Corporate culture Archives - Rudlin Consulting

Japan’s less equal companies

I often cite in my seminars that one obvious sign of the ethos gap between Japanese listed companies and the top 350 US companies is that Japanese presidents generally earn a multiple of 10-20 of the average salary in their companies, whereas the multiple for American CEOs is 350 or so.

There are exceptions of course, but even the board directors of the company at the top of Toyo Keizai’s income gap ranking (Toshin) earn an average of just under 60 times the average salary in the company. Many of the other companies at the top of Toyo Keizai’s rankings have non-Japanese executive directors, who are usually paid closer to American levels, such as Takeda Pharma (#3), SoftBank (#5) but there are other companies whose executives are all Japanese, such as Toyota (#6), JT (#15), Itochu (#16), Horiba (#17) and Canon (#20). Even so, only the top 10 have multiples of over 30, and only the top 25 have multiples of over 20. So the ethos gap is still holds.

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Japan’s “weak black” companies and the motivation to work

It has been five years since the “work style reforms” of the Shinzo Abe Cabinet of 2016 were introduced, supposedly making it easier for Japanese employees to have diverse and flexible work styles. The pandemic has given the reforms a further push, but, as the Nikkei Business magazine asks, have these reforms really had the expected positive impact on retention rates?

The Nikkei asked three masked recruitment agents (masked to conceal their identity rather than for health reasons we assume) for their impressions so far and it seems that because the underlying problem of employee engagement has not been addressed, if anything the reforms have accelerated the rate at which people are leaving their jobs.

Agent A : Through work style reforms, companies have complied with the new laws by reducing overtime hours and encouraging the use of paid leave. Many people chose larger, stable companies because they were more likely to comply with the requirements to reduce overtime work.

But at the same time, the pandemic meant that companies started looking more seriously at automation and the use of AI so manufacturers, many of whom who were previously seen as being in the large and stable category, became a riskier bet as they started to restructure and did not seem to be growing as positively as before.

“When a young person who wants to work more and develop faster is told to “go home at 6 pm”, he or she may feel that “I want to work more but I am being constrained.” There are an increasing number of young people who are daring to commit to a growth environment, such as changing jobs from major companies to new ventures and startups. ”

Agent B : During the pandemic, the reason for changing jobs switched from focusing on workplace comfort to focusing on personal goals. According to a survey by Doda, a job switching service, the number one reason for changing jobs from January to March 2020 before the declaration of emergency [in Japan] was “because the atmosphere in the company is bad”, but after the declaration of emergency during the period of April to August 2020, it changed to “Because the salary is low and no salary increase can be expected.” Also of note was that “I want to improve my skills” jumped from 6th place before the state of emergency to 2nd place.

Weak black companies

Companies which are easy to work in but have no growth are called “Yuru Black” in Japan. Employees in Yuru Black companies have a sense of crisis about whether they are growing and developing as a person. “Black companies” was the name given to companies where there was too much overtime. “Yuru” means weak, so these are “weak black” companies where there is no overtime, but also no challenge.

B : Because the future outlook has become uncertain under Corona, many people are switching jobs from major companies in order to feel like they were stepping up to a challenge. There was a woman in her late twenties who changed jobs because the company’s brand power was too strong and she wanted to go to a place where she could use her skills more, even though she was in a high flier role in marketing for a major consumer goods manufacturer. A man in his twenties, who entered a company with the highest annual income in Japan in the electrical industry, where the company had a systematic training system, felt it was too slow in having him be involved in actual work and therefore furthering his own development. So he moved to a startup.

Agent C: Most people in their 20s and 30s change jobs in search of reward and growth. The main reasons for changing jobs are that they are not evaluated correctly, that they want more chances to use their own judgement, and that they want to do an important job in the metropolitan area. Recently, many people in finance and insurance are flowing into the IT industry.

Personally, I feel that “a lack of yarigai (rewarding work)” has been increasing mainly amongst people in their 20s and 30s since about 10 years ago. There are various definitions of rewarding work, but the first is whether the work content and compensation are balanced. In other words, whether you are getting paid for your skills, growth, and using your own judgement. Some people find it rewarding just to have a high annual income, such as insurance sales, but that is a minority. Some people choose a company that has a performance-based compensation system such as an annual salary system or a job type system (clear job descriptions). If people are only paid more because they do overtime, then the incentive to work productively and efficiently is lost.

A : Although the number is not large, the switch from major companies to venture companies is becoming apparent in some groups with good educational background and high needs for personal growth. When you are in your the 20s, there are fewer life events such as child-rearing and long-term care, so we recommend choosing a new job that emphasizes the sense of growth.

A : As the lifetime employment system collapses, more and more people are thinking that they must have more transferable skills in the long run. In the past, many people chose their place to work because of the short overtime hours and the number of holidays, but more and more people want to use their own judgement and their brains.

B : The number of people who registered for a job switching service immediately after joining the company seems to have increased more than 20 times compared to 10 years ago.

C : The number of positions for trainee engineers is increasing, and some people from completely different industries want to become IT engineers. There are also intermediary companies that train engineers and dispatch them to each company.

