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Rajeev Misra & Marcelo Claure's power clash at top of SoftBank puts Son's vision in question

Marcelo Claure clashed from the start with Rajeev Misra, who oversees SoftBank’s $100 billion Vision Fund and many of Masayoshi Son’s most important investments.

Bloomberg|
Updated: Feb 11, 2019, 10.21 AM IST
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Masayoshi Son often cuts deals with an expectation that the investment will eventually be rolled over to the Vision Fund.
By Pavel Alpeyev, Selina Wang and Giles Turner

Masayoshi Son’s grand vision for SoftBank Group Corp. has been dealt a setback by an internal power struggle between two of his closest lieutenants.

Marcelo Claure was named chief operating officer in May with the goal of improving operations across SoftBank portfolio companies and getting startups such as Uber Technologies Inc. and WeWork Cos Inc. to work together. Yet he clashed from the start with Rajeev Misra, who oversees SoftBank’s $100 billion Vision Fund and many of Son’s most important investments, according to people familiar with the matter.

After months of disagreements, Misra won an important dispute. The staff Claure has been hiring to improve operations were shifted over to work for Misra at the Vision Fund instead, said the people, asking not to be named because the matter is private. The employees, numbering about 40, were notified by email Feb. 1, including some who were hired so recently they hadn’t even started work yet. The push for synergies at the Vision Fund will happen under Misra’s watch, not Claure’s.

The COO now has a reduced mandate. His portfolio will include WeWork, chip-design firm ARM Holdings Plc and asset-manager Fortress Investment Group LLC, according to the email. He will mainly focus on a Latin America investment fund that SoftBank plans to create. Less than two months after moving to Tokyo with his family, he is considering moving back to Miami.

Claure and Misra, in a joint interview, downplayed any conflict and said they are working together effectively.

rajiv misra
Pic: Rajeev Misra

“Our shared passion for our work should not be misread as tension,” Claure said. “We will continue to collaborate - as we do everyday - on executing and realizing SoftBank’s bold mission for the future. The changes were made because they were the right thing to do for our business.”

While the shift is a setback for Claure, the real loser may be Son himself. The Japanese billionaire pitched his unprecedented push into technology investments as a strategy for getting the world’s best startups to cooperate. He dubbed this his “Cluster of No. 1s” strategy, which in Masa-speak means that one plus one would add up to more than two. Now it’s uncertain that his portfolio companies will get along any better than his lieutenants.

“Masa probably finds this whole thing frustrating,’’ said Chris Lane, an analyst at Sanford C. Bernstein & Co. “He should be able to go and meddle everywhere, but he doesn’t have time for that and wants Marcelo to do it on his behalf. But what he really did was put two peers of equal stature in conflict.”

Son already oversees a vast empire with dozens of stakes in startups involved in ride-hailing, satellites, indoor farming, construction, dog-walking and cancer detection. He has said he plans to raise a new $100 billion fund every two or three years. Yet he has struggled to persuade investors of the potential in this push. SoftBank Group shares trade at a discount to the value of its stakes in Alibaba Group Holding Ltd. and other public companies, despite a buyback-fueled jump in his shares this week.

Claure was supposed to lead the way in closing that gap. Son first teamed up with the Bolivian-American in 2013 when the Japanese company acquired a majority stake in Brightstar, a phone distribution business Claure founded. Son elevated him the next year to run Sprint, where he led a turnaround of the wireless operator and ultimately agreed to sell the business to rival T-Mobile US Inc. He was named SoftBank COO last year, then moved to Japan in December.

The entrepreneur’s experience made him the perfect candidate to execute Son’s vision. Claure set out to create a team of executives versed in building companies, improving performance and managing key support tasks like government relations. The so-called SoftBank Operating Group was slated to have as many as 200 to 500 people, the people said.

“The Vision Fund businesses are late-stage investments from the venture capital perspective, but they are still very young companies,” Lane said. “There is a whole process to growing these companies from startups to corporations, and Marcelo has a lot of experience to manage that transition.”

Inserting himself into the Vision Fund’s operations proved to be a challenge. Early on, his attempts to join conference calls to discuss deals in process were stymied by scheduling -- they took place in the middle of the night Claure’s time. A source close to the Vision Fund said there was no attempt to keep Claure out and it was simply the best possible time for the fund’s teams, split between London and San Carlos, California.

Untitled
Pic: Marcelo Claure

Claure convinced Son to hold a weekly strategy call with himself, Misra and Katsunori Sago, a Japanese banker who was named chief strategy officer in June. At first, Claure would lay out his ideas, backed up by detailed presentations, only to find that Misra mostly spoke off the cuff. Claure took it as a sign that Misra was not making an effort to collaborate.

Even as the tension between the two men mounted, they maintained an amicable public relationship. At a Vision Fund offsite meeting in Miami late last year, Claure and Misra heaped praise on each other in their keynote speeches. An employee at the Vision Fund said the two were always kind and respectful in public. However in private, their exchanges sometimes escalated into shouting matches, some of the people said. Others characterized it as two outspoken people disagreeing vigorously.

Behind the scenes, Son worked to ensure that Claure had a company-wide mandate. But he hit an obstacle at the Vision Fund because any major change in its operations had to be approved by limited partners, led by Saudi Arabia, the biggest investor in the fund. Though the partners understood the business justification in having a team of experts look after the operations, they wanted any such team to be part of the Vision Fund for compliance reasons. That meant reporting to Misra, with whom the Saudi royal family has a relationship that predates their $45 billion contribution to the fund.

The parties involved set a deadline for the end of January to come to an agreement. Son traveled to Riyadh at the end of the month, a trip that Claure hoped would allow him to operate independently. Instead, Claure was given the option to follow his team to the Vision Fund, essentially working for Misra. He declined.

The lines between the fund and SoftBank’s own investments are sometimes murky. Son often cuts deals with an expectation that the investment will eventually be rolled over to the Vision Fund. As of February, there were 71 companies in the Vision Fund portfolio. The list may also soon include China’s ride-hailing leader Didi Chuxing, which is part of SoftBank’s own Delta Fund. The fund also owns a 25 percent stake in ARM, with a majority controlled by SoftBank itself.

SoftBank’s stake in WeWork has the potential for more conflict. The Japanese company has invested more than $10 billion in the co-working startup, but that is split between SoftBank itself and the Vision Fund. Ron Fischer, a SoftBank veteran, led the deal and sits on its board.

There was no mention of the organizational changes when Son addressed investors and media at a quarterly earnings briefing in Tokyo Wednesday. In recent months, he often speaks about the need to create a company that can survive successive waves of technological change for the next 300 years, starting with the looming impact of artificial intelligence. The short-term challenge might be more prosaic: managing an expanding portfolio, along with the egos of his closest aides.
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