Recruit Goes Public: What Next for the Staffing and Media Conglomerate?


Having survived an epic scandal in the 1980s and cleared away a massive debt load, Recruit is continuing to grow in Japan and expand overseas, and its shares were recently listed on the Tokyo exchange. What kind of company is it, and where is it headed?

Off to a Strong Start on the Stock Exchange

On October 16, 2014, Recruit Holdings Co., Ltd. was listed on the First Section of the Tokyo Stock Exchange. The stock ended the day at ¥3,300, ¥230 higher than the initial public offering price. Though price movements in the Japanese stock market are somewhat opaque, it seems fair to say that the issue got off to a very strong start. The company’s market capitalization (total market value of outstanding shares), some ¥1.9 trillion at the time of listing, topped ¥2 trillion the next day. As was widely noted, this put it ahead of Sony.

What sort of company is Recruit, though? In the wake of the Recruit scandal of the late 1980s, the biggest insider-trading and influence-peddling case in postwar Japan, the company at one point was struggling with ¥1.4 trillion in interest-bearing liabilities. Where is it now headed?

Rikurūto to iu gensō (The Illusion Called “Recruit”) is based on my own experiences working at the company and additional information I was able to gather about it. I believe that understanding what Recruit is trying to do can shed light on the current condition of many Japanese companies.

What Is Recruit’s Business?

First of all, let us consider what Recruit’s business is. This is a question that is difficult to answer, because the company’s operations extend across so many different fields.

On the day of the stock listing, Recruit President Minegishi Masumi held a press conference at the Tokyo Stock Exchange at which he screened a video introducing the company’s business domains. Titled “Opportunities for Life,” it explains that Recruit helps people make decisions about everything from small enjoyable events to major turning points in their lives. Narrated in English and featuring an international cast, the video delivers the message that Recruit is striving to develop its operations globally.

The three-minute clip does not, however, give a full explanation of Recruit’s business fields. The support for encounters at “major turning points and small enjoyable events in life” featured in the video accounts for a relatively small fraction of the Recruit group’s operations. The attached chart shows the breakdown of the group’s sales by field for the business year through March 2014.

Domestic and overseas staffing operations, at ¥612.4 billion, accounted for slightly over half (51.4%) of the group’s sales for the year. Recruit has recently come out with a string of smartphone applications and other information-technology services. And it has invested in diverse companies, including Oisix, which sells vegetables and other foods mainly online, and Lifenet Insurance, an Internet-based life insurance company.

The “Ezoe Model” of Business

Until about 10 years ago media references to Recruit commonly described it as an information service company or as an informational magazine company—“informational magazines” being publications that supply information required by people undertaking some specific activity, such as a job hunt. The content of the introductory video played at the October 16 press conference highlighted this business field.

Recruit’s business model for this field is based on collecting money from those who want to spread information about something (such as companies with job openings) and publishing it via its own media organs; the aim is to match people and businesses.

People within Recruit and others in the media field call this the “Ezoe model” of business, after the company’s founder, the late Ezoe Hiromasa. At the corporate memorial ceremony held after Ezoe passed away in February last year, President Minegishi declared that Recruit Holdings would continue to prize the Ezoe model while tackling new challenges on a global level.

The Ezoe model is Recruit’s strong point, but the group faces the ongoing issue of how to develop businesses that go beyond this model. A key concern is how much longer Recruit will be able to rely on the Ezoe model in this age of the Internet, which allows free publishing and searching for information.

The Recruit Scandal: A Political Bombshell

No discussion of Recruit is complete without some words about the Recruit scandal, which came to a head in 1988. Until around the year 2000, this was the first thing that came to most Japanese people’s minds when they heard the name “Recruit.” The incident was one in which the company offered key politicians shares in its subsidiary Recruit Cosmos before taking it public in 1986. The scandal led to the arrest of Ezoe and others from Recruit and of a number of politicians and civil servants. And even among those who escaped arrest, many important figures who were implicated were forced to resign from their positions as political or business leaders. People often mention Ezoe’s arrest, but it is important to remember that numerous other figures also took a fall as a result of the affair.

