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Beside Tokyo’s bustling Shibuya train station lies a sprawling set of offices, where a high school dropout watches over his many disciples. Over three decades, Masatoshi Kumagai has built his internet business into a vast empire. Today he presides over 102 companies, led by himself and 101 different chief executive officers.
To keep his people focused on the same goals, the founder, chairman, and president ofGMO Internet Inc. uses a private creed he calls GMO-ism. It’s a set of values and philosophies he’s been crafting since 1995. “It’s like a religion,” Kumagai says in a Zoom interview. Clad in a white GMO-branded T-shirt, the 57-year-old looks at least a decade younger. “The heads of each business are the priests. And in that example, I guess I’m Jesus Christ.”
GMO is a conglomerate for the internet era, dominating large parts of Japan’s web infrastructure. The company says it holds the country’s biggest market share in the fields of cloud hosting, domain registration, payments, and online security. GMO also has an online bank, an online mall for arts and crafts, a Groupon competitor called Kumapon, and a cryptocurrency exchange.
GMO’s stock has been surging, as the coronavirus pandemic spurs gains in technology. The company’s shares have risen 50% this year, pushing the value of Kumagai’s 39% stake to more than $1.3 billion, before accounting for pledged shares. But questions remain about whether the conglomerate business model really adds value. Critics say Kumagai exercises too much control over an unfocused group of companies and that’s why GMO’s market value is much less than the sum of its parts. “We call it a collective of entrepreneurs,” says board member Atsuko Fukui, a 20-year GMO veteran. “They’re like the warlords of the Warring States period,” she says, referring to a fractious era in Japanese history.
The group fits into a tradition of business empires that dates at least to the time of the zaibatsu, conglomerates such as Mitsubishi and Sumitomo that controlled large areas of Japan’s industry before World War II and live on with looser ties between their parts. As is often the case, GMO has relied on the leadership of an enigmatic founder, a point that’s drawn both praise and criticism. “You don’t meet many executives like him,” says Kaname Fujita, an analyst at Ichiyoshi Research Institute Inc. “He has such charisma.”
Every Monday, Kumagai gathers all the group CEOs to examine their earnings and discuss how to expand the conglomerate’s control over Japan’s internet infrastructure. But he’s far from a hands-on boss: “I don’t think of myself as managing them,” Kumagai says. As long as the different company heads follow the lessons of GMO-ism, he says, they’re free to do as they please.
GMO declined to share the GMO-ism bible in its entirety, saying it was confidential. What the group did share, and what can be pieced together from other sources, reveals a combination of motivational messages, strategic instructions, and prophecies of how GMO will bring the “internet to everyone” over the next 30 years.
Some of the doctrine is made up of Silicon Valley-esque platitudes (“Change begins with the mind”) and clichés (“Make everything absolutely cool and beautiful!”). Some is idiosyncratic: Multiple-choice surveys of potential clients must always have an even number of answer options, and PowerPoint presentations must use a font size of at least 24 points.
But there are also hard-nosed business commands. For example, rivals must be monitored daily, and when one differentiates itself in the market, a GMO company must match it within a day or two. “We must provide products that are superior, even slightly, to those of our competitors in terms of specifications and pricing,” the doctrine says.
GMO-ism maps out the group’s future in great detail. A 55-year-plan aims to build the empire to 207 companies by 2051. An Excel spreadsheet created in 1998 says the group aims to attain revenue of 10 trillion yen ($95 billion) by then. GMO posted a record 196.2 billion yen in revenue in 2019. The company will expand to 200,000 employees, it says, from the current roughly 6,000. “Without GMO-ism, we wouldn’t be here today,” Kumagai says. “We only have people in the group who share our vision. But if you don’t share the vision, please go somewhere else.”
Kumagai dropped out of his central Tokyo high school in his second year at the end of the 1970s. Looking back, he said he didn’t study at all. Later realizing the benefits of education, he was one of the first students to enroll in the Open University of Japan, a distance-learning institute. But he quit that, too. “I am ashamed of myself,” Kumagaiwrote on his website.
At 21 years old, married and with an infant daughter, he was living in a decrepit apartment belonging to his father’s company, which had interests in a series of businesses including real estate and pachinko, a form of gambling with pinball-like machines.