B : Even at our company, the number of people who are pursuing skills is increasing, such as young people who have been doing face-to-face sales have changed to be trainee engineers. Recently, during job change consultations, I sometimes get a person saying “I’m thinking of getting a qualification”, but because of the pandemic there is more need for immediately applicable skills, so getting a qualification does not immediately lead to a job.

Recently, there is an option not only to change jobs but also to have a side job. In the case of a man in his late twenties at a major electronics manufacturer, he was in charge of new business development overseas, but he was not rewarded because the decision-making was so slow, and he gained experience by doing a side job. Since the number of companies that permit it has increased, it is an option to do a side job while having a solid foundation of a main job.

Motivation to work

A : With regard to the provision of growth opportunities, efforts are polarized. IT / web companies are advancing, andin some companies, such as CyberAgent, you can be a president from a young age or get another chance even if you fail. On the other hand, it seems that the manufacturing industry, retail industry, and infrastructure system are lagging behind as a whole, but among them, there are companies such as Aeon and Seven-Eleven Japan that are promoting digital transformation (DX) in retail as well. On the manufacturer side as well, businesses are being reorganized in response to the IoT, finding ways to reduce the number of employees who are just coattail hanging, making the P&L of each department more visible, and creating mechanisms that can properly evaluate whether the business is successful.

A : The theory of “hygiene and motivational factors” by American psychologist Frederick Herzberg is key. First of all, it is important to promote healthy work style reforms so that people can live a healthy life. Keeping the ease of working within the bounds of common sense has the effect of reducing employee dissatisfaction. Certain regulations make sense in terms of reducing overtime hours, which has been difficult to reduce without regulation.

On the other hand, “motivation to work” is important in terms of how much employees can demonstrate their abilities. Productivity does not increase just by focusing on workability. It is important to give employees discretion and responsibility and evaluate them appropriately. Long working hours and no discretion are the most stressful, but long working hours and greater discretion can be less stressful. I feel that discretion, the freedom to use your own judgement, will be one of the keys to working styles in the future. Even within the work style reforms,it may be necessary to shift the axis to “motivation to work”.

I’ve translated the above fairly literally from the Japanese, which is why some of it may sound a little unnatural. But one thing that struck me, even allowing for the rather different ways that opinions are expressed in a more abstract way, is how the role of the manager in both workability and improving team motivation is not directly addressed. If this article had been written in the Western media, there would be much more focus on what you as an individual manager can do. Instead the assumption here seems to be that this is something the company as a whole has to address, in order to avoid being a “weak black” company.

Where Japanese employees feel most engaged

There isn’t really a Japanese word for employee engagement, which tells you something in itself, so the concept of “hatarakigai” – which Google Translate renders as “rewarding work” – is more often used when conducting surveys on employee engagement. Foreign companies tend to dominate surveys of top hatarakigai companies in Japan, in contrast to the ranking we covered in a previous post, of companies that are most popular choices for new male graduates, where only Accenture appeared in the top 100.

In the most recent Open Work survey of nearly 90,000 Japanese who had been working at a Japan based company for over a year, in terms of hatarakigai, foreign companies take the top 3 positions – Procter and Gamble is at #1, Salesforce.com at #2, Presidential Life Insurance at #3.

The obvious overlap with the popularity rankings for graduate hires is the Japanese trading companies. Itochu is #4 in terms of hatarakigai and was top of the popularity rankings for new graduate hires too. Itochu‘s rivals Mitsui and Mitsubishi Corp are at #9 and #10 for hatarakigai. The other major trading house, Sumitomo Corporation, trails somewhat at #25.

Various consulting companies, foreign and Japanese, including Accenture again, feature in the top 50 hatarakigai. Japanese manufacturers such as Sony, Asahi Chemical, Keyence, Murata and Astellas are also in the top 50.

The financial services companies that were so popular with the Japanese male graduates are not so dominant – Tokio Marine at #14, Nomura at #36, SMBC at #37 and Daiwa Securities at #43.

Open Work includes in its criteria:

satisfaction with pay and benefits,
employee morale,
transparency,
mutual respect between employees,
opportunity for growth for people in their 20s,
long term human resource development,
regulatory compliance/awareness

It points out the biggest gap between those companies who were in the top 10 and those in the top 50 was satisfaction with pay. Foreign companies are well known to pay better and not follow seniority based pay the way Japanese companies do. Japanese companies also have a tendency to sit on their cash for a rainy day rather than use it to raise the pay of their employees.

However those companies who had improved their ranking the most over the year were those who had improved their scores on long term human resource development. Japan Intercultural Consulting, which Rudlin Consulting represents in EMEA, is delighted to offer their training and coaching services in this regard.

Culture and conduct

I was surprised to receive a letter from my bank, NatWest, a couple of months ago, offering me £4,000 to switch my business account to another bank. It turned out that this was not a scam, but a consequence of the bank having been rescued by UK government funds during the Lehman Shock. In return for the £46bn bailout, NatWest has to encourage competition in the UK business banking sector.

Various new internet-only “challenger” banks were offered to me such Starling but in the end I chose the Co-operative Bank, which was established in 1872. This was partly due to my concern that there were likely to be technical issues with transferring to somewhere new and untested with no physical presence. It helped that I was called almost immediately by someone from the local branch, inviting me to come and meet them face to face. But I also liked the Co-operative Bank’s customer-led values and ethics.

