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Japan needs to part ways with “management by collective” says Kazuhiko Toyama, formerly the COO of the Industrial Revitalization Corporation of Japan and now CEO of Industrial Growth Platform Inc. He’s also a Stanford MBA and outside executive director of Omron. In an interview with Nikkei Business magazine, he argues for a complete change in corporate governance for not just Japanese companies, but also other “closed” companies like Volkswagen.
“I’m in favour of a constitutional monarchy” says Toyama, “but Volkswagen was a monarchy without a constitution. That’s dangerous for a public listed company.” “Toshiba is a salaryman collective – where the members are only those who joined as graduate hires and stayed for life.”
He dismisses Toshiba’s pre-scandal corporate governance, which included several external directors, as “cosmetic”. Governance by Toyama’s definition is “how are the most important decisions in the company made. One of the most important decisions is the appointment of the top executives. It should be like a government election”, he says. “If you avoid debate, then it just becomes a game of tag.”
I found his analogy of Japan’s corporate governance to Japanese politics convincing. In previous decades, he points out, the Japanese main bank system provided a form of governance, and this worked in a period of economic growth, because the main financing was through bank loans. But now Japanese companies are more reliant on financing through equity and bonds, this system has lost its efficacy. Since 1990, freed from the leash of the main bank, the salaryman collective system has grown up, whereby Japanese companies pretend to be answerable to the shareholders meeting (as if it was a general election) but in fact the board is like the diet (parliament), where there are factions and parties who are opposing the President’s faction. The company is therefore governed by something similar to a cabinet.
Cross shareholdings were popular, because they sapped the strength of shareholder democracy. Lifetime employment and seniority based promotion are constructs of the post war era according to Toyama (and many other analysts). “It’s only been 50 years since they fully took root. Before the war, Japan was nakedly capitalist, but that ended with the Mitsui Miike mine dispute in the 1960s. If you said something that only dated from then was rooted in Japanese culture, Kabuki actors would laugh at you”
“Japanese companies say they look after their people, but in fact they are only looking after the permanent, life time employees. They won’t fire the lifetime employees – the social hurdles are much higher than the legal hurdles to doing this. So instead they cut back on contract workers or shrink their graduate intake. What was that Japanese management theory about, that said in pursuit of long term growth, it was OK to sacrifice short term profits, in order to protect employees?”
“It also became taboo to dispose of businesses. When I was involved with the restructure of Kanebo (another window dressing scandal), we sold of parts of the business, without having to make people redundant. Disposals need to happen quickly if you want to avoid people losing their jobs. I was criticised at the time by the Kanebo staff who were in the businesses that were disposed of, but afterwards one of them apologised to me for what he had said, and told me that his family is very happy now.”
“Before being an employee, people are above all need to make a living, to have a life. They may cry when they have to leave a company, but the next day, they to work to live somewhere, somehow. This is what you have to respect, if you are serious about looking after the people.”
“Toshiba will probably have to make radical changes to its PC and TV businesses. It probably will necessitate someone from outside the main Toshiba mothership. Just as Kawamura was able to come back into the main Hitachi company, having run Hitachi group businesses elsewhere, and be able to look at what was needed, objectively (as I have blogged previously) and engage with the vertical – the business units, where the restructuring really needs to happen. “
“The two big waves of globalization and digitization hit businesses in the 1990s. The Japanese IT industry was not able to overcome them, but the automotive companies were able to ignore the digitization wave and overcome the globalization challenge by increasing mass production. But it won’t be so easy from now. Radical changes are going to be necessary in the way companies are structured. Companies need to have a portfolio of business that they can swap and change easily and quickly. They need to be able to attract and retain the best global talent. If you’re a female Chinese university student looking for a first job and you see a Japanese board line up on a potential employer’s website, full of Japanese men in their 50s and 60s, you’re not going to see your future there.”
We’ve revised our Top 30 Japanese companies in Europe again. Where possible we have updated the number of employees, which means the Suntory Group is now in the Top 30 along with Konica Minolta (and Kao and Daiichi Sankyo are out). This time we wanted to take a look at the gender and nationality diversity on boards, both in Japan and Europe, and have discovered that there are actually fewer women on the boards of Japanese companies in Europe than in Japan.
