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Maverick 70-Year-Old CEO Is Determined to Shake Up Japanese Finance

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·15-min read
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(Bloomberg Markets) -- Yoshitaka Kitao, who turns 71 in January, embraces the lessons of the ancient past in his quest to build the future. A lover of Chinese classics such as Confucius’ Analects, Kitao is himself the author of over 40 books. In his youth, when elite students typically sought jobs at Japan’s top banks, he opted to pursue a riskier career at Nomura Securities Co. [now Nomura Holdings Inc.], where he impressed leaders with his hard work and business success. He also wowed a client, SoftBank Group founder Masayoshi Son, who hired him to be the technology investment group’s chief financial officer. In 1999, Kitao founded SBI, for SoftBank Investment Corp., to focus on internet-­enabled financial services. (The meaning of the initials changed to mean Strategic Business Innovator in 2005, when the company began to separate from SoftBank.) SBI Holdings Inc. now has more client accounts than do its competitors, including Daiwa Securities Group and Nomura. Kitao has also made a push into cryptocurrency-­related ­companies—SBI is the biggest institutional shareholder of Ripple Labs Inc. and R3 Ltd.—and banking, including a two-year pursuit of a controlling stake in Shinsei Bank. Kitao spoke with Bloomberg Markets in early ­November. The interview, which was translated from Japanese, has been condensed and edited for clarity.

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BLOOMBERG MARKETS: Your pursuit of Shinsei has led some people to see you as aggressive and innovative. What do you think of that reputation?

YOSHITAKA KITAO: I don’t consider myself to be as aggressive as some may think I am, and rather than call myself innovative, I’d say I am merely doing something that’s been occurring in America. Both America and Europe had online securities houses before we entered the industry, and it was the liberalization of [brokerage] commissions that helped America get ahead of others. Europe moved faster in embracing universal banking. America fell a little behind Europe, but the securities business there has been making headways into the banking world. Japan has been slow—it’s a country that tends to fall behind the U.S. and Europe when it comes to changing rules.

From the start, I wanted to create a group company that encompassed every kind of financial business. I would always read Harvard Business Review and other magazines, and there was a paper discussing a business ecosystem. That rang a bell for me. I thought the business ecosystem should be able to gain an advantageous position in the era of the internet. I thought I should create a variety of financial companies and have them collaborate in a way that would generate synergy. If we made securities, banking, and insurance our core business, why not surround the securities part with various supporting functions? That I’ve actually created such a company may mean that I am innovative.

BM: What types of business do you try to acquire?

YK: Our acquisition targets are companies that will help make our group more prosperous if they’re brought under our umbrella. Take cryptocurrencies. We’ve bought a crypto asset market-maker called B2C2, the world’s greatest in that field, believing it would bring about various synergies. Another example was our tie-up with Ripple Labs, which manages [the digital asset] XRP, as we thought about modernizing international money transfers. We’ve also been quick in forming a business alliance with America’s R3, which produces a system called Corda and also smart-contract technology for it. We’re betting it will become something quite important for our efforts to create and expand digital space. We’ve been too busy trying not to fall behind America and the rest of the world as we grapple with slow progress in Japan’s institutional system changes and the nation’s conservative financial authorities. But we’ve been investing across the globe. I’m always telling my people to search the world for advanced technologies—first, to invest in them and, second, to use them if they’re productive for the group. And to remake them, so they will match with Japanese rules, products, and culture. Then to spread them through Japan and other Asian countries, including those in Southeast Asia. So while we haven’t necessarily been demonstrating our originality in terms of technologies, we’ve been successful in adopting them through actively investing in venture firms at the seed, early, or middle stages.

Japanese companies in some regards are very slow to make decisions. When R3 CEO David Rutter came to Japan, I asked him, “You came here to raise money. Megabanks, Nomura Securities, you’ve already paid them visits, right?” He said yes. “No one gave you affirmative responses right away, did they?” He said no. So I told him, “I’ll pay you 2 billion yen [$17.5 million] right now.” He was surprised. I had a clear vision in my head about their technologies and how useful they could be. That’s why I was able to reach a conclusion within half an hour of talking with him. I was very speedy.

BM: You started your career at Nomura. Why did you decide to join that company instead of seeking a more prestigious job at one of Japan’s biggest banks?

YK: There were two people who told me I should go to Nomura, because it was a better choice. One was my father. He said Nomura had expanded more strongly than any other financial institution [in Japan] since the end of World War II and it would probably grow more strongly than others over the following 20 or 30 years. The other person was Mr. Kenzo Kiga, the professor of a seminar I took [at Keio University]. He also served as dean of Keio’s business school, so he personally knew three Nomura presidents. The professor said Nomura managers were full of spirit compared with executives from commercial banks. Banks were filled with elites, and there was probably a lot of trivial competition going on there, he said.

