Sale of SoftBank unit to founder’s brother raises governance issues

SoftBank’s decision to sell its Korea-based venture capital arm to a company recently founded by its chief executive’s brother Masayoshi Son has drawn criticism from analysts over the tech conglomerate’s governance standards.

The Japanese group has denied any conflict of interest over the deal, but sellside analysts and governance experts have disputed that the latest sale, despite its small size, is just one of many deals to come. Soft Bank involving its founder and his family.

On Wednesday, the Japanese group declared The Edgeof, a company created last month by the entrepreneur Son of Taizowould buy SoftBank Ventures Asia for an undisclosed sum.

The wholly-owned subsidiary manages approximately $2 billion in assets and has invested in more than 300 companies since it was founded in 2000 as SoftBank Ventures Korea.

“I believe The Edgeof, led by leaders with deep knowledge and excellent track records in start-up investing, will further strengthen the tech start-up ecosystem,” said Yoshimitsu Goto, CFO of SoftBank, in a statement.

The venture capital arm made several early investments that later attracted participation from SoftBank’s much larger Vision Fund, as in the cases of South Korean e-commerce group Coupang and Indonesian rival Tokopedia.

Similar to the Vision Fund, SoftBank Ventures Asia suffered losses after the global tech rout hurt the valuations of early-stage startups it has invested in.

SoftBank said that to avoid any governance issues, Masayoshi Son was not involved in the deal approval process.

“The transaction was executed after careful and thorough review and consideration of conditions in accordance with internal governance rules where a real or perceived conflict of interest exists, and received Board approval,” did he declare.

Nicholas Benes, a corporate governance expert, said the process SoftBank followed “technically” meant there was no conflict of interest issue.

“But there is an ‘optical’ problem,” he said. “Even though it’s a small matter… Mr. Son’s shadow was in the background even though he wasn’t physically in the room.

Another longtime Tokyo-based SoftBank analyst said this was not the first time a family-related transaction raised governance issues: “[Masayoshi Son] has already done this. At least this deal is in no way important to SoftBank.

In the past, SoftBank has also invested heavily in GungHo, a startup founded by Taizo Son that produced the world’s first mobile game to generate more than $1 billion in revenue.

The brother went on to found venture capital firm Mistletoe, with the initial ambition of fostering a more vibrant start-up culture in Tokyo. He then moved the main base of operations to Singapore, arguing that the pace of innovation was faster.

Masayoshi Son’s personal ties to SoftBank’s Vision Fund and other investment vehicles also raised eyebrows among investors. The 65 year old man owed more than $5 billion to SoftBank at the end of last year after the group presented its founder with the money to invest in its technology-related funds.