The Innovators

There are about 100 million mobile phones in Japan — close to one for each of the country’s 128 million people. Half of the population access the Internet from their mobiles, one of the highest rates in the world. So when engineers at software ­maker ­DeNA Co. (pronounced D-N-A, with a silent “e” for e-commerce) approached founder and CEO ­Tomoko ­Namba five years ago and suggested that the com­pany tailor its games and social networking sites for mobile phones, she ­didn’t hesitate to say yes.

Today, DeNA’s Moba-ge-town entertainment ser­vice (the name means Mobile Game Town) has 11 million registered users, far ahead of its nearest competitor’s 1 million users. With advertising on the site and sales of avatars expanding rapidly, DeNA’s overall sales rose by 47 percent in the six months ended September 30 from the same period a year earlier, to ¥17.7 billion ($299 million); earnings surged by 81.5 percent, to ¥4.3 billion. Mobile services generated 82 percent of revenues in the latest half; Internet commerce, including online auctions, generated most of the remainder. As ­Namba puts it succinctly, “Winner takes all.”

Not content with the com­pany’s domestic success, Namba wants to take her show on the road. The executive, a former McKinsey & Co. consultant who boasts an MBA from Harvard Business School, sees competition rising at home and believes ­DeNA must expand in the big U.S. market to keep one step ahead. The com­pany set up an office in San Mateo, California, in January and has begun offering a free mobile social networking community, Moba­Mingle, that enables users to write stories or create other digital-­media content for sharing. She hopes to replicate the success that ­DeNA has had in Japan, where Moba-ge-town users have submitted 450,000 novels, 11 of which have been published in book form. “Some of those novels run to 2,000 or 3,000 pages,” she says. “All are written on the phone. Others are composing music.”

Namba is emblematic of a new wave of Japanese corporate leaders who are embracing change to generate innovative new products and ser­vices and drive growth. Investors clearly appreciate her efforts. They voted Namba as Japan’s Best CEO in the Software/Business sector in Institutional Investor’s second annual ranking of Japan’s Best CEOs.

Other winners include Nao­teru Miyato of T&D Holdings, in Financials/Insurance, who pursued demutualization and mergers to grow market share and build the com­pany into a leading Japanese insurer; Yoshihiko Miyauchi in Financials/Other, who helped found Orix Corp. as Japan’s first leasing com­pany in 1964 and has grown it ­into a diversified financial ser­vices outfit; and Terunobu ­Maeda in Financials/Banks, who has forged Mizuho Financial Group ­into one of Japan’s leading mega­banks through the merger of three institutions. (Click on the following title to see the complete list of winners from our Japan's Best CEOs survey).

These executives face a growing challenge to keep their companies at the front of the pack. Japan’s economy has entered a severe downturn, with output contracting at a 3.0 percent annualized rate in the three months ­ended June 30. Fears that the ­global financial crisis will further depress output and export earnings have sent stock prices reeling. Tokyo’s Nikkei 225 index flirted with the 7,000 level before recovering to 8,576.98 at the end of last month, down 44.0 percent for the year to date. Deleveraging triggered by the ­credit ­crisis, meanwhile, has caused a massive unwinding of the yen carry trade, boosting the Japanese currency by 14.3 percent so far this year, to 98.23 against the dollar at the end of last month.

Orix’s Miyauchi has felt the financial downdraft more than most. The diversified financial services company he heads has seen its share price fall by ­nearly half since July and by roughly three quarters over the past two years. He attributes the decline to selling by foreign investors pulling ­money back home because of the ­credit ­crisis. Such investors hold about 57 percent of Orix stock, down from 63 percent earlier this year.

Miyauchi helped found Orix, under the name of Orient Leasing Co., as Japan’s first leasing company. The com­pany was backed by five banks and three trading companies, including Nichimen & Co., where Miyauchi started his career in 1960. As one of the first generation of Japanese business executives to study in the U.S. — he obtained an MBA from the University of Washington — and to speak English fluently, Miyauchi played a central role in importing the techniques and strategy of U.S. Leasing International, an American company that helped get Orient off the ground.

Since taking over as president and CEO in 1980 (he became chairman and CEO in 2000), Miyauchi has led Orix’s diversification into corporate lending, real estate, securitization and insurance, including buying 70 percent of the Los Angeles–based investment bank Houlihan Lokey Howard & Zukin for an estimated $500 million in 2006. Earnings soared more than sixfold between fiscal years 2003 and 2007, to ¥196.5 billion, but the impact of the widening credit crunch caused a 13.7 decline in the year ended March 31, to ¥169.6 billion. “That is my headache,” Miya­uchi says. “It is quite natural that we must accept the decline of profit for the time being, bearing international con­ditions in mind.”

