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Seven & i sees collapse of 'Suzuki Kingdom' that controlled retail giant for decades

Toshifumi Suzuki, chairman and CEO of Seven & i Holdings, touches his glasses as he announces his intention to step down at a news conference in Chuo Ward, Tokyo, on April 7, 2016. (Mainichi)

Seven & i Holdings has seen the collapse of the "Suzuki Kingdom" that controlled the retail giant for decades with the recently announced departure of Chairman and Chief Executive Officer (CEO) Toshifumi Suzuki, who failed in a recent bid to replace the president of Seven-Eleven Japan Co.

Defying objections from external board members, Suzuki, 83, sought approval of his proposal to replace Seven-Eleven Japan Co. President and Chief Operating Officer Ryuichi Isaka at a board meeting held on April 7 in a conference room on the 9th floor of the headquarters of Seven & i Holdings. Suzuki apparently thought that his proposal would be accepted by the board members.

However, he miscalculated the way in which his proposal would be voted on at the board meeting. The company had planned to put the proposal to a vote by a show of hands, but it ended up holding an anonymous vote because some board members voiced objections to a vote by a show of hands, with one external board member saying, "There are directors who care about the complexion of Suzuki's face."

Before voting, Junro Ito, who hails from the founding family of the retail giant, and 58-year-old Isaka himself expressed their opposition to Suzuki's proposal. All of the four external directors, too, said that the company should not replace Isaka, who had led the company to post record profits for five consecutive business years. This changed the atmosphere of the board meeting. "It was like a movie," one director who attended recalled. Suzuki, who himself had played a key role in developing and expanding Seven-Eleven Japan Co., expressed his intention to step down after the board rejected his proposal to replace Isaka.

On Feb. 17, two days after Suzuki floated the idea of replacing Isaka, the Seven-Eleven Japan president had visited Suzuki's office, telling the CEO he would refuse to step down. "Why?" Suzuki asked him. Isaka outlined his business achievements and told Suzuki, "I'm still young. I can't resign now because I've devoted myself exclusively to Seven-Eleven."

Shortly before the Suzuki-Isaka meeting, a long-serving senior official of Seven & i Holdings contacted Isaka's father. Isaka got enraged and stiffened his resolve to remain, saying, "My family has nothing to do with it."

After Isaka became the president of Seven-Eleven Japan in 2009, the convenience store chain posted high profits for five consecutive years by aggressively opening new stores and developing its own products.

Because of all this, U.S. hedge fund Third Point LLC, which has a stake in the retail giant, criticized Suzuki, arguing that his proposal to replace Isaka was a move to lay the foundations for his second son and Seven & i Holdings director Yasuhiro, 51, to become the president of Seven-Eleven Japan.

Suzuki dismissed that view with a laugh, saying, "I was flabbergasted." But people around him saw the situation differently. Suzuki has poured his effort into promoting the so-called "Omni Channel Project" designed to integrate the Internet and stores to allow consumers to receive goods ordered online at Seven-Eleven stores in the country. When Suzuki handpicked Yasuhiro to head a subsidiary tasked with promoting the project, many people inside and outside of Seven & i Holdings started thinking that Suzuki planned to have his son succeed him.

A source close to Seven & i Holdings said, "The reason why the chairman was not fully satisfied is that Isaka did not succeed in the Omni Channel Project. He wanted his second son to succeed in the project, but he was frustrated because things didn't go well."

While Isaka refused to step down as president and COO of Seven-Eleven Japan, Masatoshi Ito, the 91-year-old honorary chairman of Seven & i Holdings who holds about 10 percent of shares in the retail giant, came to play an important role. Ito highly evaluated Suzuki's ability, having said repeatedly in the past, "We are thankful to Suzuki for boosting the corporate value (of Seven & i Holdings)."

But some unusual events were taking place at Seven & i Holdings in the personnel sphere apart from the proposal to replace Isaka. In January this year, Kazuhisa Toi, president of supermarket chain Ito-Yokado, owned by Seven & i Holdings, suddenly resigned. Toi's predecessor Atsushi Kamei, who had served as adviser, took up the position of president again. At Seven-Eleven Japan, a senior official who had contributed to developing private brand (PB) products, was demoted at the end of last year. There are persistent views that Suzuki was involved in the personnel changes, although the company has denied such allegations.

Ito has a pet theory that "corporate value is elevated thanks to all stakeholders." While ignoring the intentions of external board members and major shareholders, Suzuki's arbitrary act to try to replace Isaka, who heads a group company, was seen as crossing the line.

Isaka had once emerged as a potential successor to Suzuki. It is natural for the president of a subsidiary who has performed well to be promoted. Nevertheless, a proposal to have Isaka succeed Suzuki was worked out mainly by external board members because there was no one else available, they said.

Suzuki still has strong influence on the management of the convenience store chain. Having served as chairman of Seven-Eleven Japan, he has sampled rice balls and sandwiches with Isaka almost every day. It is said that sample products would never be put on the store shelves unless Suzuki approved of them.

Overriding objections from people around him, Suzuki introduced a convenience store from the United States in 1974. He developed a business model that was superior to the American counterpart by introducing a system of managing sales data piece by piece. Suzuki also took pride in himself as being the "father of convenience stores" as he turned his convenience stores into ones catering to Japanese consumer needs by selling rice balls and "oden" (a dish in which a variety of ingredients such as tofu, eggs, white radish, fried fish paste, and potatoes are boiled together in a large pot of seasoned fish broth). One of the external board members who supports Isaka said, "The structure in which one person holds full authority can only work under Suzuki. There is no one else who can do it." Seven & i Holdings is to shift from a management style led by a charismatic leader to one led by a group of executives, and there is no certainty in the company's future.

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