This clearly defined corporate culture was the result of the Co-operative Bank’s own past problems. In 2013 it reported losses and a funding gap between how it valued its loan portfolio and the actual value it would realise from it.

An independent review concluded that the root of the problem was in its takeover of the Britannia Building Society in 2009 and poor management controls. The non-executive chairman of the bank resigned and was later banned by the Financial Conduct Authority from working in the financial services industry for taking illegal drugs and using his work email and phone improperly.

In the five years since, the Co-operative Bank has strengthened its management controls and ethos, as well as undergoing restructuring, including reducing the numbers of branches from over 370 to 50.

My old bank NatWest also hit further problems after the Lehman Shock. Its problems in 2008 were a consequence of management arrogance and overreach, but its involvement in the LIBOR (London Interbank trading system) interest rate fixing scandal in 2012 was found to be the result of a corporate culture of greed. The investigation into the LIBOR scandal by the Financial Conduct Authority resulted in a new regime emphasising corporate culture and conduct in financial services.

A Japanese manager who had been in the London branch of his bank in the early 2000s and had recently returned for a second posting remarked to me how much tougher the environment in the City of London is as a result. He and other managers have to undergo training not just on complying with regulations, but also on how to identify and deal with problematic conduct, both their own and their teams.

The Co-operative Bank has just received a takeover approach from a US private equity firm. SMBC and other Japanese financial institutions are investing in London’s fintech and start up banking sector. Any investors in British financial firms will need to ensure that their own corporate culture and values are robust enough to ensure further scandals do not occur.

This article originally appeared in Japanese in the Teikoku Databank News on 13th January 2021

Visualizing brands

I collect English language publications by Japanese companies dating as far back as 1910 to see how they represented themselves in the past, when they were trying to project a global image. These include books published by Mitsui and Mitsubishi, which feature many photographs of their impressive office buildings, ships, mines and founding families. The message is one of scale, solidity and history.

In the 21^st century Japanese companies don’t need to impress so much and prefer to put a human face on what they do. But there is a lack of appealing photos that show both Japanese and non-Japanese people working together in a natural way. Many such photos feature models who are impossibly glamorous, or have distracting hairdos or beards. They are also usually doing things which I have never seen people do in an office such as all gathering around one laptop and pointing at it, or writing on glass walls.

Using photos of your own employees is one way around this. I featured in several annual reports and brochures for a Japanese trading company I worked for, as I usefully represented two types of diversity at once – being both female and not Japanese. But even then I did things which I would never do in my normal working life such as pointing at a clipboard and wearing a helmet.

We wanted to use employees in our marketing at a Japanese ICT company I worked for, to communicate our corporate brand value of genuineness. Most employees are not good actors however, so looked very awkward in the photos and videos.

Japanese corporate websites tend to be bland and abstract in design, still focusing on solidity and history and look much like the websites of other multinationals. It seems that if a company tries to be globally appealing, it loses what makes it distinctive.

British brands had similar issues in the past. British Airways tried to drop the “British” and be BA, “the world’s favourite airline”, removing the British flag from the airplane tailfins. Mrs Thatcher, who was Prime Minister at the time, objected strongly to this so the plan was dropped. Similarly, Royal Mail tried to sound more global by rebranding itself Consignia, but reverted to Royal Mail after much criticism.

Arguments also break out over the words used for the brand values and mission statement. British and American native speakers can have very different reactions to words like “ambitious”, and non-native English speakers feel left out of a linguistic battle they cannot win.

Japanese companies should not be afraid to use visuals with a distinctively Japanese appeal to their global stakeholders – customers, employees and communities. Which is why the Osaka Expo mascot Inochi no Kagayaki-kun is very clever – it is clearly Japanese, but also has the quirky personality of a living thing. I hope more Japanese organisations work with designers to come up with such humanised representations of their corporate culture, which do not have to rely on English words or fake-seeming photographs.

This article was originally published in Japanese in the Teikoku Databank News on October 14th 2020

Bringing the company into the home

Under normal circumstances, British companies would be welcoming their new graduate recruits in September. This year, many big employers have cancelled or delayed their recruitment schemes and internships because of the coronavirus pandemic. More than a quarter of British companies will be hiring fewer graduates, according to a survey in March 2020 by the Institute of Student Employers.

Nonetheless, some companies are still hiring or making plans on how to welcome new staff. There is a high likelihood many of the new employees will have to work from home, so companies are having to think creatively about how to make them feel like a member of the team.

A new employee at a British law firm was delighted that her employer sent her not only a laptop and other equipment for working from home, but also a welcome pack that contained items such as a company branded water bottle and backpack. She said it made her feel part of the team when she saw other employees drinking from the same bottle or pulling files out of the same backpack on a conference call Another company sent a new recruit branded face masks, a home baking kit and a pot plant.

Companies are also being creative about the content of the induction for new staff. They show videos of the office or send employees lunch vouchers so they can have an informal lunch with their new boss over a video call.

