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CUNDILL INVESTMENT CONFERENCE
PETER CUNDILL, SETH KLARMAN ET AL.
(continued from preceding page)
Investments? Nope. Those stakes were admission tickets.
Cundill: Every Japanese company (and this is really quite key) owns pieces of other companies - holdings which are first and foremost about relationships. In effect, they're certificates of relationship - as distinct from certificates of value - although that practice is also changing. In effect, Japanese companies bought stakes in their suppliers, their bankers and their customers because [the purchase of those stakes was part of the price of admission] to doing business.
Incidentally, Ben Graham always said you could count holdings such as those as extra assets. And that's justified because, in fact, it's always been the case in Japan ... that whenever these companies got into trouble, they could sell their holdings in order to protect themselves - albeit they'd usually be sold to members of their group.
Nearly all of those shares were publicly traded.... And their point [wasn't their investment potential]. The point was that those stakes established relationships.
Be they ever so humble, the barest beginnings of change....
Cundill: And that's beginning to change. I sat on a panel two or three years ago where the topic of discussion was corporate governance in Japan. And on that panel was a man named Hideo Ishihara who had been with the IBJ [Industrial Bank of Japan] for many years and is now chairman of Goldman Sachs Japan.
Interestingly enough, he's gone on the board of Sony - which was one of the first Japanese companies to have outside directors. They had an American director a long time ago. I'm not sure any Japanese company has a woman director. After all, there are limits. But my point is that recent years have seen the barest beginnings of change.
But change has begun to accelerate - remarkable stuff....
Cundill: And more recently, there have begun to be significant changes. For example, beginning in early 1997, Japanese companies were allowed to buy back shares. And around 75 share buy backs weren't only announced, but done. They'd never been done before in Japan....
[Editor's note: In its 1/16/98 edition, Grant's Interest Rate Observer reports that the total number of Japanese companies who've elected to repurchase shares is up to 115.]
Cundill: They've also introduced ... share options. And interesting to us, at least, is the fact that to issue share options, Japanese companies are first required to buy in stock in order to avoid the kind of abuse that's happening in America with stock options....
Shareholders' rights? What does that mean?
Cundill: And at major companies, managements are even talking about increasing returns on shareholders' equity - a heretofore virtually unknown concept. To give you some idea of just how unknown, let me quote Hideo Ishihara on shareholders' rights and corporate governance:
"I don't know what you're talking about. In a Japanese company, first and foremost comes the employee. Then comes the customer. Third come the bankers and the suppliers."
Page 7 of 12
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