Mizuho FG Considers Investment in Rakuten Bank
Reports have emerged that Mizuho Financial Group is considering an investment in Rakuten Bank. The investment could take place as early as autumn, drawing significant attention in the financial industry.
At first glance, this appears to be just another capital alliance announcement. However, when viewed from the perspective of “reversibility” in management decisions, this move contains important implications.
This is because a major bank investing in an online bank holds the potential to be designed as a “temporary relationship” rather than a traditional “fixed relationship.”
The “Can’t Go Back” Risk Lurking in Capital Alliances
When many executives consider capital alliances, they tend to focus on “deepening the relationship.” They concentrate on deciding the investment ratio, dispatching board members, and the scope of business partnerships, but they often miss the crucial perspective: “If this relationship doesn’t work out, how do we get back?”
Even in the small and medium-sized enterprise (SME) cases I’ve seen, there are many instances where companies become “unable to go back” after a capital alliance. Three patterns are particularly common:
1. Locking in People
Accepting executives or employees from the partner company as part of the investment. However, if that person doesn’t perform as expected, it’s not easy to replace them. Even if it’s contractually possible, companies often leave things as they are, fearing the risk of damaging the relationship.
2. Integrating Business Processes
As system integration and joint development progress, each other’s operations become deeply intertwined, making separation difficult. Even if you want to withdraw, your own business operations might grind to a halt.
3. No Exit Strategy in the Contract
Contracts are made on the premise that “things will go well,” so the conditions for mid-term cancellation or withdrawal are often vague. As a result, even if there are grievances, you can’t make a move.
In the case of Mizuho FG and Rakuten Bank, these three risks could also be lurking. In particular, Mizuho FG’s traditional banking organization and Rakuten Bank’s IT company culture are vastly different. If integration proceeds ignoring this difference, there is a danger of creating an irreversible relationship.
Three Conditions for Designing a “Reversible Capital Alliance”
So, how can you design a capital alliance to be “reversible”? Using this news as a case study, let’s consider three conditions.
Condition 1: Set an “Exit Point” in the Investment Ratio
It’s not clear what level of investment Mizuho FG is considering, but the key is to be conscious of “a ratio from which you can always turn back.” For example, exceeding 20% makes the investee an equity-method affiliate, subjecting it to consolidated accounting. This increases the impact of any withdrawal.
For SMEs, reversibility can be enhanced by keeping the investment below 10%, or by including an option to acquire shares in stages.
Condition 2: Design the Scope of the Business Alliance as an “Experiment”
When conducting a business alliance alongside a capital alliance, instead of aiming for full-scale integration from the start, design it as a “limited-time joint experiment.” For example, try collaborating on a specific product or service for one year, and then decide whether to expand or shrink the relationship based on the results.
The important thing here is to decide on the “evaluation period for the experiment” and the “withdrawal conditions” from the outset. By drawing a line that says, “If it doesn’t work, we stop here,” you can make decisions based on facts, not emotions.
Condition 3: Avoid Locking in People
When sending people to an investee company, consider making it “time-limited.” For example, set a two-year secondment contract, after which the person can choose to return or transfer to the partner company. This helps maintain a business-based relationship rather than one dependent on specific individuals.
In one company I supported, when sending a CFO to an investee, they set a three-year term and added a rule for “bilateral evaluations every six months.” As a result, the CFO returned after two years, but because the rules were established beforehand, they could withdraw without damaging the relationship.
The Value of Preserving the Possibility of Withdrawal
Some executives might feel, “Thinking about withdrawal from the start seems disrespectful, as if you doubt the relationship.” However, I believe the opposite. Clarifying the possibility of withdrawal is actually the foundation for building a healthy relationship.
This is because, with the premise that “either party can walk away at any time,” there’s no need for forced compromises or putting up with things. You can build a cooperative relationship from a long-term perspective, without being fixated on short-term results.
It’s still unclear what form the alliance between Mizuho FG and Rakuten Bank will take. However, if both companies are conscious of a “reversible design,” it could become a new model case for the financial industry.
In Practice: How to Make Your Company’s Capital Alliance “Reversible”
Finally, let me share some specific checkpoints. When your company is considering a capital alliance, try answering the following questions:
- Is the investment ratio set with consideration for the impact of a potential withdrawal?
- Is the scope of the business alliance designed as an experiment?
- Are the evaluation period and withdrawal conditions clearly stated in the contract?
- If sending people, are there time limits and evaluation rules in place?
- Have you specifically envisioned how much impact a withdrawal would have on your own business operations?
If you can’t answer “yes” to these questions, your capital alliance is at high risk of becoming an “irreversible relationship.”
In management decisions, “being able to go back” is not a weakness, but rather a strength. This is because being able to go back allows you to conduct bold experiments. Why not use Mizuho FG’s move as an opportunity to think about your own company’s capital strategy?
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