In this chapter of Minority Shareholders, I continue the story of Norio Takano. He is not a specific person; he is a character created for my book out of some high rollers who had existed during the bubble period.
As a young lawyer, I witnessed the generation of enormous wealth from scratch. A minority shareholder of a family company brought an action to the court and succeeded in taking hundreds and thousands of yen. I saw it firsthand. Ten years after the bubble popped, I started work related to corporate governance. In this book, my fictional characters tell the story of problems that persist in joint-stock corporations. What is an organization called a company? What if Norio Takano were reborn in this era?
This story is a work of fiction. Any resemblance to actual characters or organizations is entirely coincidental and unintentional. ー Shin Ushijima
Read earlier chapters of the series.
CHAPTER 35: Tale of the Dango Shop Family
Continuing from Chapter 34: Norio Takano is telling Shino the dango shop story. He describes the owner's discussion of the postwar changes to their little community, before moving on. "But after the war ended, things gradually changed along with the so-called economic growth. And then the bubble hit Japan, and all the other shops around mine looked as though they had been destroyed by carpet bombing. Nobody had done anything wrong.
"As for me, I am such a pighead, and fortunately, my son says he is going to take over the business of the shop. Me? I don't need much money to live alone with my old lady. So, I'm going to leave almost everything to the company. In recent years, the corporate income tax has decreased, and I really appreciate it," the dango shopowner says.
"Hmm…so heartwarming, isn't it?" said Shino.
"Heartwarming? You mean the dango shop? I wonder. In my head, you own a 49% stake in the dango shop. The dividend you receive is only ¥100,000 a year. Your grandfather was the elder brother of the dango shop owner's grandfather. When his younger brother had started a dango shop, he had taken a stake in the shop because his brother had needed money to rent the land."
Playing Fair with Minority Shareholders
"His brother was keen on making dango but was terrible with figures. He said he was not sure when he could pay back the money he had borrowed, so your grandfather had bought the shares of the shop and agreed to receive returns from him only when his brother made a profit.
"At the time, he had taken a 49% stake. So, you inherited the stake from your grandfather, and now you are a 49% shareholder of the dango shop. The dango shop owner owns 40% and his sister 11%. His sister works with them at the shop; she's already a woman of older years.
"The owner, his wife, and his sister are devoted to making dango on their own as though left alone far behind in a fast-moving world. When their grandfather was still alive, he had paid the rent without fail as a way of showing gratitude. The land lease right had no value at first, but the percentage of the land lease right compared to the price of the land has increased. Now the land lease right runs up to 90% of the value of the whole land. Tenants are protected under the Act on Land and Building Leases. It's called a naturally generated land lease right."
"Yes, I know. Sakujiro Mitsuda used to say that once you rent land to someone you will never get ownership of that land back."
Low-Priced Dango on High-Priced Land
"You are not you in reality now. It's just hypothetical. Although you have little money, you do have a 49% stake. If you died, your children would be charged an incredible amount of inheritance tax because the tax office classifies them as family shareholders. You are drawn as an eighty-nine-year-old lady who has such a background with three children and five grandchildren."
"Eighty-nine, oh, no!"
"The owner and his wife don't receive much money from the company and the sister is not well-paid, either. The three of them have thrived on their mission to keep making dango since their grandfather's time. So, their internal savings have accumulated little by little.
"The high price of their land is not reflected in the sales price of the dango. So, many customers come to Ginza to buy low-priced delicious dango and bring them home to enjoy together with their families. It conjures up in my mind the world of Akemi Tachibana (a Japanese poet): 'It is a pleasure when my wife and my children gather around me to happily share a meal together.'
"Customers keep frequenting the shop. A good story, isn't it? But on the flip side of the coin is the hard fact that the 49% shareholder remains ignored.
"The owner is driven to take necessary measures for his 40% stake and his sister's 11% stake because he knows that an extraordinary amount of inheritance tax will be imposed on them. They don't want to let go of their company. They sometimes bring up business succession as a topic, but never give a damn about the inheritance tax that will be levied on the minority shareholder."
"Ah, Dainihon Jochugiku!" Shino crowed.
"Right. What a quick-witted owner-chairperson!"
Like A Tora San Movie
"I'm the owner of a real estate leasing company. It deeply concerns me, too. Anyway, it's interesting if the dango shop owner has a vagabond nephew, isn't it? I'm sure he does."
