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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
A Venerable Firm
66
Debt Reductioninterest- bearing debt
0
500
1,000
1,500
2,000
2,500
1991
1992
1993
1994
1995
1996
1997
1998
1999
2000
2001
2002
2003
2004
2005
2006
2007
year
billion
yen
Nearly 2,500 billion yen (30 billion dollars)
A Serious Financial Crisis
77
Debt Reductioninterest- bearing debt
0
500
1,000
1,500
2,000
2,500
1991
1992
1993
1994
1995
1996
1997
1998
1999
2000
2001
2002
2003
2004
2005
2006
2007
year
billion
yen
Nearly 2,500 billion yen (30 billion dollar)
Recovery plan &planned repayment
IPO
Return fromthe crisis
Repayment & Recovery
88
Debt Reductioninterest- bearing debt
0
500
1,000
1,500
2,000
2,500
1991
1992
1993
1994
1995
1996
1997
1998
1999
2000
2001
2002
2003
2004
2005
2006
2007
year
billion
yen
IPOWhat happenedduring this period?
Repayment & Recovery
99
0
500
1000
1500
2000
2500
3000
3500
4000
45001986
1987
1988
1989
1990
1991
1992
1993
1994
1995
1996
1997
1998
1999
2000
2001
2002
2003
2004
2005
2006
2007
十億
円:
売上
高
0
50
100
150
200
十億
円:
利益
売上高営業利益経常利益
(Source) Nikkei NEEDS Financial Quest.
IPORecovery Plan
1999 2006
Peak of the debt
1993
Excellent Performance: V-shaped Recovery after 2000
Idemitsu Sales and Profit(Excluding Subsidiaries)
1010
0
500
1000
1500
2000
2500
3000
3500
4000
45002
00
1
20
02
20
03
20
04
20
05
20
06
20
07
20
08
20
09
20
10
十億
円:
売上
高
0
25
50
75
100
125
150
175
200
225
十億
円:
利益
売上高営業利益経常利益
Idemitsu Sales and Profit(Including Subsidiaries)
IPO
2006
President Tenbo
2002
(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。
Maintaining Profits
1111
JX Energy27%
Idemitsu15%
Cosmo13%
JX Metal12%
Tonen10%
Syowa10%
Others13%
Japan’s Second Largest Oil Company
Gasoline Market Share(March 2011)
15
Debt
Summary
Shosuke
Sazo
1885-1981Globalizationin the 1990s
The Big Bang andFinancial Crisis
Fear among Banks
19
Summeryinterest- bearing debt
0
500
1,000
1,500
2,000
2,500
1991
1992
1993
1994
1995
1996
1997
1998
1999
2000
2001
2002
2003
2004
2005
2006
2007
year
billion
yen
0
500
1000
1500
2000
2500
3000
3500
4000
4500
1986
1987
1988
1989
1990
1991
1992
1993
1994
1995
1996
1997
1998
1999
2000
2001
2002
2003
2004
2005
2006
2007
十億
円:
売上
高
0
50
100
150
200十
億円
:利
益
売上高営業利益経常利益
Tenbo
Debt
Sales &Profit
2121
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
late-starter 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
A Communitarian Firm
2222
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
Sacred and Inviolable
2323
The Seven Wonders of Idemitsu
1. No firing2. No forced retirement3. No labor union4. No time card5. No announcement of salary6. No 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
Idemitsu is a Big Family
2424
Expansive Growth Policy in the 1980s
Omni-directional expanding growth policy
Collapse of Bubble Economy
Runaway growth of interest-bearing debt
Idemitsu's Financial Crisis
2525
Idemitsu as an Entrepreneurial Enterprise
(1) Inviolable Management Philosophy
(2) Paternalistic Personnel System (3) Freewheeling Corporate
Strategy
Omens of a Crisis
2626
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
2727
Governance as an Entrepreneurial Enterprise ( until the 1970s )
Founder
Oil
IdemitsuKosan
Petrochemicals
IdemitsuPetrochemicals
Idemitsu Petrochemicals was a wholly-owned subsidiary, but operated independently
Proposal ProposalApproval
Only Founder Knows Everything
2828
Governance after Sazo (in the 1980s)
Founder’s Son
Investment for measuresagainst Oil Liberalization
Investment for developmentinto a General Chemical Firm
Negotiation forInvestment
Negotiation forInvestment
After the Founder’s Passing
Oil
IdemitsuKosan
Petrochemicals
IdemitsuPetrochemicals
2929
Idemitsu Group’s Over-investment 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
3131
Akihiko Tenbo 1939: Born in Tokyo 1964: Graduated from the University of
Tokyo 1988: President, Idemitsu Europe 1991: Accounting General Manager 2002: President 2009: Chairman
3232
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.”
