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Toshiba’s profit inflation scandal only really hit the Western media headlines when President Hisao Tanaka resigned on July 21st, but the Japanese media have been covering this story since April of 2015, when the accounting irregularities first surfaced and an independent committee was set up. Signs of trouble ahead were flagged up by me two years before that, when it was announced that Tanaka was the compromise candidate to become President, resulting from the fight going on between the outgoing President Norio Sasaki and his predecessor and chairman Atsutoshi Nishida.
Tanaka was the first Toshiba president not to come from one of the main business units, having spent most of his career in procurement. Sasaki was from the nuclear power side and Nishida from the PC business – both areas were traditionally profit generators for Toshiba but since 2008 at least, as has become apparent recently, more dogs than cash cows. Presumably the hope was that Tanaka, as an outsider to both businesses, would not be beholden to the factions and vested interests, and would somehow quietly restructure and clean it all up. But of course, without his own factional support, and the old guard still in place, he was in too weak a position to do that. It makes me even more admiring of Takashi Kawamura at Hitachi – similarly from outside the main businesses of Hitachi, but able to turn it around from its largest loss in Japanese manufacturing history.
Which actually makes it even more obvious that Toshiba must have been having problems from way back. When I was at Fujitsu (2010-20013) we used Toshiba, Hitachi, NEC and Mitsubishi Electric as comparables in terms of financial metrics. Fujitsu was suffering by the comparison, the only source of light relief being that NEC often did worse. Toshiba gave the impression of somehow muddling through, without really trying anything very drastic, which given the pain everyone else was going through, does in retrospect strike me as suspicious.
Do we need to be worried about other Japanese companies?
This was the angle taken by the two UK journalists who managed to track me down while I was on holiday in Croatia last week.
Much has been made in both the Japanese and Western media of the perils of putting profit targets above all else (something which Sasaki started but Tanaka had to take the blame for) and juniors not being able to fight against senior executive pressure. But this is not unique to Japan – look at Enron, Fifa and RBS for example. The person to first blow the whistle on Toshiba turns out to be an internal auditor, whose warnings about the PC business were ignored by the former CFO and head of the internal audit committee. Questions also need to be raised about what the external auditor was up to all these years.
There are some European angles to the story. For example, one of the businesses named as having inflated profits is the smart meter business. Toshiba won an order from TEPCO (yes, of Fukushima fame) for a smart meter telecommunications system, beating Hitachi and Mitsubishi Electric. Toshiba had acquired the Swiss smart metering company Landis & Gyr in 2011, but many doubted, given Toshiba’s history, that they really had the expertise to execute such a complex networking project. According to Japanese telecomms experts, Toshiba ignored some key risks and costs in its low bid. The Hitachi consortium was seen as a much better bid technically, but was 4 times the cost of the Toshiba offer.
Where then were the internal business assurance checks to prevent such a loss generating deal? According to a Toshiba executive, the internal company system had become so strong, the headquarters functions no longer had much control over them. Some form of an internal company system was introduced by many Japanese companies (including Mitsubishi Corp when I was there in the 1990s) as a way of making lead executives from each business more accountable for profit and loss. Again, the Hitachi restructuring under Kawamura is instructive on how to do this so that governance is strong enough to prevent each internal company from covering up its problems and cooking the books. Toshiba may have on the surface looked like a pioneer in corporate governance, but as Nicholas Benes, Japanese corporate governance expert says “Just because you were the ambassador to Brazil, does not mean you are fit for the audit committee.” Good corporate governance has to come from within as much from without.
Financial Times staff “rejoiced” at the news that the Nikkei group would be their new owner, according to Ken Doctor of the Nieman Foundation. Lionel Barber, editor of the Financial Times, called his analysis “thoughtful and informed” in a Tweet so we can assume this is true. As Doctor points out, if the acquirer had been Bloomberg or Thomson Reuters or Dow Jones, then there would be immediate talk of synergies and integration, euphemisms for job losses and asset stripping. I am sure it will turn out to be no different to other Japanese acquisition processes I have been involved with, whereby the senior European executives are pleasantly surprised (and later, frustrated) by the lack of overt intervention by their new parent.