This could be a great opportunity to make employees across the world feel part of their Japanese company. Japanese headquarters could show new hires videos of their offices in Japan or aspects of Japanese culture.

The lunch with colleagues could be bought with a voucher for a delivery bento box. Maybe there could be some global virtual karaoke sessions – although with the different time zones this could be an uncomfortable experience if some are joining in early in the morning and others late at night after a few drinks.

It’s also a business opportunity for Japanese manufacturers. Some of the best designed and made pens, diaries and notebooks I have owned during my career have been Japanese corporate ones. Japanese mascots and plushies are loved worldwide – so this could be the time to design a friendly company mascot that employees can place on top of their desk. Some employees might even welcome company uniform items like shirts, T shirts, ties and scarves. It could help them draw a clearer boundary between their work lives and their private lives, even when they are working from home.

Virtual designs for use on the computer would be good too – not just screensavers and wallpaper but also virtual backgrounds for conference calls. However, this means the technology welcome kit will also have to include a green screen for placing behind the head, otherwise employees’ hairstyles will merge into the corporate branding, which might be going a step too far in making new recruits feel part of the company.

This article was originally published in Japanese in the Teikoku Databank News on 9th September 2020

Medium Term Plan Disease

Many Japanese companies have a Mid or Medium Term Plan, usually covering three years, announced by incoming Presidents, with a second one issued half way through their 6 year term. It is sometimes translated into English, but often in a way that does not resonate with employees outside Japan. This lack of awareness or sense of connection to the MTP outside of Japan HQ is a problem for Japanese companies who want to be truly global.

The difference between a world class company and Japanese companies is reflected in the way the Mid Term Plan is developed, says Hioki Keisuke, a partner at Boston Consulting Group Japan, in a recent series in Diamond business magazine on “Reasons why Japanese companies cannot compete globally”.

He looks at various definitions of global, world class companies and notes that only two Japanese companies can be seen as global – Canon and Sony – by Alan Rugman’s definition of having less than half of their sales in their home region with two other regions representing 20% or more of sales.

Three tests of global maturity

Hioki adds three tests of being truly global:

Can your company count its global cash holdings? How much, in what currency and where, by subsidiary?
Is global talent visible? Is the information needed for discovering, training and promoting talented employees globally available, showing their experience and skills?
Is the direction of the company clear? Are management aware of the environment in which it operates, the strengths, the uniqueness and the businesses to focus on?

He points out that many Japanese multinationals still operate on the old international model, where there is a headquarters, which sits above the business divisions, who in turn control the domestic and international subsidiaries. He calls this the “Group company” model, operating on an “entity base” where there is “a castle in every domain” – a reference to the Edo feudal era in Japan.

The transnational model

World class companies are “one company” operating on a function base. There is a corporate function, but not specifically located in any one geographic region. The business units report into it, and the finance, HR, Legal, R&D, marketing and IT functions supply services across the subsidiaries, and also report into the corporate function.

When I was at Mitsubishi Corporation in the 1990s, I remember getting excited about the transnational model which Sumantra Ghoshal and Christopher Bartlett had outlined in their “Managing Across Borders” book of 1989. Hioki points out that although that seemed a far away ideal then, it is the reality now for most world class global companies.

As well as trying to promote that model internally as an organisational structure for Mitsubishi Corporation, I became involved in helping the Corporate Planning Office turn the Medium Term Plan into something that made sense in English. It was then that I realised that there was something about the Japanese language itself, as well as the way the Medium Term Plan was compiled that meant it was both extremely vague, and yet based on a huge amount of detail, gathered “bottom up”. What was lacking was what a Western company would recognise as a strategy, to link the detailed plans to the vision for the future.

Scenario planning vs vague vision

According to Hioki, the Mid Term Plan in a world class company should be seen as “guidance” across 2-3 years, and a link between the megatrends or scenarios and the annual commitment plans. It should be revised every year and then a commitment plan and forecast for the year and each quarter developed from it.

I remember about 10 years’ ago the bafflement expressed by a group of senior managers working at a German automotive company when their counterparts in a Japanese automotive company said they had never heard of scenario planning. Hioki says many Japanese companies are now working on scenarios and megatrends, but the long term, medium term and short term plans are still independent events. This was not quite the case at Mitsubishi Corporation, but certainly the Corporate Planning Office had an unenviable task in trying to tie what they were told was the plan by each business unit into something that cohered with the vision that the President had.

The origins of the Mid Term Plan

Hioki says the Mid Term Plan has its origins in 1956 when Panasonic’s founder, Matsushita Konosuke first introduced the Matsushita Electric 5 Year plan. “More than 60 years have passed since then. It’s not that a mid term plan is bad, but I think it’s time to adopt a way that suits the present times.”

The transnational model was meant to provide a way to trade off globally efficient integration and regional localisation and optimisation. Production is decentralised, and each region develops its own specialities and differentiated value add, but global management is integrated, knowledge is centralised but R&D and development is done through collaboration and shared around the world.