Still, Miyauchi, who played a key role in pushing for deregulation as a member of several government advisory bodies on regulatory reform for a decade from the mid-1990s, is confident that Orix will steer itself successfully through the current crisis, just as it did after Japan’s stock market bubble burst in the early 1990s. “The greatest lesson of the bubble period was that it led to ­losses,” he says, “but the greatest success was that it ­didn’t bankrupt us.”

Reaffirming the company’s commitment to real estate in spite of the economic slump, Miyauchi has moved to take advantage of depressed stock market values to buy a controlling 39 percent stake in developer Joint Corp. for ¥10 billion in September. “If you look at Japan,” he says, “most investment goes to real estate–related businesses. There ­isn’t a huge amount of investment in factories. So when you talk about the entire financial sector of Japan, I think real estate is a core part of finance.” Investors will be hoping that Miyauchi’s acumen and timing are still sharp.

T&D Holdings’ Miyato is a financial pioneer whose innovations have helped the company become the country’s sixth-­biggest life insurer by premium income despite a secular decline in the market. Miyato spent 32 years rising through the ranks at midtier insurer Daido Life Insurance Co. before becoming president, equivalent to CEO, in 1999, just as Daido entered a long-term alliance with rival Taiyo Life Insurance Co. Miyato pushed ­strongly for the deal, arguing that the companies needed greater scale to face the prospect of growing competition from foreign insurers. Two years later he engineered the joint acquisition of T&D Financial Life Insurance Co., the former Tokyo Life Insurance Co. ­Daido and ­Taiyo became the first life insurers to demutualize and obtain a stock exchange listing, in 2002 and 2003, respectively. The three companies merged under a single holding company, T&D Holdings, the following year, with Miyato as CEO.

The chief executive describes the lengthy transformation of the insurance companies as “the biggest achievement of my life and the toughest test.” The three companies continue to operate under their own brands, with a large degree of independence: Daido sells mainly through small and medium-­size companies, Taiyo markets to households, and T&D specializes in annuities. “Taiyo Life and Daido Life each had 100 years of history; they had utterly different ways and cultures,” he tells II. It was important, he adds, “to let each ­player keep the best elements that were in there already — it was vital to preserve that.”

Miyato’s strategy has largely ­worked, although T&D ­isn’t immune to the broader decline in Japan’s life insurance industry. The company increased the number of new life policies sold by 18.5 percent between 1999 and 2005; sales have since declined to stand 1.8 percent below the level of 1999 as of March 31. The industry as a whole, by contrast, has seen life business plunge by 56.4 percent over the past ­decade.

Mizuho’s Maeda is another financial consolidator. In 2000 the 63-year-old chief executive merged his old institution, commercial bank Fuji Bank, with investment banking power­house Industrial Bank of Japan and retail heavyweight Dai-­Ichi Kangyo Bank to form one of Japan’s three mega­banks, Mizuho Financial Group. Some analysts questioned whether he could effectively integrate the three sprawling banks and overcome the bad-debt problems that forced the merger; that skepticism was reinforced when Mizuho’s IT system crashed on April 1, 2002, the first day of the operational integration of the three banks. But Maeda persevered. He went before parliament to issue a public apology. He also slashed his own salary by 50 percent for two years and imposed similar cuts on all senior management and reductions of 20 to 30 percent on department chiefs. “My philosophy is that I decide pay levels,” he tells II.

The cuts had their intended effect. “Doing that,” says one veteran American executive in Tokyo, “was the sure way of getting across to the huge Mizuho staff that times were tough.” Maeda’s decisive leadership helped return Mizuho to robust profitability and enable it to repay ¥1.95 trillion in government aid on schedule by 2006.

Recovering from Japan’s banking crisis is a clear achievement, but Maeda is finding it harder to generate sustainable growth. Mizuho listed its shares on the New York Stock Exchange in 2006, to demonstrate its readiness to expand abroad, but a push into the U.S. mortgage market has been costly. The bank took ¥645 billion in write­-downs on subprime mortgage securities, causing earnings to fall by 50 percent in the year ­ended March 31, to ¥311 billion. ­Maeda has ­also been burned in his attempt to profit from U.S. financial weakness. The bank bought $1.2 billion in convertible preferred stock of Merrill Lynch & Co. in January, then converted its holding ­into common stock at a reduced price of $33 a share in August. Merrill’s shares were trading at about $18 apiece late last month, and ­it’s unclear what Mizuho aims to achieve with a small stake in Bank of America Corp., which it will end up holding after BofA closes its acquisition of Merrill. Meanwhile, rivals have done some strategic shopping of their own: Mitsubishi UFJ Financial Group spent $9 billion to buy 21 percent of Morgan Stanley, and Nomura Holdings laid out $2 billion for Lehman Brothers’ Holdings businesses in Europe, the Middle East and ­Asia.

Still, some analysts credit Maeda with handling the latest setback quickly and candidly. He cut Mizuho’s planned ¥400 billion stock buyback to ¥150 billion in October, to conserve capital as Japan’s economy went into reverse and share prices tumbled. “He is the best of the CEOs of the three megabanks,” says a Japanese analyst at one Western bank in Tokyo. “Maeda has a very clear capital ­strategy.”

