Warren Buffett gives advice to those who want to invest in Japan

If foreigners are at the gates, Japan will let them in. The country is becoming increasingly comfortable with foreign private equity funds and activist investors, a development that gives prudent boards the opportunity to apply unparalleled wisdom to Western governance. flows in the direction of The Other, ”according to the advice of Berkshire founder Warren Buffett, to those who want to invest in Japan via Bloomberg.

At the start of the last annual shareholder meeting season, a record 77 companies faced proposals from shareholders, many of them foreign investors. Activists have joined the long-suffering conglomerate’s board, and some see this potential deal as the real test of Japan’s private equity future.

Large cash stacks

But foreign management does not have a spotless record: Consider the case of Calsonic Cansi, now known as Marelli Holdings, which makes car parts for Nissan Motor Co., which went into court-led rehabilitation after merging with Magneti Marelli in 2019. A whopping $ 8 billion, and while the coronavirus and supply chain crisis are partly to blame, it looks like Marelli’s Denso, which supplies auto parts to Toyota Motor Co. does not have such problems, which doubled its profit last year to almost $ 2 billion. Dollars, and like many Japanese companies, Denso has already amassed huge cash heaps during the pandemic, giving it a crucial buffer as car sales are hit by the supply chain crisis.

Japanese companies’ large cash heaps are often seen as a waste by foreign investors (a resource that can be “unlocked” if the right management team is appointed), and this often means replacing highly experienced executives with lawyers, financiers and MBAs. but we must We consider another perspective on how to invest in Japan: This is Warren Buffett’s. The respected founder of Berkshire Hathaway, Japan, is known for investing $ 6 billion in the country’s top 5 businesses in 2020 shower, and his approach is to be completely inactive.

There is nothing to learn

“We are just investors, and we have not put our money to Japan with the idea of ​​telling their government, their investors, their employees or the CEOs of our investment companies what to do,” Buffett said in a correspondence with Andrew wrote. McDermott of Mission Value Partners during their participation in a shareholders’ forum recently held by the US Chamber of Commerce in Japan in Tokyo. They have to do it. “

Westerners tend to approach Japan with the assumption that “we have nothing to learn from Japan, but Japan has a lot to learn from us. Japan is the student, and we are the teacher,” McDermott told me. This hypothesis, he says, is “not only factually incorrect, but damaging, because it hinders our ability to learn from some of the things Japan has done well.”

McDermott said Japan should be careful about abandoning the manufacturing experience of its boards in favor of Western management standards, citing recent struggles that have once plagued proud U.S. manufacturers such as Boeing, General Electric and Intel Corp. faced as evidence of management risks that make His top priority is to ignore engineering.

McDermott has a point, and Toshiba itself is an example. While he has wasted much of the past decade satisfying his growing pool of activist investors – first through shareholder returns, then a miserable plan to split, Japan’s Ministry of Commerce could not allow privatization in the end – His counterpart, Hitachi, largely avoided both activists and headlines, quietly posting record profits.

Most investors will struggle to name a relatively insignificant former CEO, former railway systems engineer Toshiaki Higashihara, who helped turn a losing conglomerate into a profit-making machine without outside interference before becoming chairman this year. The divergent classic roads of former peers Fujifilm Holdings (still $ 30 billion company) and Eastman Kodak, to Japanese carmakers’ unwillingness to connect to electric vehicles for which the world may not have enough batteries.

The password

Of course, not all Japanese companies are good, and not all activists are bad. Management at Olympus, which has become the word for Japanese board oversight, praises Valley Act Capital’s management for helping the company set a new course, and most recently, Seth Fisher of Oasis deserves praise for the unveiling of some surprising behavior at elevator maker Fujitec.

But if you thought Japan’s boards have not changed, think again, the period of annual general meetings itself is a wonderful performance, with an era of corporate racketeering that could threaten to derail shareholders’ meetings for a long time, and this week the newspaper Asahi reported a 97% drop Over the height of such extortion, it’s time for foreign investors to follow Buffett’s example and see what they can learn.

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