Only two out of 19 (10%) of European headquarter boards of Japanese companies have women on them – Astellas and Suntory (the latter including Makiko Ono, an executive in Suntory Japan) and only 3 of the 14 (21%) UK based Japanese companies we looked at (in cases where the European HQ was not in the UK or there were separate European and UK companies in the UK) had women members – Lucite (subsidiary of Mitsubishi Chemical Holding/Mitsubishi Rayon), Komatsu and NTT Data. Komatsu UK’s female director is Keiko Fujiwara, who is the CEO of Komatsu Europe, in Belgium. This contrasts with 13 (43%) out of the Top 30 companies’ boards in Japan having women directors. In case you were wondering, only 6% of FTSE250 companies have no women on them.
- 4% of the Top 30 Japanese companies in Europe’s board members in Europe and/or the UK are female
- 6% of the Top 30 Japanese companies in Europe’s board members in Japan are female
- 8% of the Top 30 Japanese companies in Europe’s board members in Japan are non-Japanese
- 16% of the board members of the Top 100 listed Japanese companies in Japan are female
- 19.6% of FTSE250 board members are female
Around 62% of the members of European and UK boards of of the Top 30 Japanese companies are European, on average. Companies whose boards in the UK and Europe only had Japanese directors were Toshiba, Fast Retailing (Uniqlo), Fujifilm and Sharp. Sharp and Toshiba’s troubles are well known. Fast Retailing recently reported struggles in the US market and falling profits in Europe for Uniqlo, Comptoir des Cotonniers and Princess Tam Tam. Fujifilm has made a remarkable transformation from a B2C camera film to a B2B imaging company but the last set of quarterly results, issued last month were deemed “mixed”.
(Note: only main boards, not executive or supervisory boards were analysed, and company secretaries were excluded)
The full chart is here (highlighted means “above average) and can be downloaded here :Top 30 Japanese companies in Europe board diversity Nov 3 2015
So says Masato Hikita, director of Headwaters, a consultancy providing services to Japanese SMEs. Headwaters itself sends new graduate recruits off to Vietnam or Dubai for a month or so, to learn how to set up new businesses in foreign countries. The aim is to make them realise that what they assume is common sense in Japan is not necessarily so outside of Japan.
So whilst most Japanese think that “global jinzai” (global human resources) are probably fast track employees in their 30s or above, who speak fluent English, have overseas experience and a willingness to work overseas, Hikita argues that such people are way too good at being excellent in Japan. This means they will take responsibility for pushing forward with projects but also are good at consulting with their colleagues and juniors, are always bright and positive, and serious minded. Unfortunately this has the opposite effect overseas.
When such types go abroad, they want to achieve 100% perfection in their results. However overseas things never go smoothly. The star expat has a lot of pride, so tries their hardest, and puts all the burden on their own shoulders, worrying about how to fulfil headquarters’ expectations. But of course they only end up disappointing headquarters, the more they promise. The headquarters begins to believe that if their ace players can’t win overseas, then maybe they should give up on overseas expansion altogether.
A twenty-something employee will be under less pressure. If they mess up, it’s less of a cost, if they succeed then they’re lucky. Twenty somethings are happy to ask lots of questions, both locally and of Japan headquarters. That way they learn rather than trying to do everything by themselves, and also Japan headquarters become aware of how different things are overseas.
Hikita asked a Japanese person with long overseas experience what kind of employee makes the best expat, and the response was “someone who’s not so serious, who only half listens to what Japan HQ says”. That way, Japan HQ don’t have such high expectations – if 100 is the Japan benchmark, then 50 is good enough.
Finally, and I was relieved to see he did make this point, Japan HQ has to become more globalised itself, by having more non-Japanese employees working there. Again, easier said than done, as I know many European employees of Japanese companies are quite resistant to the idea of working in Japan, assuming that there will be long hours and many stresses on their families. Perhaps the same recipe applies – not so serious twenty somethings might be the place to start!
