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The Billionaire Who Ignores Investors To Get Them Rich

in Latest/Slider

TOKYO: South of the famous temples of Kyoto, where factories and subsidised homes dot the landscape, a single skyscraper stands out. Perched at its top is Shigenobu Nagamori, replete in a luminous green tie, pocket square and spectacles, holding forth on his distinctive business ways.

If you work for me, the billionaire chief executive officer of Nidec Corp says, you’ll never be fired for lacking talent, but don’t count on taking many holidays. If you buy shares in the US$27bil electronics giant I started in a shack beside my mother’s farmhouse, forget about asking for bigger dividends. Even if you’re Masayoshi Son, the second-richest man in Japan, you can expect an earful when I think you’re wrong.

“I’m a strange man, an odd man,” Nagamori, 71, says in an interview from Nidec’s headquarters in Japan’s ancient capital, with his old prefabricated shed preserved in the building’s lobby 19 floors below. “I push against the grain.”

As everyone from Prime Minister Shinzo Abe to activist investor Dan Loeb urges Japan Inc to listen more to shareholders and update traditional labour practices, Nagamori is ignoring calls for change and trouncing his peers in the stock market. He’s an outspoken reminder that for some Japanese companies, an approach that looks strange by the standards of Wall Street can still deliver outsized returns.

Nagamori’s firm has bucked a slump in Japan’s Topix index in 2016, advancing 5.3% through Thursday as earnings climbed to a record for the third straight year. Nidec’s 457% rally from its global financial crisis low in 2008 through Thursday was about eight times bigger than that of the benchmark stock gauge, while the company’s return on equity stands at 12.1%, versus 6.8% for the Topix. Nidec’s shares fell 0.3% in Tokyo yesterday.

Savvy dealmaking has been key to Nagamori’s success. Since its founding in 1973, Nidec has purchased more than 40 companies, including the US$1.2bil acquisition of Emerson Electric Co’s motor, drive and powergeneration businesses this month. Before that deal was announced, Nagamori said he had a 1 trillion yen (US$9.8bil) war chest to expand Nidec’s business of making precision motors for everything from refrigerators to cars. He’s looking at areas including self-driving automobiles and the Internet of things.

“When it comes to M&A, Nagamori is the best in Japan,” says Mitsushige Akino, a Tokyo-based executive officer at Ichiyoshi Asset Management Co, which oversees US$1.2bil. “As an investor, I feel safe with him.”

Nidec hasn’t been immune to the turbulence in Japanese markets. While the stock was up this year through Thursday, it was 18 percent below an alltime high reached in August 2015. Analysts see little upside over the next 12 months, with the average shareprice target price tracked by Bloomberg just 2.4 percent above Nidec’s closing level on Wednesday.

Succession could be the company’s biggest risk, according to Akino. If the founder ever needs to step down and the transition isn’t smooth, Nidec could lose its “Nagamori premium,” the money manager says. The stock trades at 28 times estimated earnings, more than twice the average for Topix companies.

If Nagamori is right, there’s no need to worry about a change at the top anytime soon. More than four decades into the job, he still works every day and vows to stay on in some capacity until 2030, his target for increasing annual revenue to 10 trillion yen from 1.2 trillion yen in the year ended March. Nagamori says he’ll choose a successor by focusing on the same metric he uses for promotions: who makes the most money for Nidec.

His philosophy on managing the rest of Nidec’s employees may look odd to western eyes, though it’s hardly unique in Japan. Staff never have to worry about being dismissed, as long as they put in the required hours. And if someone can’t do a particular job, Nagamori will find them another role.

It’s a common way of thinking in a country where businesses, rather than the state, often provide the social safety net. Looking after employees, Nagamori says, is key to a company’s success. He eats every meal with groups of staff to develop a sense of camaraderie from the top down.

That doesn’t mean life at Nidec is easy. Even in a nation renowned for devoted workers, the company stands out for its demands on employees. Meetings, Nagamori says, are held on weekends or after regular tasks are done. New staff are sometimes told to clean toilets, and taking days off is seen as lazy.

“These days, if you tell people to put everything into their work, you’re soon dubbed a black company,” he says, referring to the Japanese term for firms that flout labor standards. “I have no problem saying that. If you don’t work, you lose. The only ones I can’t stand are layabouts.”

He has just as little patience for shareholders who rub him the wrong way. Some have complained about dividends, with Nidec’s stock offering an expected yield of just 0.9%, versus 2.3% for the Topix. Nagamori says the cash is better used to fund deals.

He considers employees a bigger priority than investors, arguing that an effective workforce will ultimately create the most longterm value for shareholders. – Bloomberg

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