Now comes the hard part — earning a return on that capital. Maeda, like other Japanese CEOs, will need plenty of determination and innovation to succeed in these difficult times.

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Yoshihiko Miyauchi

Chairman and Chief Executive Officer, Orix Corp.

Sales: ¥1.2 trillion ($1.2 billion), Earnings: ¥169.6 billion

No. of Employees: 18,702

As one of 13 executives who founded Orix Corp. as a leasing company in 1964 and as CEO since l980, Yoshihiko Miyauchi has unquestioned authority over the financial ser­vices company and shows no signs of retiring, even at the age of 73. Born in l935 in western Japan and educated at Kwansei Gakuin University, Miyauchi obtained an MBA from the University of Washington before starting his career at Osaka-­based trading company Nichimen & Co. in l960. Fluent in English, Miyauchi has the experience to match his years. He sits on the board of ­Sony Corp. and has overseen everything from real estate to private equity to asset management. “It all boils down to managing money,” he says. Miyauchi also volunteered to help the government in the 1990s in addition to running Orix. He advised five prime ministers, including the reformist premier Junichiro Koizumi, and earned the nickname “Mr. Deregulator” for his long stint as head of the Regulatory Reform Committee.

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Tomoko Namba

Chief Executive Officer, DeNA Co.

Sales: ¥29.7 billion ($297 million); Earnings: ¥6.8 billion No. of Employees: 540

Tomoko Namba is that rare phenomenon in Japan — a woman who has cut a swath through the male-dominated business world. Born into a Niigata family in l962, Namba studied English at Tokyo’s Tsuda College, earned an MBA from Harvard Business School and then spent nearly a decade at consulting firm McKinsey & Co. — where she became only the third Japanese woman to make partner — before leaving to set up DeNA in l999, recruiting a young, technologically savvy staff to write gaming software. After four loss-making years, Namba decided to target the market for mobile-­Internet services, where she felt her company could grab an early lead and keep it. DeNA established a successful mobile auction site, Mobaoku, in March 2004, and followed that two years later with Moba-ge-town, a gaming and social networking site that dominates the fast-­growing Japanese market. Now ­she’s targeting the U.S., hoping to sell America’s youth on the attractions of playing games and sharing stories and music through their cell phones. “I must build a strong company,” she says.

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Naoteru Miyato

President and ­Representative Director, T&D Holdings

Sales: ¥2.3 trillion ($23.2 billion); Earnings: ¥36.7 billion

No. of Employees: 11,882

As a 41-year veteran of Japan’s life insurance industry, Naoteru Miyato knows full well the sector’s provincialism — which makes his achievements all the more impressive. Miyato joined Daido Life Insurance Co. in 1967 after graduating from Tokyo’s Keio University, and rose to become president in 1999. Then he coaxed rivals Taiyo Life Insurance Co. and T&D Financial Life Insurance Co. to merge in stages and form T&D Holdings in 2004. “These firms — Daido from Osaka and Taiyo from Tokyo — are so ­very different,” he says, “so getting them to join up was hard.” Miyato shares a floor of T&D’s new Tokyo headquarters with the presidents of the three operating companies, which trade under the Taiyo, Daido and T&D Financial brand names. The formula appears to be working, though. Premium income has declined 14 percent over the past four years, but T&D has suffered less erosion than the industry; it ranked fourth in new life policies in the year ended in March with 9.3 percent of the market, just behind Nippon Life Insurance Co. Miyato credits growth areas such as term life, where the company leads the market. “T&D stands for ‘try and discover,’ ” he says.

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Terunobu Maeda

President and Chief Executive Officer, Mizuho Financial Group

REVENUES: ¥1.66 trillion ($16.7 billion); Earnings: ¥311.2 billion

No. of Employees: 49,000

Terunobu Maeda has an English-­language sign on his desk that reads, “no excuses.” Since taking over as head of Mizuho Financial Group after its creation in a three-way merger in 2000, ­Maeda has had plenty of occasions to refer to that sign. In 2003 he imposed a 50 percent pay cut on himself and his top executives to underline management’s commitment to resolving the bank’s legacy of bad debts. Now he must bolster profits after taking a ¥645 billion hit for exposure to subprime U.S. mortgage securities. Maeda ­hasn’t ducked investor complaints, but he declined to apologize at a June shareholder meeting, telling investors that management ­wasn’t negligent and that banking involves taking risks. Born in Oita, Kyushu, in 1945, Maeda is the eldest of five children; he studied law at Tokyo University and joined Fuji Bank, one of Mizuho’s constituents, in l968. A wry man who makes jokes at his own expense — a rarity in corporate Japan — Maeda laughs when told he was voted as Japan’s best bank CEO in Institutional Investor’s survey. “I am the worst CEO,” he ­retorts.