Unfortunately Michael Woodford did not answer the question in the title of the talk, which he gave to the Japan Society this week. It was pretty much the same talk I heard 3 years ago, only even more melodramatic and self dramatizing. But from what he said, I assume his answer would be that nothing has changed, if loyalty to seniors in Japanese companies continues as an excuse to cover up fraud. And certainly, with the recent frauds and cover ups in Toshiba, Asahi Kasei and Toyo Tire and Rubber, it’s hard not to worry that there is something rotten at the heart of Japanese corporate governance.
Woodford rather let his (understandably bitter) personal feelings towards former Olympus Chairman Kikukawa get in the way of two key points I felt. Firstly that Kikukawa was in turn covering up for his predecessor and his predecessor’s predecessor’s mistakes – it was not just about preserving his prestige and his (for a Japanese President surprisingly high) salary. So many Japanese corporate scandals turn out to have roots in previous generations, making it extremely difficult and perilous for successors to do anything about them, as the Japanese people sitting near me at the dinner afterwards pointed out. Secondly, that Kikukawa was able to get all the other directors and employees in the know to collude, not just out of their personal loyalty to him, but their fear that if the fraud was exposed, the consequences of the shame upon them and on Olympus would mean the end not only of their careers but of the company and all its 1000s of employees’ livelihoods.
The fact that Olympus survived is actually a vindication of Woodford’s approach, of public confession and resignations. But he is so insistent on making himself out to be a martyr, abused by “uncle” Kikukawa and threatened by yakuza, who nonetheless loves Japan (he kept insisting), that he rather lost the governance argument in all the embroidery of his story.
I asked him at the dinner afterwards if, rather than be a lone crusader, he had tried to get any of the Olympus directors that he says he knew as friends for 30 years or his other corporate friends in Japan (he was alerted to the fraud by a Japanese senior executive in another company) to advise him what to do, even work with him to get the problem sorted, but he said they all told him to shut up. Actually, I felt a sneaking sympathy towards them by the end of the evening.
About 20 years’ ago I wrote an article proclaiming the death of the Japanese Office Lady (OL). The company I was working at, along with many other Japanese companies at the time, had stopped hiring new graduates into the so-called “administrative” track, abolished the OL uniform, and encouraged existing OLs to transfer across to a management track. Future administrative needs would be filled by temporary agency workers.
I was quite pleased about these developments, as the old OL system offended my feminist sensibilities. The companies themselves had ended the OL system more for financial reasons. OLs were meant to join at age 20 or 22 and only stay in the company until their mid twenties, when it was expected they would leave to get married. In the meantime, they cleaned the desks, emptied the bins, made tea for the team, answered the phones and processed the team’s paperwork. By the mid 1990s, however, it became clear that more and more OLs were staying in the company into their late 30s, and due to the seniority-based pay scale, were being paid well over the odds for such basic administrative tasks.
A tough decade followed, for every young Japanese leaving university and trying to find a job, but especially for Japanese women who did not want to join a temping agency. Many joined foreign companies and some braved the management track of mainstream Japanese companies. It was tough for the women who were still in the administrative track too. They often ended up being paid less, as the quasi-management track they had been forced onto was not as seniority based as the administrative track they had been on. Almost all of them were working harder than ever before, as they were now having to manage teams of temporary staff. They had to train a constant stream of new temps, check their work and take the rap for any mistakes the temps made.
I was initially surprised to hear that the administrative track is now being reintroduced at my former company. Apparently the mistakes being made by temps and the strain on the remaining ex-OLs (many of whom who have now taken early retirement) are having a significant impact on the business.
On reflection, it should not have been a surprise. When I conducted a series of customer satisfaction survey interviews with Japanese companies last month, more often than not, the female administrative staff had also been invited to meet with me, and their (mostly male) managers were very careful to ask for their opinion and comments. The Japanese customers expected their criticisms of the administrative capabilities of the supplier company to be taken seriously. Administrative mistakes are not trivial in Japan. Not only are they seen as an indication that there may be problems elsewhere, but there is a view that a small slip can have major consequences.
I was being snobbish in viewing administrative tasks as demeaning, and declaring that it is sexist if women are assigned to such tasks. I doubt I am alone in this prejudice. I wonder how many Western companies would invite their secretaries to participate in customer satisfaction survey meetings.