3434
Idemitsu Petrochemical’s Losses (1993) Ordinary loss of 27 billion yen (270
million dollar) in 1993 due to over-investment
A Prompt re-structuring was necessary.
Idemitsu Kosan supported Idemitsu Petrochemicals
Financial Institutions Began to Hesitate to Lend
3535
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.”
The Origins of Idemitsu’s IPO
3636
Sazo's Stand Against Public Financing
“After all, zero capital is ideal.”
“A public offering could cause the fall of Idemitsu.”
Shosuke waited for five years to approve the IPO.
Sazo
Shosuke
Sazo rejected public capital markets.Shosuke was his son.
3737
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
Globalization & The Big Bang
3838
Unwanted Credit Rating(1998) Moody's assigned a “B2”
to Idemitsu in 1998
It was a kind of surprise attack
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3939
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.
4040
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
4141
Idemitsu’s Recovery Plan
1. Reduction of fixed costs2. Debt load reduction by selling
non-core assets3. Sale of non-core businesses 4. Enhancement of competitiveness
through alliance
4242
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 Conflictabout IPO?
Tenbo kept silenceabout IPO internally?
4343
President
Idemitsu Family
Sazo Keisuke
AkiraShosuke
Tenbo
Chairman
General Manager
Pro-IPO
Anti-IPO
4444
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.
Persuading Shosuke
4545
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
4646
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)
4747
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)
4848
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)
4949
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)
5050
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
Inviolable Management Philosophy
5151
Sazo’s Management Principles
Respect Consumer-Centered Business Mindset
PaternalismIndependence &Empowerment
Denial ofGreed
5252
Sazo’s Principle of Management
Respect Consumer-Centered Business Mindset
PaternalismIndependence &Empowerment
Denial ofGreed
Internal ControlSystem
Strategic Alliance IPO
No LayoffsEffective Production/Distribution System
5353
Sazo’s Principle of Management
Respect Consumer-Centered Business Mindset
PaternalismIndependence &Empowerment
Internal ControlSystem
Strategic Alliance IPO
Effective Production/Distribution System
Employee StockSociety
10% Pay Cut No M&A
Denial ofGreed
No Layoffs
5454
The Seven Wonders of Idemitsu
1. No firing2. No forced retirement3. No labor union4. No time card5. No announcement of salary6. No 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
Paternalistic Personnel System
5555
The Seven Wonders of Idemitsu
1. No firing2. No forced retirement3. No labor union4. No time card5. No announcement of salary6. No 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
Modern Personnel System
5757
Concluding Remarks(1) Reform by Professional Managers:
Idemitsu Kosan faced a financial crisis in the mid-1990s
Tenbo gathered core employees cross-functionally to formulate a recovery plan
He immediately implemented a series of managerial reforms
5858
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
5959
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
6060
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
6262
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
Tenbo’s Point of View (2000)
Persuading Shosuke
6363
Accounting Director’s Statementat the Press Conference
“Idemitsu’s mottos are Respect and Consumer-Centered Business Mindset, and we have not pursued economic rationality only.”