Functions first, not as an afterthought

Hioki also argues that accounting & finance, HR and legal functions should be actively involved in planning and strategy, rather than coming after the business divisions, cleaning and tidying up. Hashimoto Katsunori, former CFO of DuPont Japan and now professor at Tokyo Metropolitan Business School points out that another difference between world class and Japanese companies is “cash awareness”. The response to the coronavirus crisis should be to stash as much cash as possible to ride it out, but Japanese companies were not quick to do this. Japanese companies tend to be cash rich anyway, but also they do not see their cash reserves as belonging to the shareholders, the way world class companies do. And as a consequence, they prioritise sales over profits. They do not understand that cash flow contributes to corporate value.

Hioki describes traditional HR in Japanese companies as behaving like teachers with a grade book, pulling people up for mistakes and spending their whole time creating systems. In a world class company, HR should be about ensuring that the vision, mission and values of the company permeate throughout the organisation, as well as contributing to the development and growth of the company and its employees.

“Japanese companies are weak at the top” – Horiba’s CEO

I was recently asked what Japanese company’s mission statement I most admired and I said Horiba’s “Omoshiro okashiku” which is translated into English as “Joy and Fun” (but the fun also means quirky, or as Horiba says “interesting” which is what I think many Japanese companies are to Western eyes, and that’s a good thing). I know from reports from our consultants in Germany that this ethos is transmitted to the overseas subsidiaries too. This interview with the President of Horiba in Nikkei Business by Higashi Masaki, the Editor, is so interesting, I have not made a precis, rather with big help from Google Translate, have left it pretty much as is.

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Since Horiba Atsushi took office as president, sales have increased more than five times, and overseas employees are now the majority, transforming it into a global company. He has also developed a unique corporate culture, including calling employees “Horibarians” regarding them as part of the family. We asked about Japan’s challenges as seen by companies competing globally in technology development.

(Interviewer: Masaki Higashi, Editor-in-Chief of Nikkei Business)

PROFILE

Atsushi Horiba was born in 1948 in Kyoto Prefecture. After graduating from Konan University Faculty of Science in 1971, he joined Olson Horiba, Inc. of the United States. He then joined HORIBA, Ltd. in 1972. He is also graduated from the Department of Electronic Engineering, Faculty of Engineering, University of California, USA in 1977. After that, he directed the overseas expansion of the group, and after working as a director in 1982 and managing director in 1988, became president in 1992. He has also served as chairman since 2005. He has been in his current position for18 years. He is also the face of the local business community, such as serving as the vice chairman of the Kansai Economic Federation. He is the eldest son of Masao Horiba, the founder of HORIBA, Ltd.

The automobile industry is greatly affected by the new coronavirus.

It was a difficult time for car makers even without the coronavirus. This is because there is a dramatic switch towards “CASE” (Connected, Autonomous, Sharing, Electric). It is necessary to move from the “hard” industry, which competes through productivity gains to steadily manufacture high-quality cars, to the “light” industry, which has become IT (information technology) intensive. What was a simultaneous equation with one variable has now become treble the pain.

HORIBA has the largest share of car exhaust gas inspection equipment in the world. The main business is conventional car-related products.

Electric vehicles will be the mainstream in urban areas. However, the combustion type will not disappear in areas with harsh climates. Regulations will also become stricter. However, it is not a growing market, so I would like to expand the CASE field.

How to secure human resources is very important. In 2015, we acquired a British company called Mira (which supports the development of automobiles). We wanted the excellent R & D unit of about 600 people, but it also had test equipment related to CASE. Mira’s test track has research bases for automobile manufacturers such as Toyota (automobile) and major parts manufacturers, so tests and research can be done together.

The company motto is “Joy and Fun”, but is that feeling the same even with the coronavirus?

Now more than ever is the time to have “joy and fun”. All managers are at a loss now. Even so, we don’t feel so sad because we are working in various fields under this company motto. “Fun” does not mean “funny” but “interesting”. With that idea, we shifted our direction. It’s not absolute, but I feel that this helps us be responsive.

It is necessary to strike a good balance between being extremely advanced in a specific field and expanding the range in order to foster new businesses?

To be honest, I don’t think this is managed properly. But that’s what’s interesting, and it’s made up of the enthusiasm of each unit. Trust is at the base. For example, if you are studying optics, you can think of many people who would be good to consult with within the company.

It is unreasonable to expect people who are developing the products that are profitable now think about what the future needs will be. There is no Superman in the world. In many cases, human resources are crushed in search of Superman.

What kind of human resources are you looking for?

I often say that I don’t want a guy who has a good memory, that is, a guy who just graduated from a good university with good grades. Some of the students who are considered to be excellent in the world outside join us, but from our point of view, they are also “stupid” children (laughs). I often join in on the quiz shows for highly educated people on TV, but they are just competing for memory and have no sense.

What does ‘sense’ mean?

Whether you are interested. That is, whether you can do “joy and fun” However, if only “sharp angled” human resources are hired, the company will collapse. That is the balance.

In order to maximize the breadth of the business, it is necessary to have an organizational structure for that purpose.

Now, the biggest issue is the wall between each department. In a pyramid-type organization, individual departments do their best, but there is no interface to connect the results. But if the organization is flat, it’s not necessary. It’s in a mixed state. Instead, the person above needs to be a Superman who can figure out where and what is going on (laughs).

Is the solid financial structure with an equity ratio of over 50% also a factor that guarantees the realization of “interesting and funny”?

