FANUC Corporation: Reassessing the Firm's Governance and Financial Policies
HBS Case Study No. 216-042
Posted: 5 Sep 2016
Date Written: September 2, 2016
In February 2015, Daniel Loeb (an American activist investor at Third Point LLC) announced his firm had acquired a large position in FANUC, a leading producer of industrial robots and software for machine tools. Loeb was demanding that the Japanese firm change its financial and governance policies (e.g., distribute more cash, improve shareholder relations, and fix its “illogical” capital structure). FANUC’s CEO, Yoshiharu Inaba, and his board must decide if and how to respond. One the one hand, the firm had been very successful having built leading market shares in each of its core divisions. On the other hand, the Japanese government was also calling for financial and governance reform as part of the prime minister’s recently-announced economic growth strategy known as “Abenomics”. Although Inaba and his team had previously considered many of the proposed changes, the question was whether it was now time to actually make some of the changes.
This case has four pedagogical objectives. First, it provides an introduction to Japanese corporate governance and a way to compare and contrast Japanese vs. US-based governance policies. As capital markets integrate and foreign ownership increases, differences in culture and governance can come into conflict. Second, it illustrates the rise of activist investors in a cross-border situation. Loeb is interested in FANUC specifically given its potential for improved profitability as well as Japan more generally given the country’s new economic growth strategy known as “Abenomics”. The policy includes three components (known as “arrows”): fiscal stimulus, expansionary monetary policy, and regulatory and governance reforms. The opportunity to analyze a firm operating under and possibly responding to the government’s new macroeconomic policies is the third objective. And finally, as part of the government’s reform policies, it created a new stock index (the JPX-Nikkei 400 Index) designed to recognize high-performing firms with good governance policies. This index excluded many leading firms such as Amada, Mazda, Olympus, Panasonic, and TEPCO — all members of the Nikkei 225 Index. Bloomberg, in fact, referred to the new index as the “shame index”. Students can debate to what extent governments should be involved with setting and driving corporate governance policies and how successful it is likely to be.
In addition to the English version, a Japanese version of this case is available from Harvard Business Publishing Company. A spreadsheet supplement with case exhibits in electronic format (Excel workbook) is also available from HBP.
Keywords: Corporate governance, activist investor, financial strategy, macroeconomic policy, government policy, payout policy, cash management, shareholder relations, investor relations, capital structure, share repurchases, dividends
JEL Classification: G18, G30, G32, G35, E02
Suggested Citation: Suggested Citation