Thoughts Concerning the Arrest of Livedoor CEO Takafumi Horie and the Surrounding Media Coverage
January 26 (Thursday) 2006
On Monday, January 23, Livedoor's chief executive officer Takafumi Horie was taken into custody, triggering an explosion of news coverage of the event across the country. Launched as a Web design firm in 1996 during his student days, Mr. Horie's venture company Livedoor grew remarkably quickly in a tremendously short period of time, soon garnering attention as the champion of the new IT venture companies. By July 2004, Livedoor's total market value was placed at 485.6 billion yen.
What attracted the nation's attention the most was the company's method of growth: Livedoor used its rapidly rising stock value as a weapon for the hostile takeover of a large number of businesses. Livedoor's attempt to purchase a baseball team in 2004 increased the company's notoriety even more, and its aggressive attempts to acquire Fuji Television Network -- one of the major television companies in Japan -- ensured that it became a topic of daily media coverage. Through such flamboyant behavior Livedoor became a household name, TV coverage turned housewives into instant experts on the ins and outs of M&A battles, and kids came to view "horiemon" (Mr. Horie's nickname, referring to his resemblance to a popular Japanese cartoon character) as the new champion of the times.
Attaining considerable wealth while still in his 20s, the youthful chief executive officer of Livedoor, now 33, drew notice for his decidedly un-business like attire-T-shirts, spiky hair, and no necktie -- and his distinctive style of conversation, casually dropping a slew of technical jargon in a laidback manner. Mr. Horie achieved a reputation as both an unreasonably obstinate maverick and an adored business icon of the young. He even earned the support of the LDP leadership in his September 2005 run against conservative candidate Shizuka Kamei for a seat in the Lower House.
That this very same Mr. Horie should wind up being arrested sent massive shockwaves throughout Japan. Over the past few years Livedoor increased its number of shares through 100-for-1 stock splits and other moves that drastically reduced the individual price of shares, encouraging increasingly diverse stockholding by people from all walks of life, including many young people, and raising the company's popularity in the process. In this way, the company increased its stock value through repeated techniques designed to attract more shareholders and then raise share prices. At its peak, Livedoor had as many as 22,000 shareholders.
On the evening of January 16, acting on suspicion of the abovementioned management practices, prosecutors led a raid on Livedoor's corporate headquarters. The impact of this news was devastating, as the moment it was broadcast a flood of private shareholders moved at once to sell their Livedoor stocks, causing stock prices to drop precipitously and sending tremors that spread to other IT companies as well; this triggered unloading across the board by a tremendous number of private shareholders. By January 18, the window-dressing accounting by Livedoor's main offices came to light. Private investors and others responded with a flood of selling orders, pushing the Tokyo Stock Exchange close to its maximum threshold of 4 million executed transactions per day. With only 20 minutes left in the trading day, TYSE's processing capabilities were stretched to its limits and the exchange's management implemented emergency measures to suspend trading early. The suspension of trading due to insufficient processing power was an unprecedented event not seen since the market's inception.
In this way, the arrest of Mr. Horie shook the foundations of every sector of Japanese society like a powerful earthquake. The minute-by-minute coverage of his arrest and its aftermath was plastered across every media outlet, and the common tone of the press's coverage of Mr. Horie was that of a young criminal run wild. For many people there is a sense that the news coverage of Mr. Horie's unscrupulous moneymaking -- and likewise the subsequent behaviors and prison conditions of the four arrested Livedoor executives -- has been painted over in one stark color by sensationalist media.
That the viewer rating and sales volume-based media industry gallops along the plebeian road of sensationalist coverage is a phenomenon difficult to avoid in any country. What I wish to comment on here, however, is the import that this issue holds in Japan.
One implication that this issue highlights is the way that foreign media handles the Japanese media: the tone of a portion of foreign media outlets has treated the issue of Mr. Horie's arrest as a question of "Is 'Old Japan' getting revenge?" In my opinion, such an interpretation is mistaken on two levels.
First, Japanese media continues to pursue sensationalist stories, handling only the one-dimensional, surface-level conditions of the issues; to amplify such superficial coverage as implying the "Revenge of 'Old Japan'," as many overseas media outlets have, is a gross misconception. The main root of this mistake lies in their inability to comprehend the intricate and comprehensive structure of contemporary Japanese society, a structure that much of the foreign media depicts as a simple dichotomy between the 'Old World' and the venture company-led 'New World.' In reality, aggressive venture firms have already come to play a huge role in Japan's social structure, and it is expected that this role will grow larger still. The illegal behavior of Livedoor is nothing more than one example of a kind of behavior that occurs often in any country; painting the prosecutors' diligent investigation efforts as one would draw a comic -- e.g. as symbolizing the efforts of the 'Old World' to seek revenge -- is woefully inappropriate.
Second, effects of the Livedoor incident have extended into the political world as well. This is because Prime Minister Koizumi and the LDP leadership have drawn criticism for having supported Mr. Horie in his bid for the Lower House last September, as I mentioned earlier. Indeed, that the LDP leadership lent their support to Mr. Horie without sufficient scrutiny in order to make use of his popularity holds some room for criticism, and in this regard they have committed several errors that they should reflect upon. In general terms, however, having the political world throw its weight behind a champion of venture firms is in fact a desirable development. The government's imprudence in supporting Mr. Horie personally and the propriety of political support for young people willing to challenge the new age are two different matters entirely, and making a distinction between the criminal incident and the essence of the issue is absolutely critical.
On a different note, Mr. Horie's fall from adored icon for the young to suspected criminal is truly lamentable for the many youth pursuing their dreams in this new age. This does not mean, however, that we should deny or underestimate the positive role that these youth-driven ventures will play in opening the door to this new era and challenging the future that lies beyond.
Both socioeconomy and the human world must react to changes in technology and environmental conditions, evolve, adapt, and continue to transform. This is the wellspring of the élan vital that drives human society. The motivating force that draws this energy and drives society toward continual change is the "spirit of challenge." I pray that the fallout of the events of this past week do not spread so far as to undermine this vital spirit of challenge.