Seeing his wife reluctantly drop off their young daughter at day care so she could help make ends meet as a waitress, Kumagai drafted a life plan committing to taking a company public by the age of 35, he said in a 2016 interview with President Online. He had just turned 36 when InterQ Inc., then an internet service provider, went public at the height of the dot-com bubble in 1999.
Another unit listed in less than a year. A period of heady growth in the early 2000s saw two other GMO group companies go public. In 2005 the Tokyo Stock Exchange promoted GMO Internet to its main board. As the internet developed, the group entered businesses ranging from online payments to online trading, sometimes by acquiring companies. GMO got involved in almost every internet trend, expanding into cloud hosting and cryptocurrency and even making an unsuccessful foray into mobile gaming.
Despite the group’s size, running GMO is just one part of Kumagai’s life. He also DJs and scuba dives and has studied the Israeli martial art Krav Maga. He’s a licensed helicopter pilot now learning to fly his Gulfstream jet. He’s an avid skier and weightlifter and a wine buff.
Partly because its businesses span such wide areas, making it difficult for investors to value the entire group, GMO trades at much less than the value of its shareholdings. The company’s market value is $3.3 billion, while its listed stock holdings alone are worth more than $5 billion. That means GMO itself and its closely held units are effectively valued by the market at zero.
“The parent-child listings are the biggest bottleneck, the biggest risk,” says Mitsushige Akino, senior executive officer at Ichiyoshi Asset Management Co. “There are many listed companies in many areas, but do they have full visibility over them? Are they able to fully operate them?”
Kumagai doesn’t accept this argument. “We’re obviously undervalued,” he says. “I don’t think for a moment the shares have gone up too far.” That complaint will sound familiar to another brash Japanese executive who’s alsocompared himself to Jesus and insists the market doesn’t value his company correctly: Masayoshi Son, founder of SoftBank Group Corp. It will also resonate with the nation’s general trading companies, which have long traded at a so-called conglomerate discount.
One activist investor has said the problem is Kumagai himself and the “excessive influence” he wields over the group. In a 2017-18 campaign, Hong Kong-based hedge fund Oasis Management Co. called on Kumagai to loosen his grip over the company, narrow the group’s focus, and give more power to minority shareholders. (Expenses related to aircraft usage and wine payments were also among the complaints.) Oasis made shareholder proposals in 2018 that would have lessened Kumagai’s influence, but the fund failed to get them passed. It later reduced its stake from 6.24% to below the 5% required for disclosure.
GMO also stands out for having publicly traded subsidiaries at a time when other Japanese companies are moving away from the practice of parent-child listings, which has been criticized by corporate governance advocates as putting minority shareholders at a disadvantage. Under reforms enacted by former Prime Minister Shinzo Abe, corporate giants such as Hitachi Ltd. and Fujitsu Ltd. have consolidated or sold some of their listed units. Nippon Telegraph & Telephone Corp. announced in September that it’s set to take listed subsidiary NTT Docomo Inc. private in a $40 billion buyout, ending the country’s largest parent-child listing.
Kumagai brushes off suggestions that he should delist his subsidiaries. He points to payments services providerGMO Payment Gateway Inc., the jewel in GMO’s crown. Shares have risen more than twelvefold since a low in January 2015, pushing the company’s market capitalization to $9 billion, much more than twice the value of its parent.
“Issei Ainoura, the CEO—he’s an entrepreneur, he wants to build companies,” Kumagai says of the GMO Payment Gateway president. “Do you think he’d work that hard if he was merely the head of the payments division at GMO Internet? His motivation comes from being a president as well as a shareholder.”
Kumagai says several other GMO companies are preparing to list, though he declines to identify them or say when. The 55-year plan calls for 27 listed units by 2051, and by that metric things are progressing roughly on schedule. He bristles at complaints that he exerts too much control over his organization, saying GMO is largely a bottom-up structure. “If I had to make every single decision, we wouldn’t have a chance to survive,” he said in 2018 in response to Oasis.
And more than two years later, Kumagai is still defiant. “They just don’t understand the reality of business,” he says of his critics. “If you think it’s so easy, why don’t you give it a go?”
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