Kanako Otsuji, who was Japan’s first openly homosexual member of Japan’s Diet (parliament) spoke at the Daiwa Anglo-Japanese Foundation last week. Her term in office expired this July – she had replaced a party member who had resigned, and she now runs the Policy Informatics Center of LGBT, based in Osaka. One of her main campaigns is to try to get Japan’s first ever diversity law passed by 2020, in time for the Tokyo Olympics. There is already an Equal Opportunities Law in Japan, in effect since 1986 and prohibiting gender discrimination. Presumably the proposed diversity law would be to prohibit discrimination on the grounds of sexuality – and maybe other characteristics as such laws do in Europe, such as ethnicity/race, age and religion?
Homosexuality is not illegal in Japan, although I was surprised to hear that it is illegal in nearly half of the countries of the world. My understanding was that Japan’s attitude to homosexuality, whilst not openly hostile, was one of viewing homosexuality as just a phase people go through and certainly not something to bring into the workplace.
Nikkei Business magazine had a special feature on LGBT earlier this summer, titled “LGBT – your company cannot ignore it”. It cited the Dentsu Diversity Lab’s findings that around 7.6% of Japan’s population are LGBT in terms of gender identity/sexual preference, and of the LGBT people surveyed, 43% said they had come out of their own accord, but only 2.4% had come out to their boss and 4.8% to their colleagues. Consequently, 60% have changed their jobs, compared to 50% of the heterosexual employees surveyed. Some of the case studies included:
- A person who turned down a job offer because the President said in the interview that being gay was a lifestyle choice so if it caused stress in the work place, that was their own responsibility.
- Someone who had been at a major trading company for 7 years, and the next step of their career was to transfer overseas, but there was an unwritten rule that you had to be married first. The person was also worried that even if they were sent on their own, it might be to a country unfriendly to gay people. So the employee has registered with a recruitment agency to change jobs.
- Another person who was transgender – male body but a woman at heart – was working in a major electronics company R&D lab, where almost everyone is male. The employee was having to put up with daily conversations that would be considered sexual harassment if a woman was present, and had to go to hostess bars at night with colleagues.
The feature then goes on to describe Japanese companies undertaking some kind of LGBT focused initiative including:
- Kao started a study group on LGBT issues in 2014.
- Suntory Holdings has also started seminars on LGBT for employees
- Hitachi has started training centred on the HR departments of each of its group companies.
- NEC is considering training on LGBT issues for the staff of its internal hotline.
- Dentsu already surveys its employees on LGBT and has internal training – its Diversity Lab has noticed a big increase in people wanting the training.
- Microsoft Japan has changed its benefits to include LGBT relationships in its definition of dependents. GLEAM started in the US HQ and has now come to Japan.
- Nomura has “I am an LGBT Ally” stickers up in its offices. Since acquiring Lehman Bros which had its on LGBT community, it realised it had to respond.
- Shiseido participated in Tokyo Rainbow Pride in April 2015
So there is not much political pressure on Japanese companies to consider LGBT in any diversity initiatives, as there is with gender. Japanese consumers are fairly supportive, with over half saying that they would view positively a company which was supportive of LGBT people. In terms of shareholder pressure, Daniel Loeb of Third Point, an activist investor in Fanuc and Sony is a supporter of LGBT rights, and foreign shareholdings in many Japanese companies is creeping up. Indeed the Nikkei feature points out that “LGBT Is the latest management issue outside of Japan”.
Rudlin Consulting is about to launch its own Diversity & Inclusion consulting services, to support Japanese companies in Europe who want to gain the engagement of their Japan headquarters and take their D&I initiatives a step further. We suspect that initially this will mainly be gender based to begin with, although I note that my old employer Fujitsu has already set up their high profile LGB+ network, Shine, in the UK.
One of the German consultants on our team in Europe is a Toyota Production System expert. I asked her what she recommends to mixed Japanese and European teams in the companies she advises, if they are not communicating well. To my surprise, instead of talking about concepts and processes such as gembashugi (going to the place where the work is happening) or visualisation, she replied that first of all she gets them to agree on a vision for the team.
