For more than a century, interlocking shareholdings have defined corporate Japan. Banks have owned chunks of their borrowers, and borrowers their banks; many of these companies have banded into vast c…
For more than a century, interlocking shareholdings have defined corporate Japan. Banks have owned chunks of their borrowers, and borrowers their banks; many of these companies have banded into vast corporate groups with names like Mitsubishi, Mitsui and Sumitomo. Such ties have bound their fortunes together and protected them from takeovers. Now, that system is coming unraveled, as Japan“s long recession makes these cozy relationships too costly to maintain. Indeed, Japan is lurching through one of the biggest transfers of corporate ownership in the past 50 years. The relentless selling of once-stable shareholdings is a prime force behind both the recent plunge in the benchmark Nikkei stock average and the nation“s broader decade-old bear market. The market“s decline, in turn, is intensifying Japan“s economic woes, which only turns up the heat on its companies to sell more of the shares they own in one another. It isn“t just money that is at stake, but Japan“s entire business culture. Japanese executives tend to view companies not as assets to be bought and sold, as they often are in the West, but as communities. So, a decision to sell can be gut-wrenching. Postwar Japan hasn“t seen a hostile takeover of a major business. And legions of companies are trying to stop or delay the selling. But nearly every day, the sell-off is nudging corporate Japan a little closer to the Western business model. A growing number of Japan“s best performers are leaving their cocoons. Hiroshi Suzuki, the 42-year-old president of glass maker Hoya Corp., waves his arm at the chair he is sitting in and the crystal ashtray in front of him. “This and this,” he says, “it all belongs to the shareholders.” What“s unusual about Hoya is that those shareholders no longer include the bank that nurtured it. Founded by Mr. Suzuki“s grandfather, Hoya nearly collapsed in 1966, but Sanwa Bank Ltd. rode to the rescue, restructuring the company“s debt and management staff. Hoya thrived and grew to become a producer of high-tech goods such as etching templates for semiconductors. In return, Hoya gave banking business to Sanwa and other loyal backers. But in the early 1990s, Japan“s asset bubble burst, and Hoya executives saw a long slump ahead. They cut back on bank loans, and became debt-free seven years ago. And they began telling Hoya“s top shareholders, including Sanwa, that they would award business based on who gave them the best price, not who held the most stock. In 1999, Mr. Suzuki“s father, Tetsuo, was invited to sit on Sanwa“s board. But it wasn“t a return to the old cozy days. In every board meeting since that November, he has urged the bank to sell off its cross-held shares to clean up its own damaged balance sheet, say people familiar with the companies. Between March 1999 and September 2000, the bank sold off its entire 4.9% holding in Hoya. Last year, Hiroshi Suzuki put one of Hoya“s big cash-management contracts out for bid. Sanwa and another bank shareholder, which had previously handled most of the account, lost out to a European bank. Hoya also is planning to put out for bid the group insurance contracts it now has with two life insurers who are major shareholders. Mr. Suzuki expects those insurers to sell down their Hoya holdings. That, he says, could boost the presence of foreign shareholders, who now own 31% of Hoya, to more than 50%. And if those bottom-line-oriented investors move to take over Hoya? So be it, he shrugs: “I“m not the owner, after all.”