Few businesses are as colourful – quite literally – as Fanuc. Seiuemon Inaba, the secretive Japanese family firm’s founder, long ago decided that employees would all wear garish yellow headgear and jackets, and that all buildings should be painted in the same hue.
It is, he likes to say, “the emperor’s colour”. The firm, which spun out of Fujitsu in 1972 and has its factory at the base of Mount Fuji, makes the electronics that go into factory robots. And they are very, very good at it.
Fanuc has 60% of the global factory robot market and its margins are huge. Profits in the last year were $1.6bn – a 67% rise year-on-year – and business looks good as orders increase from China and the US. Airbus, Ford and Tesla all use Fanuc robots. The company is a star by any measure.
Except one. That even with a market cap of $44bn, and a trillion yen on its balance sheet it only pays a dividend of 1%. Which is where activist investor Daniel Loeb comes in. The American boss of hedge fund Third Point has bought shares in Fanuc and is trying to pressure it to dole out more cash to shareholders.
Interestingly, this comes in the same week that another aggressive hedge fund, Elliott Management, took Hong Kong’s Bank of East Asia to court for issuing 222m new shares last September. Elliott think that BEA, which is controlled by the Li family despite them owning just 7% of the stock, issued the shares simply to dilute the strength of other shareholders.
It would be easy to see these two clashes as battles between American and Asian business cultures. They might be that, but it is also a clash between advocates of the shareholder-ownership model, and the family-control model of governance.
On that question, the hedge funds might be wrong. A famous paper by Ronald C Anderson and David M Reeb found that companies in which founding families own shares perform better than those with no founding family involvement (although the effect wears off at high levels of family-ownership). The outperformance is even more marked when a family member is CEO.
Of course, it doesn’t follow that those findings are true in all cases, and it could be that there is some juice in Fanuc and BEA. Fanuc’s share price jumped 3.6% on the news that Loeb was pressuring the owners, proving that the market thinks so.
But the real stories here are family ones. Elliott might be miffed at BEA’s dealings, but the opponent the Li family is fighting is not the hedge fund, but the Malaysian Quek family, who own a large chunk of BEA and are rumoured to be keen on snapping up the rest. Elliott knows that the Queks are troubling the Lis, and that there could be shareholder value to be found if the Malaysians took over. (Friends to be made too, perhaps.)
And the reason Loeb thinks he might be able to change Fanuc’s culture is that its founder recently passed control of the firm to his son. Loeb knows that a generational transition is a time of instability in a family firm, and that if Fanuc is ever to be persuaded to change its culture, now is the moment.
In both cases the actions of the Wall Street financiers are a sideshow – albeit a colourful one – and family dynamics are the main event.