The late Nakauchi Isao, who founded the Daiei retail group and served for a while as chairman of the board at Recruit, spoke of the scandal at an assembly of the company’s employees held at Yokohama Arena in April 2000: “With the Recruit incident, Recruit ended up destroying Japan’s old political order. I want to see the company take the lead in the twenty-first century by displaying this sort of power to trigger changes that will rock society as a whole.”

Nakauchi’s comment may sound inappropriate, but one can take the view that it was thanks to the scandal that “Recruit” became a household word throughout Japan. At his October 16 press conference, President Minegishi also referred to the commotion that Recruit caused at that time.

The scandal, along with the sharp downturn in the financial and real estate fields, put the brakes on Recruit’s development and left it carrying a heavy load of debt. At one point its interest-bearing liabilities reached ¥1,400.2 billion. And with the sudden resignation of Ezoe, its charismatic founder and president, the company was left leaderless.

But the picture was not entirely negative. For one thing, well before “compliance” became a buzzword in corporate Japan, employees on the front lines at Recruit came to feel a sense of direct involvement in compliance-related matters. And the high level of debt promoted increased awareness of costs and the pursuit of greater efficiency.

On a Global Shopping Spree

Now that it is a listed company, where will Recruit head? And why did it choose to be listed in the first place? There had been rumors of such a move, but the decision was first made public at the company’s annual general meeting of shareholders in 2012. That was the year when Minegishi became president, and he announced the plan to make a public offering of the company’s shares as part of the growth strategy he set forth at the general meeting. In October that year Recruit set up a holding company and established an office to prepare for the public offering. And in April this year it added two outside directors (from Japan Tobacco and Teijin) to its board.

Recruit finished paying off its debts in the year ended March 2006, and it is earning pretax profits of around ¥120 billion a year. Over the past decade it has used this cash flow to make a series of large-scale acquisitions, including Staff Service Co. (Japan), Indeed, Inc. (US, operator of a major job search engine), and overseas staffing service companies. Its listing on the Tokyo Stock Exchange will make it possible for Recruit to make acquisitions costing hundreds of billions of yen. What sorts of companies is it likely to acquire?

A Race to Acquire Staffing Agencies

Recruit has declared its ambition to become the world’s top human resources company. It can be expected to continue focusing its program of overseas acquisitions on staffing agencies, personnel placement agencies, and job advertisement agencies. Particularly in the field of staffing services it can share know-how and take advantage of economies of scale. Recruit is now in a race with its rivals to buy up staffing services around the world.

In the media field, the key will be finding a way to come out ahead in the competition among rival platforms. Recruit is working hard to win consumer loyalty with its Recruit Point program. And it drew considerable attention this spring with the obviously high-budget commercial it produced for this points-for-purchases program. The minute-long clip, titled “Life Is Not a Marathon,” won the Bronze Lion for the corporate image category in the film division at this year’s Cannes Lions International Festival of Creativity. Recruit was clearly aiming for recognition at Cannes, and its executives and advertising team members may have been disappointed that they did not win one of the top prizes, which would have been a plus for the company’s global expansion drive.

What Next for Recruit?

So what can we expect from Recruit in the period to come? It is sure to step up its acquisitions of staffing firms, and I think we may also see it buying up companies that have solid consumer membership programs covering multiple services, just as Rakuten did after its stock was listed in 2000, seeking to build up a huge online group.

Alongside a more dynamic acquisition drive at home and abroad, Recruit will probably also undertake moves to step up its hiring of engineers and to enhance its existing products and services. But despite its tremendous market capitalization, which placed it among Japan’s top 50 companies at the time of its listing, Recruit has not made it clear where it is headed. While declaring that it is staking its future on globalization and advances in information technology, it will likely find itself scrambling to cope with changes in society and caught up in the whirlpool of competition—just like so many other Japanese companies.

(Originally written in Japanese on October 27, 2014. Title photo: Recruit Holdings President Minegishi Masumi speaks to the press following the listing of the company’s shares on the Tokyo exchange on October 16, 2014. © Jiji.)

Rakuten Recruit Tokyo Stock Exchange Ezoe Hiromasa staffing service