The Livedoor Scandal: Tribe Versus Tribe

Wha

t’s going on in Tokyo? Why so much glee over a disaster? After one of Japan’s hottest internet companies was revealed to be mired in financial scandal, the Nikkei was sent reeling, and the stock market tumbled 3% two days in a row. An investment firm executive linked to the controversy was found dead in an Okinawa hotel room, an apparent suicide. So why are upstanding members of Japan’s business establishment barely able to contain their happiness? It’s all in how you say “schadenfreude” in Japanese.

Right now, the translation is Takafumi Horie, 33, the CEO of Livedoor, the company at the center of the storm. One of Livedoor’s subsidiaries is alleged to have provided false financial information in order to boost its stock price artificially; and a Monday night raid by investigators on Livedoor offices and the homes of its executives precipitated the stock market swoon. But the glee among the staid suits of Tokyo comes from what Horie has come to represent. Over the last few years, he has become the chieftain of a tribe of internet entrepreneurs who hang out in the shiningly chic Roppongi Hills complex. To this Hills Tribe, the future of business was the internet, in sharp contrast to the long-established Square Tribe of neckties and suits who still consider manufacturing the only respectable industry. To the Squares, Horie and the Hills were playing a speculative “money game” with no tangible products.

Except for one undisputable one: Takafumi Horie himself. The college dropout, who started what became Livedoor in 1997, is the author of no fewer than 17 books celebrating his moneymaking, cash-grabbing ethos, with titles like “Earning Money is Everything: From Zero to 10 Billion Yen My Way”. He appeared to be living proof of his boast. Over the past five fiscal years, Livedoor has acquired 27 companies, increasing revenue 22-fold to nearly $800 million. He has also been an aggressive financial democrat, constantly splitting his stock so that younger and less well-off Japanese can afford to become shareholders. If you had bought a single share of Livedoor in early 2003, it would have multipied into 10,000 shares today. The stock became hugely popular—even schoolchildren became stockholders. And since Horie retained a 17% stake in his company, the cash influx from the horde of new but small investors made him even richer on paper.

In the self-deprecating world of Japanese business, Horie was a loud sign that screamed “love me, love my money.” The chubby, self-described geek eschewed business suits for designer t-shirts and $400 jeans. He drove a Ferrari and dated models and actresses. One day he bought a racehorse; on another he announced a private space tourism venture; on another he said he was reocrding a music CD. “I don’t think I’m going to die,” he wrote in one of his books. “At the current rate of scientific research, isn’t it possible that they’ll come up with a way to do away with death, if you pump enough money into it?” He had many enemies and he love identifying them in public. “All evils come from aged business managers,” he often declared. And the more they called his deal-making style into question, the more daring he made them, straying into territory that was exclusive to the big boys (like trying to buy a pro baseball team, thus raising the ire of Japan’s powerful media conglomerates, who own some of the richest teams) and politics (running, unsuccessfully, against a machine politician but scoring new points with his young and fervent stockholder fanbase).

Now that scandal—and a potential five-year prison term—has tainted his persona, Horie is discovering that his fans are abandoning him. Since the raid on Livedoor on Monday, the company’s stock has dropped 52%. The press, owned by barons whom he scorned, has continued to pile on its anti-Livedoor stories. Horie has not stopped giving conferences but he looks tired and stressed while maintaining that he is cooperating with the investigation. He declares that he will be vindicated. He says that any suggestion that he will resign is “irresponsible.” In the battle of the Hills Tribe and the Square Tribe, he expects to be the survivor. He has scoffed at disaster before. Once, while he was at the top of the world, Horie said that “even if you fail, the worst that you can end up with is zero. You can always reset.” No doubt he now realizes there is one result even worse than zero—and that’s jail.