And funnily enough, I was able to survive because I went to Nomura. I was always having fights with my bosses. One day, I didn’t fully shave my face, and there was a department head who’d come to the office early. “Hey, Kitao, you have a beard on your face,” he told me. I said that was because I’d worked all night but added that I would shave soon. He said, “I’d report you to the labor union if you did something like that.” That story made the rounds to reach Mr. Isaka, a senior managing director, and then Mr. Masanori Ito, deputy president. “Fire that man!” he said. “How could he say something like that to a man who was working that hard!” This is how Nomura is.

I was kind of liked by people at very high levels, such as president, deputy president, and senior managing directors.

BM: You were told, “You are the next after the next” Nomura president, right?

YK: Yes, there was a time like that. Mr. Yoshihisa Tabuchi [­Nomura’s president from 1985 to 1991] took me to dinner and gave me compliments. “Everybody says you are smart, sharp. Today I understood why as I listened to you,” he told me. I was grateful for that.

BM: You were grateful, and yet you left to join SoftBank.

YK: That was because Mr. Tabuchi, whom I’ve never stopped admiring, was forced to leave Nomura in the middle of a scandal and succeeded by a person who was hopeless. That person, Mr. Hideo Sakamaki, was eventually arrested by prosecutors. [He was ultimately given a suspended sentence.] I was thinking Nomura would fall apart and cease to be one of the world’s greatest companies if he led it as president, and it was then when Mr. Masayoshi Son asked me to come join his firm.

BM: In your memoir you recount a dramatic scene in which Son asked you to join as SoftBank’s chief financial officer right after a meeting with you and your team. Why did you accept?

YK: I asked him to give me 10 days to think it over, and I read every available book, newspaper, and magazine article at Nomura Research Institute about Mr. Son, SoftBank, and internet technology. I became fully convinced that this business would grow. I was getting job offers from various non-Japanese investment banks, like, “We will pay you 200 million yen, so could you come join us?” That was not surprising, since I was doing better than anybody else at Nomura in, for example, the business of serving companies. But I wasn’t interested at all in making myself money, so I went to SoftBank.

In addition, my ancestors managed a paper wholesale store, a publisher, and a bookstore in Senba, Osaka, and [Usaburo Kitao, Kitao’s great-grandfather] was entrusted with sales of the Asahi Shimbun newspaper in western Japan for 60 years. My family, in other words, was distributing information through analog ways. My father did something similar, importing and selling Western books, meaning that he was also engaged in information distribution. The offer from Mr. Son meant I would become involved in digital information distribution. I felt this may be my fate—my ancestors may have brought this about.

On the 10th day, I went to see Mr. Son to take the offer. “Mr. Kitao, how much money should I pay you? I’ve learned a lot about you from various people from Nomura, and I’ve heard you are seen as one of the candidates for its president.” I told him, “If I’m joining your company as managing director and CFO, it will be fine for you to set my compensation at the same level as other managing directors.” Well, my compensation as a result fell below that of a department head at Nomura, but, basically, I have no attachment to money.

BM: What drives you if not money?

YK: Nothing is more important than working for the benefit of society and people. If you do something that benefits society that will eventually benefit you. Take regional revitalization as an example. Mr. Shinzo Abe [Japan’s prime minister from 2012 to 2020] went so far as to say that there would be no Japanese revival without vibrant regional economies. I decided I should do what I could to contribute to that cause and worked on revitalizing them. That’s resulted in a sharp increase in the number of financial companies that use our services, which has become a large source of profit.

BM: How are you trying to revitalize regional economies?

YK: I felt, while looking at Japan’s financial industry, that I ought to change regional financial institutions. Mr. Yoshihide Suga [Japan’s prime minister from 2020 to October 2021] has argued that Japan has too many banks. In the meantime, the government is calling on regional banks to lend to regional industries. The question, however, is whether local industries can really survive. The population is shrinking, and owners of many companies are struggling to find successors. You could face trouble if you lend them money. The Bank of Japan is offering regional lenders special interest rates, and the government is providing money again, but I don’t think we should be doing those kinds of things.

BM: What do you think of banks that haven’t paid back bailout funds?

YK: Banking involves gathering lots of small amounts of deposits and lending that money to earn interest, and some banks have gone as far as to forcefully withdraw loans from their borrowers if they don’t pay them back. Despite that, it [Shinsei] hasn’t returned the public’s funds for more than two decades. How could society accept that?

