post reported. Moreover, the turnaround demonstrated the kind of unconventional thinking that will be needed to make IRCJ a success. World War II left a bitter legacy that still plagues economic cooperation between Asia's economic superpowers, and turning over a Japanese company to Chinese investors is virtually unknown. Moreover, poorly run Akiyama was sinking under a mountain of debt related to overexpansion despite its reputation for technological excellence. But Toyama, whose father was a printing company executive, was right. The business was worth saving. With the IRCJ now up and running, it's becoming clear that Toyama will need every bit of the strength of character that impressed his friends at Stanford. The IRCJ has a very high profile, and rumors about its decisions frequently spark action on the stock market. Mitsui Mining Co., for example, jumped 21.7 percent in one day on reports that the company might get support from Toyama's agency. The government is so worried about leaks and the potential for serious conflicts of interest within the body that all meetings are videotaped, telephone conversations are recorded, and a member of the public prosecutor's office is attached full time to the IRCJ, Toyama said. The IRCJ gets a good deal of scrutiny in the Japanese press and Toyama will get plenty of criticism if it appears that he is wasting the mountain of cash entrusted to him. In fact, some Japanese business analysts worry aloud that the agency will create "zombie" companies—organizations that are alive only because of the infusion of public money—and do little to make the economy more competitive. But Toyama sounds supremely confident when he describes his plans and says he acts from a sense of duty. "I'm a Japanese citizen; I share the sense of crisis, and like our parents' generation we have to sacrifice for the future." |
|
|
|
|
 |
|
|
|
Japan's
Debt Doctor