Companies with weak internal reserves will have a hard time during coronavirus. When it was said that it was bad to retain earnings, I thought that retained earnings should definitely be increased. This is to ensure that opportunities for M & A (merger / acquisition) are not missed. If you have to ask the bank for money, it may be too late and the target is acquired by someone else.

What do you see as the challenges facing the Japanese economy now?

We manufacture all the key products such as detectors, filters and electronic boards in-house. The problem with Japan is that we have go outside to get the basic science for these key products. You cannot apply knowledge if you do not have the basic science. Nevertheless, Japanese industry and academia are only doing applied science.

We have R & D units in France, Germany and the United States because the academia of these countries never let go of the basic science. Not only is China accumulating product know-how, but it is also conducting basic research. China is the best-selling market for the latest optical analyzer developed in France. It’s neither Japan nor the United States. We need to be aware of the fact that China is doing this very thoroughly.

It is a worry that China’s technological capabilities are rising rapidly.

Japan has not lost yet. I just don’t know after 4-5 years where we’ll be. They are thinking very clearly about the combination of academia and industry. The winners and losers in a battle of comprehensive strength are becoming clear. How do you get around this? I don’t like the word “niche,” but we’ve survived because we’ve put more people and money into a specialty than a giant company.

The Japanese, and Japanese technology and schools are excellent. However, various regulations and past shackles are in the way. For example, why does the faculty council have personnel rights even at universities? At Tsinghua University in China, the top management is steadily being replaced with excellent human resources. But in Japan, once you get tenure, you stay in academia until retirement. This is such an unfair situation.

Are there any other obstacles to your competitiveness?

If I weren’t Japanese, I would have headquartered in California, USA, and the company would have been three times as large as it is now. Taxes are high and fixed costs are high in Japan. Our main medical base is located in France because of problems with Japanese regulations. We just pay lip service to “deregulation” and in the meantime Japan declines.

Industry-academia-government must think about industrial policy and decide what to make a strength.

Even if the government and others hold meetings to gather the top executives of large companies, they cannot take the plunge because they have a company. When I first became President I was called by the Ministry of International Trade and Industry (currently the Ministry of Economy, Trade and Industry), and when I talked about what I thought, I wasn’t called on again. The people around me just gave textbook answers.

However, the current Ministry of Economy, Trade and Industry is different from that time. What is worrisome is that bureaucrats who are trying to reform in line with our opinion tend to be off the career track.

Do they not want to change?

Perhaps they prioritize their own lives rather than the country. The sense of life or death of officials and politicians of the Meiji era is not there. I’m afraid that there is no sense of crisis about the fact that Japan is buying in more and more technology now.

China’s “brain” is talented people educated in the United States. There is no brain in Japan. People who are active (at the forefront) don’t end up leading government councils. Even if the technology and the times change, Japan still has excellent human resources, but they cannot “overtake” the incumbents. It’s the same with the top executives of large companies.

Because the term of office is fixed, the number of “salarymen” in top management has increased.

There is absolutely no business that will produce results in 6 years [the usual stint as President of a Japanese company] after investing from zero. It just means continual losses.

It takes at least two years for our products to be researched, tested, designed and finalized. It will be five years if the basic research is redone. It will take another 2-3 years to make a profit from it. Many things can be done with technology and machines, but this is useless if you do not develop people as well.

When the top executive who started a growth business retires after six years, and that business is making losses, he is said to be the “worst executive”, and when the next top executive harvests from what his predecessor has sown, he is celebrated as “great”. That shouldn’t be the case.

Don’t avoid developing leaders

What does it take to enable top management to think about things in the long run?

Japan is overwhelmingly strong in terms of both technology and human resources. The only weakness is the top. The United States and China are working hard on how to raise the elite. If we don’t train leaders, society won’t progress. On the other hand, in Japan, “elite” is a forbidden concept. In Japan, both politicians and business owners are a disorderly mob.

Japan is in a very dangerous state now. It has become a bogus democracy. True democracy has competition, and everyone is different. In the United States, they first educate elementary school pupils about how different each person is. But in Japan, it’s like “stop it, you’re annoying the old guy.” The responsibility of the media is also heavy.

It’s rare for a person at the top of a listed company to have a beard.

I nearly died of hepatitis when I was about 35 years old. Until then, I was just being the diligent president’s son. But at that time, I thought this is a turning point and I thought I would live a life where I do what I think is best, no matter what others say. My beard is a proof of that. From then on it became a lot easier.

You don’t know what works and how it works.

It feels like God only knows the future (laughs). However, there is a belief that we will make the best decision at that time by listening directly to the stories of people on the front line. I’ve done my best so I can’t help if it doesn’t work. However, people end up worrying about seeking more than the best.

You end up just wanting the correct answer.

The difficulty of management is that there is no correct answer. Everyone has the illusion that there is a correct answer, but there isn’t. The answer will come.

Side note from the interviewer Higashi Masaki

I don’t know if it’s because Japan has become richer or there is more inequality now, but as Mr. Horiba points out, “how individuals live” rather than the desirable way of organizations such as countries and companies should be has become increasingly the priority. It is important to note that the pursuit of personal well-being can sometimes be inconsistent with the interests of the organization.

