"If Masa Says 'Yes', Who Am I To Object?" - Insiders Worried About SoftBank's Dictatorial Dealmaking Culture

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by Tyler Durden
Monday, Aug 09, 2021 - 08:40 PM

SoftBank's Masayoshi Son is perhaps Japanese most famous investor (he's sometimes referred to as "the Japanese Warren Buffett" In the press), but his reputation has been threatened in recent years due to debacles involving WeWork and Greensill (among other less notable setbacks).

And now, some of the firm's employees are anonymously speaking out to the press that they're afraid Masa might already be blundering his way into the next WeWork or Greensill.

This isn't the first time we're hearing about Masa's dictatorial management style. But in the latest insider report, the FT spoke to several current and former high-ranking SoftBank executives, who dished that Masa's "highly competitive, instinct-driven culture us often in conflict with the firm's compliance procedures.

Some questioned SoftBank's decision to combine the chief compliance and general legal officer roles into a single role, following the sudden resignation last Sept. of the company's former compliance chief Chad Fentress.

Others griped that SoftBank has apparently not learned the hard lessons from several setbacks that nearly derailed its first Vision Fund, even as the firm has tried to market VFII as more disciplined than its predecessor.

Internal conflicts have erupted over the firm's decision to revive its buyback program while finalizing the deal for its sale of its T-Mobile stake.

Here's a snippet from the FT report:

Legal opinion was divided, with some within the company arguing that the conclusion of the T-Mobile deal was uncertain and therefore did not require disclosure. The group also engaged outside counsel to consult whether the T-Mobile transaction would constitute market-sensitive, material non-public information, which may require the share buyback to be halted, but no definitive conclusion was reached.

SoftBank told the FT that the decision to go ahead with the buybacks and the T-Mobile sale was "carefully considered" by multiple departments within the firm.

SoftBank told the FT that each of its relevant departments co-ordinated closely to examine the legal and regulatory implications of business decisions under consideration. “The legal department regularly seeks outside legal advice from Japanese and non-Japanese counsel about the company’s legal and regulatory obligations and shares such information with the other functional departments in order that appropriate decisions are made,” it added.

The biggest issue is that Japanese law strictly governors disclosure of material non-public information, and its application regarding stock buybacks is "open to interpretation", potentially leaving the firm with some legal risk.

One of Japan’s top M&A lawyers at a Big Four law firm said the question of how material non-public information might affect share buyback programmes was raised frequently by Japanese clients, particularly as the number of such programmes has soared in recent years.

The openness of the regulation to interpretation and the potential for being accused of insider dealing, said the lawyer, meant firms always tended to offer conservative advice to companies. Any unwillingness of a firm to provide a written opinion, he added, might suggest the client had opted to proceed with some risk.

And the disclosures surrounding the Sprint sale weren't the only instances where SoftBank had cause for concern. Apparently, the same executive responsible for SoftBank's now-infamous "Nasdaq Whale" trades caused internal controversy when the firm pushed through a deal for the Norwegian warehouse automation company AutoStore.

The deal, which people familiar with its background said was pushed through at high speed, was in keeping with what has now become “a culture at SoftBank where everyone is so desperate to impress Son” that compliance concerns might be viewed as secondary to the pressure to make impressive acquisitions.

The fact that there isn't any outside money in the Vision Fund has led executives to fret that SoftBank might be getting too reckless. One particularly bad decision occurred in November of 2020, when SoftBank provided Greensill with an emergency loan of $440MM funding via VFII. 4 months later, the supply-chain finance company filed for bankruptcy.

While one executive who spoke on the record said the firm tries to foster a culture of openness - "Masa shares the view that employees should speak up" - many still feel afraid to challenge the great Masa. As one anonymous employee confessed to the FT: "If Masa had already said yes, who am I to object?" said one of the people.