FT journalists are undoubtedly going to be worried by the perception that the Nikkei journalistic culture is more respectful and less investigative than the FT. Much has been made of how the FT broke the Olympus scandal first, and the Nikkei was slow to take it up. Of course the FT broke the Olympus scandal first because Michael Woodford contacted an FT journalist first (and that will, in any country, make other publications sniffy about touching it). Actually it was not the FT that broke the scandal, it was Facta magazine – a weekly which is outside the Japanese press club system, founded by a former Nikkei journalist who was frustrated that the Nikkei would not publish his investigative work. So yes, the Nikkei newspaper is the official front of Japanese business news, and benefits accordingly from previews of financials and ‘kite flying’ of new initiatives, in return for which it is not overly critical. However the Nikkei group is much bigger than just the newspaper – and has a whole range of magazines which heavily scrutinise the Japanese corporate and political world. It takes business and economics very seriously, and in that sense is a good fit for the FT.
The fact that the Nikkei was able to come in at the last minute with a significantly higher offer than Axel Springer shows that this was a long considered option by Nikkei executives. Yes, Japanese companies are notorious for being slow decision makers, but if the decision has been pre-cooked through discussions amongst a core group, they can move fast. This was the explanation I gave to Lehman MDs in one of the post integration seminars I delivered in an intense few weeks in 2008/9 and indeed it turned out that a group of executives at Nomura had been discussing the possibility of acquiring a major US institution for six years.
The FT and the Nikkei have been collaborating since 2013, covering licensing, syndication (there are always articles by the FT and Economist in the excellent weekly Nikkei Business magazine), events, China business etc. As a consequence, Doctor says the relationship between FT CEO John Ridding and Nikkei executives is better than that between FT executives and the CEO of Pearson.
Whether a multiple of over 40x earnings is excessive (and I recall during my MBA courses that earnings multiples were contemptuously dismissed as a way of valuing a company) is not going to be a key issue for the Nikkei, unless they end up heavily in debt or taking on onerous UK pension obligations, which does not seem to be the case this time.
Again, just like other Japanese acquisitions, this is going to be primarily about the Nikkei taking a bold move to address the lack of growth arising from a stagnating, maturing Japanese domestic market, and also a hope that the FT will provide the global jinzai (global human resources) and multinational management skills that Japanese companies feel they lack if they want to expand globally.
I was surprised when the Japanese expatriate manager at a Japanese logistics firm told me recently that he thought British logistics was more advanced than logistics in Japan. When I returned to the UK after working in Japan for four years at the end of the 1990s, I remember thinking that there was a real business opportunity for a delivery service in the UK similar to Japan’s takkyubin. This thought came to me as I watched an enormous container lorry reverse very cautiously up the 19th century narrow alleyway to my London apartment, when all they were delivering was a small armchair. Surely in Japan this would have been delivered in a much smaller van, and within a much shorter time frame, so I would not have had to wait in all day for delivery.
Thanks to the rise of internet shopping (the British are the biggest web shoppers in Europe, apparently) and also the liberalisation of postal services, takkyubin type services like MyHermes have now appeared in the UK. You can book a time slot for next day pick up from your house, online, and the prices are cheaper than taking it to the post office, for heavier items.
I assume that similar services are available from takkyubin companies in Japan, so I suppose what the Japanese logistics manager was referring to was the higher volume end of logistics in the UK – transporting large quantities of car parts across Europe, for example.
Although it is possible to get qualifications and even university degrees in logistics in the UK, all the British employees of the Japanese firm at which the Japanese manager worked were in agreement that expertise in logistics was only really developed through practical experience, over time, rather than learning the latest theories in the classroom. In that sense, they were much more in alignment with Japanese apprenticeship style “on the job” training approaches.
As the Japanese manager himself pointed out, the firm’s employees were very indigenous British. Normally when I do training sessions for Japanese companies in the UK who are in the financial or commercial sectors, more than half the employees are not British.
Maybe for those types of companies, attitude and ability to learn are more important than local market expertise, skills and experience. But for logistics and other traditional, highly skilled industries such as engineering, it is tempting to choose someone who already has the local understanding and the expertise and skills born of experience, rather than train someone up.
Such people are scarce in the UK and the rest of Europe however, and instead we have a stubborn youth unemployment problem, of young people who would rather do physical work, or work outside an office, but have not had the training or experience and cannot find stable jobs.