"A vagabond nephew? Oh, it's like Tora-san's movie. I feel as though I'm playing Professor Suwa, who was actually portrayed by Takashi Shimura. His son, Hiroshi, is married to Tora-san's sister, Sakura. Professor Suwa teaches at a university. He often says to Tora-san, 'Torajiro, the longer you live, the less you enjoy your life.' I'm beginning to feel inclined to say that to somebody else."
"I'm not a vagabond."
"Of course, you're not. It's a story in a movie…not the real thing."
"But when Tora-san comes back to Shibamata for the first time in many years, the dango shop has disappeared into thin air, and instead a new colossal building is being constructed, right?"
"That's what should happen. Likewise, the dango shop owner doesn't have to have a shop in Ginza. He should move to a less expensive area and start the dango shop 100% out of his own pocket…just as a pastime and not for business. This time, there are no minority shareholders who are oppressed by the owner and cry behind the scenes. He can get his own way."
"Yes, the same pattern may hold with the real-estate leasing companies in Mukoujima, right?"
Back Door to the Minority Shareholder
"Maybe. But it's each company's decision. In my imagination, you, the 49% stakeholder, receive a call from a stranger late at night. It goes like this: 'Good evening, Ms Otsu. I am very sorry to call you this late at night. I am from Kayama Corporation.'
"Oh, that major construction company? I know someone from Kayama Corporation."
"But this is someone else from a different department since it's a big company."
"And what does the man say to me?"
"Oh, you assume that that someone is a man? A bit sad to hear that, but certainly it's a man. He's a likable young man with thick eyebrows and big eyes. He would say, 'Well, Ms. Otsu, I would like to talk to you in private about your stake in Ginza Dango Co, Ltd.' But you have no idea what he's talking about."
"Hmm…is Ginza Dango the company name of the dango shop?"
"Yes, dango is sold by the shop under a fictitious name, '運慶' (Unkei), but the company name is Ginza Dango Co, Ltd."
"Sounds like an interesting story."
"The story by the man from Kayama Corporation is more diverting. He says, 'Will you sell us your shares of Ginza Dango?' He continues, 'Since I am from a construction company, you may suspect that we are going to target the acquisition of the land and turn a big profit at any cost even if it adversely destroys the environment of Ginza. But trust us, we have no such intention.' "
Getting Around the Dango Shop Owner
"The enthusiastic-sounding young man tries to persuade you in a serious voice. Well, let me recap the story. They are redeveloping the Hanatsubaki Dori (Avenue) district. It's likely that a huge building will be built thanks to the cooperation of the landowners there. If it becomes big enough to cover the whole town block, the landowners will be given many different kinds of privileges."
"Ah, you mean the total design system, right? I know it since I am a chairperson of a real estate company."
"You're right, but the dango shop owner remains a hindrance to the redevelopment project. No matter how much they try to persuade the dango shop owner, they cannot elicit his cooperation. He says, 'I really appreciate your kind offer, but we're fine as we are now. We have customers not only in the neighborhood but also from areas far away to buy our dango. I can manage to do business with the help of my wife, my sister, and some part-timers. Making a profit is not our purpose.'
Even though the man says the construction plan would benefit society, the owner never agrees. Even though the man tells him that it's a great chance to make money, he says he doesn't need it. If a money-talks-policy doesn't work, the man will be driven to the end of his tether."
"Yes, he may well be."
"But they say that the acquisition of the land where the dango shop stands is absolutely essential for the major redevelopment of the streets in Ginza. That way, they can show off a newly-born Ginza to the people who will come to enjoy the 2020 Tokyo Olympic Games. They cannot imagine the whole picture without that land."
Olympic Sharks
"Sounds like stories about land sharks during the bubble period."
"Smaller plots of land are treated almost the same way in any period. The good-looking young man from Kayama Corporation desperately continues his attempt to persuade. 'Ms Otsu, I would never think you are only after money. But we need to redevelop and gentrify this area, including the dango shop land. Otherwise, guests from abroad for the Olympics will see old eyesores remaining in newly-born Ginza.'
"He is right in a way. This shop is a two-story house built long ago and its old and rustic look creates a unique atmosphere, although this serves to add to the taste of dango by 30%."
"The land of ¥1.5 billion, the land lease right worth ¥1.35 billion, and a 49% minority stake, right?"
