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Itochu's bet on Citic preventing beloved chief's retirement

Charismatic leader Okafuji stays on to grow the partnership with Chinese state company

Itochu's soon-to-be chairman and CEO Masahiro Okafuji, right, will pass the presidency on to Yoshihisa Suzuki, left, who will also become COO.

TOKYO -- The president of Itochu, Masahiro Okafuji, is a dynamic leader who unleashed rapid profit growth at the trading company through aggressive business reform. And after eight years under his leadership, the company is not quite ready to let him go. 

The company announced Thursday that Okafuji, 68, will cede the presidency April 1 to senior managing executive officer Yoshihisa Suzuki, who will also take on the role of chief operating officer. Okafuji will become chairman and CEO.

Under Okafuji's leadership, the company has risen from fourth to second place in the sector in terms of group net profit. The company also negotiated such landmark deals as a capital partnership with China's state-owned investment company Citic and a merger between convenience store company FamilyMart -- which Itochu partially owned -- and supermarket chain operator Uny Holdings.

"I personally wanted to retreat from the front line and enjoy my old age, but it was not to be," Okafuji told reporters here Thursday. The much-admired outgoing president will continue to direct Itochu's management strategy, with Suzuki in charge of execution. The appointment appears to be a compromise by the seasoned executive, who has told those close to him that he did not want to sully his twilight years by doggedly carrying on the presidency.

Succession drama

At first, Okafuji fully intended to retire in the spring of 2016 after a six-year term, following in the footsteps of his two immediate predecessors -- Uichiro Niwa, who started in 1998, and Eizo Kobayashi, who followed in 2004.

But at the end of 2015, main lender Mizuho Bank and others urged Okafuji to stay on.

Specifically, stakeholders wanted Okafuji to tackle the dual challenges of promoting the partnership with the Citic group and pursuing a FamilyMart-Uny merger. Itochu had bet big on Citic with a 600 billion yen ($5.4 billion) investment in 2015.

Then came this year. The committee to nominate Itochu's next generation of leadership seemed inclined to keep Okafuji at bat, but he told them early on he would not do so any longer.

After taking the helm in 2010, Okafuji promoted business reform around three core goals: earning money, trimming fat and playing defense. In the year ended March 2017, the trader earned a group net profit 170% higher than that of the year through March 2010. Pay linked to earnings performance grew, with euphoric employees equating Okafuji with God and the Buddha. Some executives expressed reservations about trying to fill his shoes.

Unfinished work

At Thursday's press conference, Okafuji appeared aware that serving too long would come with its perils. "If I were to stay on further, there would be a major problem when I leave," he said. "For the sake of the next generation, you have to give them at least a glimpse of a management changeover. Changing presidents can change the way company workers think."

Still, unfinished business required his particular touch.

With FamilyMart Uny Holdings, the question of how to rebuild struggling general supermarkets was "a challenge, but thanks to a partnership with [discount retailer] Don Quijote Holdings, the light is appearing," Okafuji says.

But the partnership with Citic, with its lackluster earnings, is another story. "A shape has emerged, to a degree, but we are still in extra innings," says Okafuji.

A relationship with executives on the Chinese side, such as Chairman Chang Zhenming, will be indispensable to furthering the partnership. The Chinese "value titles highly," Okafuji says. "When the person at the top changes, previously established relations tend to vanish."

Moreover, the business environment for traders such as Itochu is shifting amid the rapid growth of information technology businesses, including fintech. "Under present business models, a trading company would find itself backed into a corner in the next three to five years," according to Okafuji. "I believe my role will be finished when a new profit structure comes into view."

The longtime executive looks back on his presidency as "a success." But leading a trading company is "really quite a difficult job," he reflects wryly, not least because of the sheer breadth of businesses the trade touches on. The peace of retirement looks to be a long way off yet.

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