No wonder then that Hitachi Rail has teamed up with other companies to set up a new University Technical College in the north of England. Apparently they were worried they might have to poach employees from nearby Nissan, otherwise.
(This article was originally written in Japanese for Teikoku News)
Along with “tako tsubo” (octopus pot), another Japanese concept “gobou nuki” (plucking out burdock roots) used in HR has been deemed harmful to corporate Japan’s global prospects.
The term has been used frequently in the Japanese media recently, according to Masahiro Kotosaka, an ex McKinsey consultant now at Ritsumeikan University. In a recent article in Nikkei Business Online he points out that the recent appointments as President of Takuya Hirano at Microsoft Japan, Tatsuo Yasunaga at Mitsui & Co, Koji Arima at Denso, Tatsuya Tanaka at Fujitsu and Takahiro Hachigo at Honda have all been described as plucking burdock roots, as they are in their 40s or 50s, younger than normal for Presidents in corporate Japan. The average age of Japanese Presidents was 62 in 2014 (up from 61 in 2013), around 10 years higher than the global average.
The older age is of course partly explained by the continuation of seniority based pay and promotion in Japan – although Panasonic, Sony and Hitachi have all recently announced they are abolishing or looking to abolish this system.
The average age in Japan for a “kacho” (section head, the first managerial position in Japanese companies) is 38.6 and 44 for a “bucho” (department head, or General Manager) according to Recruitworks. In India, China or Thailand, the average is 9 years lower for kacho and 10 years lower for bucho. Even the US average is 5 years lower for both positions.
Kotosaka asserts that Japanese companies need to start pulling out younger burdock roots, people who might be future executives, and making sure they have early leadership experience. If this does not happen, the younger generations of Japanese will soon feel a big gap with their overseas peers.
Already Kotosaka has heard (as I have) from Japanese companies that they feel the utilisation of non-Japanese or external executives has increased and the presence of Japanese executives has faded.
The most notable example is of course Christophe Weber, President of Takeda Pharma, and his team of 16 executives, of whom 8 are non-Japanese and have come from outside the company and two are non-Japanese who joined through being executives in a Takeda acquisition. Weber had his first leadership experience at the age of 29 when he became a country manager at GSK. Carlos Ghosn of Nissan also became head of a factory at the age of 27.
My former employer Mitsubishi Corporation is mentioned as an honourable exception to the lack of experience given to juniors, along with gaishi (foreign owned) consulting companies and private equity firms. For such companies, people are the main asset, and it’s true I suppose that trading companies such as Mitsubishi that have now moved more towards acquisitions rather than trading, do afford ample opportunity for younger Japanese to take up management positions abroad. In practice though, I have seen many instances where the acquisition is left to manage itself, and the Japanese expat director mostly stays in the regional headquarters, processing paperwork to send back to Japan HQ, rather than hands on managing the business.
I read in the Nikkei newspaper recently that Panasonic, Mitsubishi Estate and Rakuten are planning to make use of social networking site LinkedIn for recruitment outside Japan, including Europe. LinkedIn is the world’s largest professional networking site, based in California, with more than 270 million users worldwide, so it certainly represents an effective way to identify and attract new recruits.
I have been a member for more than 10 years, not to find a job, but to network with my European contacts in Japanese companies. It has been noticeable, however, that Japanese employees and Japanese companies in general are not very active on LinkedIn, even though LinkedIn launched a Japanese version and set up an office in Tokyo in 2011.
I assume this is primarily because LinkedIn is used for mid-career hiring and job seeking, which is still not a popular activity in Japan. Indeed, many Europeans dislike to display their skills and experience publicly, and signal thereby that they may be “for hire”. Based on my own analysis, the British and Dutch are not so cautious, whereas the privacy conscious (and possibly less comfortable in English) Germans and French hold back.
Many of my German contacts use Xing, a Germany based social networking site instead. However all Europeans (and people in multinationals in emerging markets such as Turkey) are aware of LinkedIn, and will take a look at it when they are considering moving to another company.
In other words, from an employer perspective, LinkedIn is a tool not just for searching for recruits based on skills and experience, but also for the company to present an attractive profile.
