A formidable opponent.

Photographer: Chris McGrath/Getty Images

Dan Loeb Takes on Japan's Mega-Bot

a | A

Obsessively secretive Fanuc has a love-hate relationship with hedge-fund manager Dan Loeb. The Japanese robot maker no doubt appreciates the billionaire investor's many compliments, including "reminds us of Apple in its product approach." It just as surely abhors the media spotlight, never mind being told what to do by some loud foreigner -- or gaijin, as the Japanese say.

Four weeks ago, Loeb’s hedge fund, Third Point, started a public campaign demanding changes at the Yamanashi-based company. It's having some effect, in ways Prime Minister Shinzo Abe would be wise to encourage and facilitate on the legislative front.

Founded in 1972 by the father of its current president, Yoshiharu Inaba, Fanuc has long been a corporate black box. Outsiders are rarely allowed near its campus on the slopes of Mount Fuji where, 24/7 in windowless factories, legions of yellow robots make more robots. My Bloomberg News colleague Jason Clenfield, who has been inside Fortress Fanuc's walls, reports e-mail is mostly banned for its 5,300 employees. Fear of hackers and computer viruses means business is often done by fax. Japan's 10th biggest company by market value holds no conference calls with analysts and has no investor relations department.

To many Japanese, Fanuc's attitude is a source of pride and nostalgia for a time when their corporate samurai were free to do things the Japanese way. To Loeb, it's an anachronistic example of the opaque Japan of old that Tokyo must rein in to boost competitiveness. One can quibble with Loeb's grab-a-stake-and-demand-change approach, but he's getting results.

Last month, Inaba unveiled plans to invest more than $1 billion in new plants and research-and-development. On Friday, Fanuc raised the ante with talk of increasing dividends, opening a shareholder-relations arm and meeting with stock owners. Small beer to punters in New York or London, but important progress for Japan at an ideal moment -- as Abe works to tighten his nation's notoriously loose corporate governance.

This is a still a place where virtually all annual shareholder meetings are held on the same day to limit attendance. Independent directors are rare on corporate boards; non-Japanese and women are ever rarer. Courts remain biased against private-equity firms, while takeover defenses like cross-shareholdings abound. All that gives CEOs a free hand to build corporate empires at the expense of shareholders and the return on investments westerners hold so dear. Abe is trying to pass legislation to impose a more international code of conduct on Japan Inc. Even if it lacks teeth or imagination, passage would mark progress.

The timing of Loeb's Fanuc campaign couldn't be better. Even though Sony ignored his demands to sell assets -- he announced in October that Third Point sold its stake in the one-time electronics behemoth -- Fanuc is proving to be surprisingly receptive to calls for greater shareholder returns. Although Fanuc denies the Loeb effect, it's plenty clear that the black-ships dynamic is prying open Fanuc's black box. The reference here is to Commodore Matthew Perry's black-hulled fleet that in the 1850s cruised into Edo (now Tokyo) Bay, opening Japan for trade and dragging it into a fast-globalizing world.

In recent decades, a succession of would-be Perry imitators tried and failed to extract greater value from Japan Inc. Billionaire T. Boone Pickens was among the first. The Texas oil tycoon who helped pioneer the hostile-takeover game in the 1980s met his match with Toyota supplier Koito Manufacturing. Pickens gave up in 1991, after losing a battle to gain a board seat. In the years to come, his experience was shared by Warren Lichtenstein of Steel Partners and Britain's Children's Investment Fund. In 2008, then-European Union Trade Commissioner Peter Mandelson derided Japan as the developed world's "most closed market."

Loeb's budding success hints change may be afoot. Granted, it could end badly, with Fanuc ultimately telling Loeb to bug off and Japan Inc. circling the wagons. But this moment is an opportunity for Abe to use the bully pulpit to get his corporate-governance measures enacted. If the insular graybeards who dominate executive suits object, show them the money: Fanuc's stock surged 13 percent Friday, the highest level since the company listed in 1976. Bring on those black ships.

This column does not necessarily reflect the opinion of Bloomberg View's editorial board or Bloomberg LP, its owners and investors.

To contact the author on this story:
Willie Pesek at wpesek@bloomberg.net

To contact the editor on this story:
Mark Whitehouse at mwhitehouse1@bloomberg.net