I discussed in previous articles in this series that in order for Japan headquarters to coordinate effectively with their European subsidiaries, they need first of all to look at the people concerned, and make sure there are clearly understood counterparts, madoguchi (window into an organisation) and tantousha (person in charge).
It may seem that the obvious next step is to set up communication processes between these people, but I think my German colleague is right, that without a vision for the end goal of this communication, many of these processes will become ineffective or die out.
For example, a British company I advise, who have a subsidiary in Japan, told me that they hold regular global teleconferences for certain business and research areas. However they recently discovered that the representative from one of the teams in Japan merely attends the teleconference and does not share what was learned with the rest of their team members. Clearly the Japanese representative does not see the value in cascading further what they heard.
Similarly, the Japanese expatriates at a Japanese manufacturer in the UK told me they all send weekly hokoku (1 pager reports) back to Japan (in Japanese of course), but when in the past they tried to get the British managers involved, the British soon lost interest, seeing it as an additional bureaucratic burden. “It’s a black hole”, one of the British managers told me. “We send information to Japan but never get anything back”. Again, they could not see the benefit to being involved in the communication process. In both this case and the previous case, employees need to feel they are getting information back in return for their input, which is relevant to their jobs.
Many Japanese companies say they have a vision, but in my experience these are often too vague to be actionable. By actionable, I mean that the vision has enough substance that you can make decisions based on it. Most visions for Japanese B2B manufacturers can be summarised as “contributing to society through innovation” which is actionable to some extent, but means that the company cannot really differentiate itself from its competitors who are saying the same thing. So customers also cannot see the benefit of choosing one supplier over another.
The vision that the company, and the teams within the company have should be differentiated from its competitors, and be actionable. The benefit to behaving in accordance with the vision has to be clear and understood by employees. Once that is in place, the processes for communication and compliance between the headquarters and its subsidiaries will almost take care of themselves.
This article originally appeared in Japanese in the Teikoku Databank News
I concluded in my previous article that Japanese headquarters looking to coordinate effectively with their European subsidiaries needed to consider “people” in addition to having clear communication processes and ensuring there are shared vision and values about how the company should behave.
In the past, many multinationals, not only Japanese companies, relied on a network of expatriate staff to disseminate corporate culture and keep the headquarters informed about what was happening abroad.
Now, Japanese companies are finding that they do not have enough ‘global jinzai’ (globally experienced personnel) at senior levels who are capable of managing their overseas operations, so are having to rely on locally hired senior executives.
These locally hired senior executives often become very frustrated if the communication processes are not clear, and the values and vision are not shared. They find themselves answering the same questions over and over again from multiple divisions in Japan and begin to feel they are not trusted. They are unable to make decisions or propose change and yet do not know who in Japan to ask for support or how to ask them.
This problem does not occur so frequently in Western multinationals because the compliance, authorisation and reporting processes are usually made very clear from the moment a company is acquired or set up. Also, the organisation of people tends to be similar across most Western companies. It’s therefore easy for a manager in an overseas subsidiary to work out who their counterpart is, or who the key decision maker might be.
In the European marketing department of one of the Japanese companies I worked for, we had a proposal that needed us to identify and build relationships with many different people in Japan to gain support. In a Western company this would have been easy – there would have been a marketing department, headed by a senior executive (probably EVP level) in the headquarters who would have responsibility for the strategy, vision and brand of the company.
However in this Japanese company there was no recognisable marketing department. The corporate brand office was more like the compliance part of the PR department – checking that the logo was used correctly. The advertising department simply did whatever each business unit told it to. There was a corporate strategy department but it did not seem to have any relation to the kind of marketing strategy that Europeans are used to.
I hesitate to say that my conclusion is that Japanese companies have to reorganise their headquarters along Western lines in order to succeed globally, but I do recommend that plenty of attention is given to finding counterparts and making it explicit what the tantousha (person in charge of the daily work) and madoguchi (window into an organisation, single point of contact) concepts mean, and identifying who those people should be in the headquarters. This should help reduce the burden of requests going to the local managers and help them build trusting relationships with key people in Japan. Once that is done, attention can be paid to shared values and communication processes.
This article originally appeared in Japanese in the Teikoku Databank News