I recommend that any Japanese company reviewing their LinkedIn presence first of all ensure that the “official” company LinkedIn page is clearly labelled as official (to distinguish it from an alumnus site page run by an individual), and employees are encouraged to link their personal LinkedIn profiles to this official page.
More often than not, there are several pages already existing for the Japanese company. This needs to be tidied up, so that there is a headquarters page (in English), and any regional company pages are clearly identified as such. It is possible to interlink the regional company pages to the headquarters page, to show they all belong to the same company family.
These official pages need to be managed by someone either in marketing or HR at the headquarters and regional subsidiaries. They need a description of the company, including size, activities and a link to the correct website. The pages also need to be “branded” to look visually appealing and reflect the company image. Use should be made of the facility to add descriptions of products and services and add news about the company.
If this is done correctly, then “followers” of company will swiftly increase, both from potential recruits and also current employees, who will feel much happier now their employer has a clear and attractive LinkedIn presence they can associate themselves with.
(This article was originally written in Japanese for Teikoku Databank News)
- Proportion of women managers
- Work/life balance
- Use of women
- Equality between men and women
Other companies who have done well include All Nippon Airways (up from #6 to #3), and Mizuho – unlisted previously, and now at #17. As always, the life insurance companies do well (they traditionally have used a large number of women in their salesforces) as do non-Japanese companies such as IBM Japan (down from #3 to #6), Janssen (previously unlisted, now #13), Eli Lilly (#18, down from #14) and Accenture (previously unlisted, now #20, bumping Hewlett Packard out of the top 20).
The article that accompanies the rankings points out that in some ways Shiseido has become tougher on the women in its workforce. Previously there had been a big increase in female beauty consultants/shop assistants working “short shifts” so they could balance childcare with work, but now even those on “short shifts” are expected to take their turn to work on Saturdays or work in the evenings.
Okada Hyogo, senior manager at Microsoft in Singapore, sports what is known in Japanese as the ‘Regent style’ hairdo – apparently named after Regent Street in London, but usually known in the UK as a DA. He is photographed with his quiff, leather jacket and sunglasses for a recent interview with Diamond Online. He has written various articles for the magazine, including one entitled ‘60% is good enough’. The impact of Microsoft on his thinking is clear, in the way he recommends Japanese companies also adopt the “patch” mentality he saw in software development. “Aim for what is feasible, not the best”, was his lesson from his time working for Accenture in the USA.
He echoes a point I often make in my seminars about the Japanese pursuit of perfectionism, which is that the 80/20 rule kicks in when it comes to costs of making an effort. It can take 80% of effort, resources and time to achieve the final 10 or 20% to reach 100% perfection.
This might work in Japan where it is normal to work through the night to achieve “the best” but of course this kind of behaviour is not so well accepted outside of Japan. As Okada says, in some cultures a person who works late is regarded as someone who is not self disciplined. “They have a much stronger sense of priorities than the Japanese do.”
“Japanese are lacking individual ‘core values’. At Microsoft we have 6 core values upon which we base our daily work. They are ‘Willingness to take on big challenges’,’Integrity’, ‘Openness’, ‘Constructive self criticism’, ‘Accountability’ and ‘Passion’.” Akiyama Shin, the interviewer and President of Principle Consulting Group responds that it helps to define your own core values if you interact with people who are different to you.
As for being able to speak English, Okada believes it’s not enough by itself – an open and forward looking mindset is needed. “You need to be interested in the other person, and be prepared to engage in discussion.” Akiyama says it’s tempting to become silent if someone else in the meeting speaks better English than you do”. Okada responds that he got over his own English complex when his boss said “you already speak English. What’s important is knowing what you want to say, and how you want to progress the discussion.” Okada’s recommendation, to those who are not confident about their English is to get to a meeting 10 minutes early and greet the other participants as they arrive with “nice to meet you!” or “Good morning!” – that way you get warmed up for communicating and also you ensure that you have a presence at the meeting.
Even in teleconferences he recommends getting a question in early like “when can I expect to finish this meeting?” as a warm up, otherwise you end up not saying anything. For presentations he uses physical warm ups like a few squat thrusts and also practicing his “Rs”.