Read more: Shinsei Board Member Says Bank Needs to Improve Performance

BM: So that’s why you decided to launch a hostile tender offer for a controlling stake?

YK: We have to drastically overhaul Japan’s financial ­administration. Saying you can’t make a tender offer because it’s a bank is silly. So is allowing the [bank’s] management to decide whether an offer is hostile or friendly. Stakeholders are the ones who should decide it. No tender offer is hostile or friendly. Every tender offer is constructive, and it has to be so. Constructive means that you will raise the corporate value of your counterpart in addition to resolving their problems. You will also spend your money, so you have to show your shareholders that you’ve done something that’s worth the money. After doing all that, you can call your tender offer meaningful.

In every project we’ve worked on, I’ve always tried to change and reform old-fashioned ways of doing things, overhaul anything that makes no good sense. This [SBI’s tender offer for Shinsei] is just another example. Our project to reinvig­orate regional economies that we’ve worked on for more than three and a half years is starting to generate great results. Banks once seen as being on the verge of collapse have shown a V-shaped recovery, achieving a qualitative transformation. I included several charts in our latest earnings presentation to compare ourselves with Shinsei, showing that we’ve grown this much while their profit has been trending downward. “What the hell are you doing?” is what I meant to ask them.

BM: Is there anyone in SBI Group who’s prepared to take over for you someday?

YK: Of course there is. While I doubt that any of them are capable of surpassing me, I’ve been putting those people into various jobs for experience. I’ve built this company from scratch. I know everything, from insurance to banking to the securities business. But there are some [employees] who have only done one thing. I transfer them to different teams, having them go through one thing after another to grow and train them. If I find anyone whom I think will excel, I grant that person exceptional promotions at a young age. I also elevate their status—boom! I grow and train people that way. I have them develop a sense of responsibility.

But one very serious thought in my head is that those people [potential successors] have no experience of having studied abroad. They aren’t able to intensely debate in foreign business negotiations. Well, they can rely on translators, which I do when I speak to the Chinese. There are also new translation tools that can process various languages with precision. The situation will probably change dramatically over the coming five years. Still, you need to become able to understand subtle­ties of human feelings for business negotiations, so that is one thing I’m concerned about.

BM: How many people are there who you think have the potential to succeed you in the future?

YK: I usually have three people in mind at any given time. The number could increase or decrease. A person who I thought was the one suddenly passed away at age 57. [Taro Izuchi, a former senior executive vice president and chief operating officer, died in 2014.] You never know your fate.

Also, you can’t make it without support from people. That is why I must closely look at how those who behave in certain ways in front of me are actually seen by other people, including not only their colleagues but also customers outside the company. Or whether they act differently at restaurants that we often go to when I am not present.

Nationality, sex, family connections, old-school ties, they don’t matter to me at all. It is who you are, how capable you are that matters. Human virtue. There is a saying in the Analects that “Virtue is not left to stand alone.” It means that people who have virtues never become isolated, because others who also have virtues come to them. Steel baron Andrew Carnegie is said to have [wanted] this inscription on his tombstone: “Here lies a man who knew how to enlist in his service better men than himself.”BM: When you look back and ahead, how do you assess your career overall?

YK: I’ve built this business from scratch. I’m different from those salaried workers-turned-CEOs. They would quit five to six years after being given the job; I’ve been CEO of this company for 22 years nonstop. Even today I set the direction of everything. Fortunately for me, most of the business I’ve launched has proven successful, and the value of the company has grown this much for 21 years.

It of course is a different issue whether one’s success in the past guarantees his success in the future. I’m 70 years old. Eventually there will be a time when I will feel it’s hard to maintain my physical strength, mental vigor, and intellectual capability; when it will be hard to keep up my long-held discipline, such as sleeping only four and a half hours a day to spend time absorbing and thinking over huge amounts of information. If such a time comes, then in philosophy there’s a concept of saizen-kan. It means you will meet the people you should meet at the right moment—not too late, not too early. And when that moment comes, whatever happens to you is what’s best and necessary for you. Thinking that way makes it unnecessary to worry about what you should do about your successor. Of course you have to train and grow your successors. But if they just do things the same way as I have, they will never be able to produce anything greater than I’ve made. You have to think differently. You have to have a way of thinking that will match the coming era. I know that is difficult to do, but that’s how I’ve been running our group. So far, so good. I always thank heaven for that.

Nakamichi and Taniguchi cover financial companies in Tokyo.

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