For example, there is a tendency for top management to change and quickly write off assets of unprofitable businesses to generate a deficit. Then their predecessor has not made a loss, and the successor is certain to recover in a V shape during his term. The rewards for the two executives may be good, but is the timing as an organization optimal? As the mobility of talent increases, the relationship between individuals and organizations can become more difficult.

Top 10 Japanese corporate charity donors in the UK

Japan-owned companies in the UK contributed over £17 million to charity in 2019. £10 million of this, however, was the donation made by First Sentier Investments (formerly First State Investments), owned by Japan’s MUFG Group since 2019.

£8.5m of the £10m went to the Maitri Trust which was established by the Stewart Investors team members (part of First Sentier Investments) in 2006, and helps educational initatives in India, South Africa and Mexico. The other £1.5m was given to the Charities Aid Foundation. 2019’s donation was a substantial increase on the £5.5m First Sentier donated in 2018.

The biggest Japanese corporate donors (>£100,000) increased their charitable budgets over the past two years, but overall the total dropped 3% on a like for like basis (not including First Sentier as they were not Japan owned in 2018/9).

Benchmarking Japanese corporate charitable donations

It’s difficult to benchmark Japanese companies’ charitable activities in the UK against FTSE 100 companies as many of the Japanese companies in the UK operate on a regional or global basis and the charitable donations are on that basis too. Only around 10% of the 1000 or so Japanese companies in the UK put a monetary figure on their charitable donations in their annual reports, or specifically state that they do not donate to charity.

The Charities’ Aid Foundation issued a report in 2018 on FTSE 100 charitable donations, which estimated that the FTSE 100 donated around £1.9bn in 2016. The report uses donations as a percentage of pre tax profit as a benchmark. Unfortunately some of the biggest Japanese companies in the UK such as Toyota, Nomura and Dentsu have been making losses in recent years so this is not a benchmark which can be readily applied to them. However, CAF’s cut off point of “at least 1% of pre-tax profits” as being an indication of commitment to charitable giving means that it is possible to say that JTI, Dentsu (using 2018 figures), Mitsubishi Corporation, Fujitsu Services and Ricoh are all in the “above 1%” category.

The Top 10 Japanese corporate givers

The next biggest donor after First Sentier was Japan Tobacco International through their Gallaher subsidiary in the UK. They donated £3.24m in 2019, a similar level to 2018. Gallaher “works with leading charities to improve the lives of socially isolated older people as well as those who are homeless, disabled or excluded from society in other ways”. They have a UK Community Investment Programme which has been accredited with Business in the Community’s CommunityMark. Employees have an allowance of up to 6 days’ a year to get involved in community fund raising and volunteering.

The third largest Japanese corporate donor was advertising and marketing group Dentsu Aegis Network, (soon to be rebranded as Dentsu International) whose global headquarters are in London. They donated £1m to charity (£0.9m in 2018) – but this is likely to be a worldwide, excluding Japan total. Dentsu announced in 2017 that “Society” was now one of its official stakeholders and announced a new social purpose of a digital economy for all. They are aiming to reach a billion people with sustainable development goal led campaigns and support 100 female founded businesses. They are launching a digital skills initiative to support 100,000 people to improve their skills.

Close behind are Toyota Motor Manufacturing UK, who donated £0.9m in 2019, slightly down on the previous year of £0.95m. It “seeks to support good causes in the areas local to its manufacturing operations” [Burnaston in Derbyshire and Deeside]. It has a charitable trust that makes donations in the areas of road safety, social inclusion and deprivation and health. As well as fund raising it makes in kind donations of cars, parts and volunteering hours (included in the £9.08m). Its nominated charity of the year was the Derbyshire, Leicestershire & Rutland and Wales Air Ambulance Service.

Mitsubishi Corporation donated £267,000 in 2019/20 (up from £140,000 in 2018/19) – to the British Museum , the Earthwatch Fellowship Programme, the University of Cambridge Faculty of East Asian Studies, the UK-Japan Music Society and the Mitsubishi Corporation Fund for Europe and Africa, which engages with partner organisations in environmental conservation.

Hitachi Capital donated £250,000 (up from £200,000 in the previous year) in 2019/20. Their national charity partner is FareShare which redistributes food going to waste to charities and community groups – contributing to the sustainable development goal of “no poverty”. Hitachi Capital staff also volunteer at FareShare. The group also works with Young Enterprise and The Wildlife Trust.

Nomura established The Nomura Charitable Trust in 2009, “supporting disadvantaged young people in the local communities in which it operates through both grant making and employee engagement in the form of volunteering and other engagement initiatives.” It gave £235,659 to 11 charities which aligned with the objectives of the trust and were recommended by Nomura employees in the year ending March 2019.

Eisai, the Japanese pharmaceutical company with a factory in Hatfield donated £212,000 in 2018/9, up from £116,00 in 2017/8. Around half of this was to patient organisations such as Alzheimer’s Research UK and Breast Cancer Now, according to their “Transparency” page on their website.

In 2018/9 Fujitsu raised over £200,000 for its partner charity Macmillan Cancer Support as well as 5,500 volunteer hours spent by employees volunteering and skill sharing.

