SoftBank’s attempt last year to simultaneously pull off a pivotal sale of its T-Mobile stake and Japan’s biggest share buyback unleashed an internal row over whether the investment group risked overstepping insider dealing rules.
The clash was just one among a number of incidents that have convinced both current and former executives that the highly competitive, instinct-driven culture of Masayoshi Son’s company is often in conflict with compliance procedures.
Within the past 12 months, issues have come to light that have cast doubt on Son’s promise to strengthen governance in the wake of debacles surrounding WeWork and Greensill. Some inside the company have questioned the wisdom of combining the chief compliance officer and general legal counsel into a single role, following the sudden resignation last September of the company’s former compliance head, Chad Fentress.
Concerns have also been raised about how the second Vision Fund (VFII) conducts its investments, although executives had presented the sequel vehicle to the $100bn Saudi-backed technology fund as more disciplined than its predecessor.
According to internal exchanges described to the Financial Times, last May the company was focused on whether it was possible to revise the terms of the $23bn stock repurchase programme while the company’s board was also finalising the sale of its stake in US carrier T-Mobile.
Legal opinion was divided, with some within the company arguing that the conclusion of the T-Mobile deal was uncertain and therefore did not require disclosure. The group also engaged outside counsel to consult whether the T-Mobile transaction would constitute market-sensitive, material non-public information, which may require the share buyback to be halted, but no definitive conclusion was reached.
SoftBank still decided to go ahead with announcing the terms of the buyback and formally announced the sale of its T-Mobile stake in June 2020.
SoftBank told the Financial Times that each of its relevant departments co-ordinated closely to examine the legal and regulatory implications of business decisions under consideration. “The legal department regularly seeks outside legal advice from Japanese and non-Japanese counsel about the company’s legal and regulatory obligations and shares such information with the other functional departments in order that appropriate decisions are made,” it added.
Some inside SoftBank question combining the chief compliance officer and general legal counsel into a single role © Kiyoshi Ota/Bloomberg
One of Japan’s top M&A lawyers at a Big Four law firm said that the question of how material non-public information might affect share buyback programmes was raised frequently by Japanese clients, particularly as the number of such programmes has soared in recent years.
The openness of the regulation to interpretation and the potential for being accused of insider dealing, said the lawyer, meant firms always tended to offer conservative advice to companies. Any unwillingness of a firm to provide a written opinion, he added, might suggest the client had opted to proceed with some risk.
There are other instances, said SoftBank investors, where its disclosure stance has caused concern. In April, the Norwegian warehouse automation company AutoStore announced that SoftBank had paid $2.8bn for a 40 per cent stake in the private company — a deal that was spearheaded by the former Deutsche Bank trader Akshay Naheta, who also led SoftBank’s “Nasdaq whale” trades.
The deal, which people familiar with its background said was pushed through at high speed, was in keeping with what has now become “a culture at SoftBank where everyone is so desperate to impress Son” that compliance concerns might be viewed as secondary to the pressure to make impressive acquisitions.
In this instance, said the same people, the deal was particularly unusual: Naheta’s main purview is investment in public companies, and, when the announcement was made, it made no mention of which entity within SoftBank was making the asset purchase.
The investment, said two people close to SoftBank, was ultimately handled by the second Vision Fund. One of the people said there was no dispute around the transaction.
In addition to AutoStore, SoftBank has been accelerating investments by the VFII, which is run with $40bn of the group’s own capital.
But because the fund does not include outside investors, some people inside the company have questioned whether there is a enough due diligence process in place for its investments, citing similarities with the first fund’s ‘wild west’ culture.
In November of 2020, SoftBank provided Greensill with emergency $440m funding via the second Vision Fund, four months before the supply-chain finance company filed for bankruptcy.
Akshay Naheta led on paying $2.8bn for a 40 per cent stake in the Norwegian group AutoStore © Lucy Nicholson/Reuters
While investments by the fund do not always need to be cleared by the Japanese group’s investment committee, the Greensill funding was scrutinised by the committees of both VFII and SoftBank Group. Son and Rajeev Misra, head of the Vision Fund, sit on both committees.
If Masa had already said yes, who am I to object?
According to one person familiar with the transaction, the group’s four-member investment committee reached nearly identical conclusions with the VFII although troubles within Greensill had already surfaced by then. “Even though it went up to SoftBank Group’s investment committee, there was no second-guessing of what the VFII has decided to do,” the person said.
People close to the company also say that it is difficult to challenge a decision that Son has already made at the Vision Fund level even if the deals are reviewed by the group. “If Masa had already said yes, who am I to object?” said one of the people.
SoftBank said the group and its subsidiaries conduct “very thorough” due diligence and compliance in evaluating potential investments. “The SBG investment committee includes several members who are not on the Vision Fund 2 investment committee, each of whom makes an independent decision to approve or reject any given transaction,” it added.
Tim Mackey, chief compliance officer and chief legal officer, has told employees that he wants to build a transparent culture where they can freely express concerns about compliance and governance. “Masa shares the view that employees should speak up,” one person close to the company said.
But his dual role has created a situation where it may be difficult to flag compliance issues for deals when he is also in charge of legally approving the same transactions.
SoftBank said a dual role was not unusual globally, adding that it had a deputy compliance officer to lead the compliance role in case there was any conflict of interest.
But people within the company worry that Mackey may struggle to create the strict compliance culture despite his pledges to do so.
Additional reporting by Robert Smith in London