What Is a Company's Raison d'Etre? Part 1

It is extremely popular right now to evaluate corporations in terms of their market capitalization. I received an email from Mr. Origuchi of Goodwill, which just went public the other day, informing me that the market capitalization of Goodwill at the time it went public was higher than Hikari Tsushin when it did so, and it is already greater than that of H.I.S. I have also heard President Son of Softbank saying that he should be contacted by Nippon Keidanren (Japan Business Federation) since Softbank's market capitalization already exceeds that of Nippon Steel Corporation.

Now I'm wondering a little: Is it really appropriate to evaluate corporations in terms of their market capitalization? While it is true that market capitalization is the No. 1 factor in the U.S., is this really how it should be? What should determine the relative merits of a company? What on earth are the appropriate indices? Ultimately, the fundamental question I inevitably end up with is, "What should be the gal for GLOBIS?"

Japan previously followed the doctrine of the supremacy of high sales, with the value of a company determined by absolute profit. Total assets and the total number of employees were also important. If you study a little bit of finance, you get the feeling that, since market capitalization is logically the present value of future cash flow projected to be generated and, moreover, is the sum total of shareholder evaluation, it is therefore the most appropriate index for measuring the scale of a company. But should we apply this to GLOBIS?

This idea troubles me. As the manager of GLOBIS, should I aim to maximize market capitalization or should I, perhaps, have a different goal?

Allow me to use the business school that GLOBIS operates as an example. There are two business models for developing a business school.

The first is to procure funds through equity financing and expand by actively increasing investment on the premise of a public stock offering. Obviously, we could very well follow the path of multi-store expansion; that is, opening schools in all major cities outside Tokyo and Osaka, increasing the number of students, offering classes using Internet and satellite broadcasts, and pursuing the economies of scale while maintaining quality.

Another method would be to remain private, operate a partnership-style of business and pursue quality with optimum size. In other words, a model that is "aiming to be the No. 1 business school in Asia." There are graduate schools such as INSEAD and IMD in Europe that exist without government subsidies and even without authorization from public institutions. They operate as institutions that offer an MBA recognized by society and are evaluated as the No. 1 or No. 2 management school in Europe. Needless to say, GLOBIS could issue our own MBA in the same way, continue to pull in excellent students, raise our quality as an Asian version of INSEAD, and ultimately gain the reputation of being the No. 1 business school in Asia.

Of course, there may be a mixed model combining the above. If you adopt the point of view that a company's value is determined by its market capitalization, then you inevitably reach the conclusion that GLOBIS should pursue the first model. Or you could also place higher importance on qualitative factors, such as student satisfaction and public recognition.

On the other hand, venture capital firms also have the option of going public to raise market capitalization, like JAFCO. But there is also another business model for creating value and returning profits to individuals as a partnership-style firm without going public.

To be completely honest, I don't think there is one correct answer in the context of both these models. That is, I think it's OK to pursue either of them. As long as the stakeholders are satisfied, we should each decide this on our own.

Therefore, we at GLOBIS are now in the middle of fierce debates on which model to pursue, and which criteria to apply to GLOBIS. These criteria for evaluation are also something that I think we can choose freely.

It might be market capitalization or it could be a qualitative goal. (If you go public, then obviously you have to focus on maximizing stock value, but remaining private means that you can introduce various evaluative standards). However, you must have a clear direction.

On August 13, the GLOBIS executive committee, which consists of eight leaders representing each business, met and dedicated an entire day to discussing our future direction. We discussed a corporate strategy based on an analysis of GLOBIS' competitive advantages in each business, but we did not reach a conclusion on the issues mentioned above. We decided to schedule another meeting for discussion. Needless to say, opinions will be openly exchanged across all levels of the company.

In facing this issue, we want to begin with the question, "Why do companies exist in the first place?" and discuss the kind of company we want GLOBIS to be. In this context, we will certainly discuss the question of value and the most important means of evaluation.

I'd love to hear what you think. The opinions of stakeholders are extremely valuable.

I will report to you as our direction becomes clearer in a subsequent column, "What Is a Company's raison d'etre Vol.2."

Please look forward to it. :-)

Mr. Yoshito Hori established GLOBIS Management School in 1992 and GLOBIS Capital Partners in 1996. In 2003, GLOBIS started its original MBA program which, in 2006, received accreditation from the Japanese Ministry of Education and gained “university” status. GLOBIS started a part-time MBA program in English in 2009 and a full-time MBA program in English in 2012.

A Harvard MBA graduate and former Sumitomo Corporation employee, Mr. Hori founded the Entrepreneurs’ Organization (EO) Japan Chapter in 1995 and became the first board member from Asia in charge of Asia Pacific region in 1996. He also served on the World Economic Forum (WEF)’s New Asian Leaders Executive Committee and Global Agenda Council on New Models of Leadership, as well as the Harvard Business School Alumni Board from 2005 to 2008. Currently, Mr. Hori is a board member of the Keizai Doyukai (Japan Association of Corporate Executives), and serves as co-chair of WEF’s Global Growth Companies.

In 2008, he launched the G1 Summit – a Japanese version of the WEF’s annual Davos forum. This led to the foundation of G1 Summit Institute in 2013, which Mr. Hori serves as Representative Director.

Just days after a huge earthquake struck northeast Japan in March 2011, Mr. Hori launched Project KIBOW to support the rebuilding of the disaster-affected areas. The following year Project KIBOW was incorporated as the KIBOW Foundation, which Mr. Hori serves as Representative Director.

An avid enthusiast of the Japanese game Go since age 40, Mr. Hori has been Director of the Nihon Ki-in (Japan Go Association) since June 2013.

Since October 2013, Mr. Hori has hosted a weekly TV program in Japan called Nippon Mirai Kaigi (Japan Future Conference). He has authored several books including Visionary Leaders who Create and Innovate Societies, Six Dimensions of Life, and My Personal Mission Statement.

Mr. Hori received his BS in Engineering from Kyoto University and his MBA from Harvard Business School.

He is an avid swimmer and enjoys spending time with his family, especially his five sons.

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