Escaping the zaiteku book, and paying again after eight years (1994)

How to measure a dependence on earnings built outside the core

The heart of this decision was a single question: how far could management recognise, and control, its dependence on financial income earned outside the core business of steel distribution. The zaiteku book that swelled under Kita Shigeru began as an extension of hedging real currency exposure, and while share prices rose it was regarded as a pillar of earnings rather than a risk. But from the moment the earnings structure became two-legged — the core business and the investment portfolio — the company was carrying the risk that a reversal in financial markets would shake the enterprise itself.

What Kita Shuji’s rebuilding showed was that the work was less the handling of the crisis than the remaking of an organisation: opening up a concentration of decision-making into collective judgement. Letters written to the president to see the true state of affairs, outside directors brought in, an unprecedented cancellation of the company’s own shares funded out of stated capital — each was intended to shift Hanwa toward a constitution that does not entrust its fate to the judgement of one manager. How an independent trading house should measure its distance from the financial markets has remained, in changed forms, a recurring question in the company’s management ever since.