"Yes, so the young man from Kayama Corporation cannot conceal his indignation. He regards it as public indignation. 'I'm aware that you receive ¥100,000 a year in dividends on the 49% stake. If you sold your stake to us, you would be able to receive ¥500 million,' he says.
"But you don't want to let go of your long-held stake only for money. If you decisively say so, the young man from Kayama Corporation responds amiably, 'Not for money, but for the Ginza of the world. Ginza Dango, which has a land lease right on Hanatsubaki Dori, must cooperate with us in accomplishing that purpose.
”The landlord should not use the land for his own benefit but should use it for the benefit of everyone. The same pattern holds for the company. Even though the owner takes control of the company with a majority stake, it's not acceptable to remain indifferent to its minority shareholders.'"
Killing Two Birds with One Stone
"Hang on. That line sounds familiar to me."
"No wonder, the consulting lawyer for Kayama Corporation is Tadashi Ooki."
"Then, does the man say please speak to Mr Ooki?"
"Exactly. You're quick on the uptake. The man would try to persuade you, saying that if you talked to Mr Ooki you would understand. You will meet Ooki. Not that it is a bad thing to receive that amount of money, but if it benefits society, it's like killing two birds with one stone. It's very, very good.
"Ooki would mention the incorporated association…the Association for Family Company Governance."
"Oh, so in the end I'm destined to meet you. I'm glad."
"Right. And we'll go hand-in-hand to do as much as possible for the Ginza of the world. By extension, it may do some good to society and people, you see?"
"I will do it, but I wish we were the couple in the 'Love Story in Ginza' (an old popular song)."
"Thanks. This is a fairy tale, but I'm serious. I'd like to help minority shareholders in unlisted companies who have no choice but to allow themselves to be at the mercy of majority shareholders only because they are not given any latitude to request even a transfer of shares. And I will do whatever helps to correct what is not fair.
"But I only deal with things that I believe are fair. As a matter of fact, it's not people's conscience but a defect in the law that is the problem. Minority shareholders of unlisted companies should be entitled to demand that the company buy back their shares."
'Planting Trees For Tomorrow'
"It's just my opinion. Sometimes I persuade myself to go to great lengths to make that happen. I have no idea whether my plan will be legislated or not, and if it is, when. I'm determined to keep planting trees for tomorrow. I may not be able to see the trees bear fruit or extend wide branches to provide shade while I'm alive. But I can clearly conjure up an image of the scene.
"There should be someone who has to take it upon themselves to make the conscience a reality, just like Mr Takeo Arishima, who distributed his farmland to his crofters. Anyway, it's not just a matter of law. It matters little whether it's legal or not, but what is fair…I think that's all that matters."
"It matters whether it's fair or not, right? So what is a fair solution to the problem of our company, Mr Outside Director? By the way, Takeo Arishima… He was the one to generously give away his farmland to his crofters for free, right? He committed love suicide with a woman much younger than him. Oh, are we going to emulate him? Like him, do I have to give away our company to others?"
"No, absolutely not. He had lost his wife before he committed love suicide. Anyway, it's not a good idea to give away your company to the employees. If you don't respect money, money forsakes you and in the end, you will find yourself struggling for a living."
Getting Back to What's Important
"What is important for us now is to know the fair value of the company. Furthermore, if someone requests approval for the transfer of shares, it's not wise to reject the request out of hand and buy back the shares. Instead, you should welcome new shareholders and try to improve the management in cooperation with them. Don't you think that's a good idea?"
"Thanks to you, we have nothing to dread."
"Then you can give some latitude to your shareholders to sell their shares to anyone. But in reality, it's not a solution because there are no purchasers willing to buy minority shares of unlisted companies. No prospective purchasers could be expected because they know they cannot expect fair returns. This is the reason why the dividend matters most.
"If the dividend accounts for 10% of the value of the company, some people may come forward. And if that were the case, more and more minority shares of unlisted companies would be traded actively. Well, it looks like we're talking about corporate governance for listed companies, among all, ROE.
"There is a limit to earning power, and the unlisted company has a lesser duty of disclosure than a listed company. I wonder how many people are motivated to raise their hands to purchase."
"In the case of the dango shop, 90% of the land price of ¥1.5 billion is the land lease right of ¥1.35 billion, 49% percent of which is about ¥660 million. And a 10% dividend amounts to ¥66 million."
"Things are a bit different because the assets cannot be counted for calculation of dividends."
"Be that as it may, it's a huge amount. It may be impossible for the dango shop to earn such an amount of money just by selling dango, stick by stick."
