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Earlier this year, after a long and public clash between management and shareholders, LIXIL Group Corporation, a maker of pioneering water and housing products, restored its former chief executive officer, Kinya Seto. The move came after shareholders and employees voiced concerns over Seto’s replacement, and is seen by many as an unprecedented victory for corporate governance and shareholder rights in Japan.

On August 21, the American Chamber of Commerce in Japan (ACCJ) Alternative Investment Committee (AIC) invited Seto—now LIXIL’s director, representative executive officer, president, and CEO—to speak about his experience at an event entitled The Courage to Do the Right Thing: A Conversation with LIXIL CEO Kinya Seto.

DEFYING KINGMAKERS
When Seto was effectively ousted last November, LIXIL found itself thrown into turmoil. He was a popular leader, and governance concerns over his replacement process led to a number of non-activist shareholders becoming more vocal. LIXIL’s share price quickly collapsed and a debate on governance and shareholder rights within Japan’s corporate culture began.

A member of one of Lixil’s founding families, who served as chairman at the time, replaced Seto and blamed him for the company’s huge loss. Unwilling to take his replacement lying down, Seto raised concerns about what he saw as an old guard in management, which he called kingmakers, who too often put their own interests above those of shareholders. “Kingmakers make this kind of situation,” he said at the event. “They can be founders or a former CEO from 10 years ago. They’re not in touch with the realities of day-to-day interests, but they have the power to influence the decision-making process.” After empowering normally passive investors to take action and back his campaign, Seto was able to replace the board and reinstate himself as CEO.

SAVING LIXIL
Citing the AIC theme of “fighting shareholder inactivism,” AIC Chair Frank Packard, who guided the discussion, asked Seto how he was able to make shareholders more comfortable about being outspoken.

“I just told them that, although going against the company is not normal in Japan, there has to be a first time for everything,” Seto said. “Where do you see the company going with the current management? What is the potential value that I can create? If what you want is better returns, who will you go with? You have to make the message as simple as possible.

During his battle with the kingmakers, Seto used a simple yet powerful short phrase in his fight: “Save Lixil.”

“I didn’t want to give the impression that the company would go bankrupt without me,” Seto said. “But my true feeling was that I wanted to save the company.”

If the sharp 18-percent rise in share price since his return is any indication, it would appear Seto succeeded. His next step is helping his employees regain their sense of direction within the company.

NOTHING TO LOSE
Given that Seto had such determination to save LIXIL even after his abrupt departure, Packard asked who or what Seto was fighting for. Why did he go to such great lengths to fight for good governance? Was it for the management team, employees, or shareholders? Was he simply trying to do the right thing?

“The answer is yes to all those things,” Seto said. “I told my employees they would feel happy and proud about working at LIXIL. I told shareholders and investors how amazing and beautiful LIXIL can be. And I told my children that you have to learn to judge things yourself and do the right thing. If I didn’t fight this battle, I would have been lying to them all. I had nothing to lose by fighting.”

“In Japan, people do things because it’s what their prede­cessor or competitor did. I really wanted my employees to have a greater sense of ownership, free of outside influence. If they can feel proud about coming to the office, then I know I have succeeded.”

Aaron Baggett is a staff writer at Custom Media for The ACCJ Journal.

Photos: Embassy of the United States, Tokyo
The move . . . is seen by many as an unprecedented victory for corporate governance and shareholder rights in Japan.