Another tip for meetings is to get near the whiteboard and offer to write up the agenda and minutes on it. “That way you look intelligent and hardworking!”
He also recommends saying “Let me finish” and using your hands to signal this. “Japanese tend to preface their requests too much”.
He finishes by saying that Japanese companies don’t have a very good image in Singapore as employers, and this has an effect on the brand too. Japanese employers are seen as only promoting Japanese people, and demanding a lot of unpaid overtime. Products have too many unnecessary features which only appeal to Japanese, rather as Japanese companies unthinkingly promote uniquely Japanese ways of working – such as chourei (daily morning team meetings). There is not one Japanese company in the Singapore Top 100 employers chosen by students.
A new employment category, the ‘limited permanent employee’ has emerged in locations such as Singapore, where there are many locally hired Japanese employees, according to Diamond Online. They feature an interview with an anonymous former ‘limited permanent employee’, Mr A, of a major Japanese securities house’s Singapore subsidiary. According to Mr A, the category was somewhere between a contract worker and a permanent employee, and involved being treated in a way that resulted in him leaving.
Diamond journalist Norifumi Yoshida believes this category looks like to catch on in Japan too, to keep a cap on the ever expanding, insecure and badly paid “contract staff” category, in accordance with the government strategy for revitalising economic growth, while at the same time being easier to lay off than the traditional permanent, lifetime employee.
Mr A had been working for a major Japanese manufacturer, and was posted to their Singapore operation. He left the company while still in Singapore. He tried to start up his own IT company, but that failed. Then he heard that the Japanese securities company was looking for an new IT manager so interviewed for the position and was appointed. He was 35 when he joined the company, on around Y3.5m (US$28K) which was at the higher end for Singapore. However the Japanese expatriate IT manager, also 35, was earning around 3 times this.
There were around 150 expatriates from the Japan headquarters, including around 20 general managers who were in charge of the front and back offices, aged around 35 to late 40s.
These 20 had graduated from Japanese universities and joined the securities house straight after graduation. They had worked in Japan for 10 or more years and spoke good English. They initiated sales of securities or bonds and negotiated with local Singaporeans. They were also in IT or accounting or finance. They were good all round players but not professionals or specialists.
There was a second group of people amongst the 150 or so ‘permanent staff’, the front office people – 40 or so traders. They were ‘Anglo Saxon’, types who had worked for American or British firms previously, usually having been transferred to Singapore with those firms. They frequently changed employers, in some cases up to 10 different employers. There were a few Japanese traders, but most of them were not, and they were mostly rewarded through commissions and were often paid more than the Japanese expatriates – several hundred thousand dollars on average.
Mr A is not against this as such – in fact he points out that without these kinds of salaries, it would not be possible to hire highly skilled people, and if the company tried to stick to old ways of equal pay for all, it would surely collapse. Yoshida wondered whether Japanese companies aren’t using this as an experiment, and soon this system will be imported back into Japan.
Mr A felt the unfairness was more around how the third group of ‘permanent staff’, the ‘limited’ permanent staff, were treated. These people were mostly locally hired Singaporeans, on low level jobs, and accordingly paid low wages, with no prospect of promotion or transfer. At such low wages, it was not possible to hire high quality local staff anyway. The head of the IT department was Singaporean, and of the 12 staff in the department, 2 were Japanese expatriate staff and of the remaining 10, Mr A was the only locally hired Japanese. “Locally hired Japanese don’t last long. After 6 years I felt I was turning into an idiot, so I left”.
Both Mr A and the interviewer agree that treating all limited permanent staff the same way, without opening up any opportunities or pay rises to the more high potential or high performing staff will result in more dissatisfied and overworked locally hired specialists, who will keep quitting their Japanese companies. Mr A clearly feels very bitterly about generalist lifetime employees, who have no specialist knowledge of IT, being paid three times as much as him, plus expatriate allowances. “Globalization means the company has to become more focused on competency.”
Personally, I’m not so sure this is a new thing for Japanese companies in the global financial services sector. I remember a friend of mine from university being warned after he joined a Japanese securities house in London in the late 1980s, that locally hired staff were either “whores” or “coolies”. And locally hired staff in Japanese companies in quite a few sectors will ruefully recognise the “no prospect of promotion or transfer” limited permanent staff category.