Calculating the Dividends at Mukoujima Co
"In the case of our company, the assets are valued at ¥10 billion, and if calculated under the discounted cash flow system, it would be ¥5 billion. You said so, right? So, 49% of that value is ¥2.45 billion, and 10% of that amount to be paid as dividends runs up to ¥245 million per year. No way!
"If we bought back a 49% stake, we would be compelled to prepare a huge amount of money for that. Even if we sold some of our buildings to pay for it, then we would be charged high corporate income tax on the gain.
"We currently earn a net profit of ¥200 million. Since it's the amount of money left to us after the salaries for the employees and all other expenses are deducted, I think we will be able to distribute more dividends than now. Possibly, we can allocate half of it, that is to say, ¥100 million for dividends. We'll have to allocate ¥49 million to the minority shareholders owning a 49% stake in total. Auntie Saori is a 12% stakeholder, so she is to receive ¥12 million. That's not impossible."
"Voila!"
"But I am to receive as much as ¥51 million in dividends. Dividends are included in income, so a 55% tax is levied on the aggregate income. If it's reserved in the company, we can get away with only 30% corporate income tax."
"It's a tricky issue. But you have some options. For example, you can change the shares of the minority shareholders into classified stock, by which you can keep the right to vote, that is, the controlling interest, and you receive less dividends. I think we will be able to find a good way. Anyway, let's turn to Ooki for those convoluted matters."
A Man To Be Trusted
"I hope it will take Mr Ooki a long time to come up with a solution. The thought of losing the chance to see you makes me freak out. If we don't have the company to talk about, I'm sure you'll leave. You've got bigger fish to fry as an outside director, instead of looking after a tiny company like ours. Now you are sought-after nationwide. You said before that you wanted to make a new law that would enable minority shareholders of unlisted companies to demand a share buy-back. That'll make a busy you even busier. I really wish I had met you when I was younger. If that had happened, I would have been your wife."
"You should remember that I split up with my first wife."
"Oh, dear, then, I would have been your second wife."
"Yeah, that could have happened. But unfortunately, we didn't have a chance to meet until we were sixty-nine and sixty-five. For as long as there have been humans, dating back as far as seven million years, young people have enjoyed every day of their adolescence as if they have just woken up and discovered adolescence for the first time. They never imagine how banal it is for humans, but enjoy it over and over."
"In the past, I've enjoyed it, too, with all my heart, but things are different now. I'm given a chance to be with you once a week for three hours, and can have you all to myself during that time. That's fine with me. I'm happy enough. What makes a woman feel happiest is the fact that the man that she can trust exists somewhere in this world."
Rights of the Owner-Chairman
"Being able to be with such a man all the time is another thing. I think I'm sensible enough to stop myself from expecting too much and screwing everything up. Also, I myself have gone through a lot of things. I know you try not to have a deep relationship with me. I'm good. I was scared. I wanted relief. What if you left? I couldn't help but be worried sick about it.
"You may be surprised at my words. I'm relieved that you will not leave me, yet still, I feel uneasy. If you were taken ill and hospitalized, I wouldn't be able to visit you."
"Then, I will not be able to resign as outside director even if hospitalized, because the owner-chairperson can openly come to see the outside director in a hospital for some urgent matters, right?"
"No, don't say such a thing," Shino snapped and held onto Takano.
{This also happened in the past…on more than one occasion…a sense of déjà vu sweeping over me. Men and women repeat the same things over and over no matter how old their ages. It's like a carousel that has been running endlessly for seven million years.}
Takano bear-hugged Shino without a word and stared at the ceiling.
Continues in: Minority Shareholders, Chapter 36: For the Strong Trees of Takano's Dream
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Minority Shareholders is a work of fiction and any similarity to real characters, companies and cases is purely coincidental and unintentional. Sign up to join our mailing list and look for the next chapter every Saturday on JAPAN Forward.
Author: Shin Ushijima
The founding partner of Ushijima & Partners, lawyer Shin Ushijima has an enormous wealth of experience in international transactions, mergers, and acquisitions, dispute resolution, system development, anti-monopoly law, labor, and tax law. Concurrently, he heads an NPO called the "Japan Corporate Governance Network." And in his leisure moments, he writes fiction. Additional details on Shin Ushijima's career, awards, publications, and more are available at his website: Ushijima & Partners, Attorneys-at-Law.