The Olympus KeyMed group via KeyMed (Medical and Industrial Equipment Ltd) gave £122,621 within the UK, of which £45,905 was to healthcare charities, £40,202 was to “other”, £33,856 was to cancer charities and £2,658 to children’s charities. This represented a 10% decrease on the previous year

Ricoh UK made £110,426 in charitable donations in 2019, a significant increase on the previous year’s £66,285. The sum represents both financial and in kind, providing products and people to support charitable activities.

The others

Many of the larger Japanese companies in the UK not mentioned above do contribute to charities but do not put a price tag on this in their annual reports. Nissan Motor Manufacturing, for example, launched a Days for Change Europe wide programme where employees can take days “off” to volunteer. Kwik Fit, owned by Japanese trading company Itochu announced in 2019 that its charity partner was Children with Cancer UK, and a target of £1m to be raised through its sponsorship of the British Touring Car Championship.

Hitachi Rail says it made no charitable donations in 2019, seemingly leaving this up to its employees, who raised £156,846 for the Railway Children charity “to date.”

Canon UK describes its “social value policy” as comprising “employability skills training, education support, community and charitable activities” but goes into no further detail.

Conclusions

Japanese executives who had lived in the UK have occasionally remarked to me how many charity shops there are in the UK and how often they are approached by their employees to help with fundraising initiatives. According to Charities’ Aid Foundation, the UK is number 6 in the world in terms of individual charitable giving (money and time), after Indonesia, Australia, New Zealand, USA and Ireland. Japan is at 128 but in 6th position in terms of the number of people who volunteer time for charitable causes.

Certainly I remember when living in Japan and working for Mitsubishi Corporation that there were plenty of opportunities to get involved in volunteering via the company. Conversely, to my relief, noone ever asked me to sponsor them to take a charity ramen bath. I have vivid memories of being in a group of employees who took severely disabled people to Tokyo Disneyland. National disasters such as the Fukushima earthquake and tsunami also saw thousands of employees of various companies giving up weeks on end to go to the region to help.

Those Japanese companies who do give substantial amounts of money to charity in the UK tend either to have acquired established British companies and therefore their legacy of charitable activity (JTI, Dentsu, Fujitsu, Olympus KeyMed) or are manufacturers employing large numbers of staff and looking for ways to engage with the local community such as Toyota, Eisai and Ricoh. In many cases, the decision makers will also be local executives looking to raise the brand profile in a globally appealing way, so a specifically “Japanese” flavoured proposition may not be of great interest unless part of their corporate purpose is to represent Japanese interests abroad.

There are plenty of funds in Japan set up by companies such as Toshiba, Honda, Panasonic (Matsushita) but these tend to be educational in orientation and more in the business of awarding prizes, scholarships and research grants. Japanese companies will sometimes endow foundations overseas (Nissan Institute of Japanese Studies at Oxford, Daiwa Anglo-Japanese Foundation) which are also educational and dispense scholarships and grants.

Anyone wishing to approach Japanese companies may need to bear these differences and distinctions in mind. For local giving, it will be necessary to win over the local employees, and for large, prestigious donations, much of the funding available may be controlled from Japan.

The fall of Mitsubishi?

Diamond Business magazine has decided to take another pop at the Mitsubishi group of companies, with a special series titled “The Fall of Mitsubishi“.

It kicks off with looking at trading company Mitsubishi Corporation and the fall out from its most recent employee survey. Apparently the survey showed an increasing mistrust of management by the employees and a higher negative rating for the changes that had been made including the new personnel system and improvements in productivity than in previous surveys. President Kakiuchi sent out an email to all employees explaning that he wanted there to be no “us and them” distinction and that everyone should feel free to discuss and challenge, without deference. He announced the establishment of a company wide culture reform task force, appointing Murakoshi Akira, EVP charge of HR, Sakakida Masakazu EVP in charge of compliance and corporate communications, Hirano Hajime, formerly of the Energy division and Uchino Shuma, formerly from the accounting division – both audit and supervisory board members – to head it up. However many employees were not convinced. It does seem like a lot of old guys, many of whom are rumoured to be retiring next year, who are likely to be part of the problem, being made to sort it out.

What had caused such dissatisfaction in a company renowned for high pay and benefits, perennially popular as a destination for Japan’s top graduates? Mitsubishi Corporation is always contrasted with Mitsui as being about “organisation” (knowing how to get the organisation on board to support ideas) with Mitsui being about “people” (convincing the influential people to get things done). Kakiuchi, since he took office in 2016, has made changes to that organisation, by centralizing what has historically been (as in many Japanese conglomerates) a highly vertical power structure. He abolished the Vice President post which traditionally had been the the next layer down from President. This layer ensured that the business groups had the ear of the president and also included a “Chief Secretary” who came from the corporate functions and relayed any dissatisfactions felt in the organisation to the President. There had been 5 such Vice Presidents under Kakiuchi’s predecessor.

The aim was to speed up decision making and bring on younger staff into management with a new HR policy. However younger employees say nothing has changed and deference to the President is still the norm.

Itochu, another trading house, had carried out a similar reform 10 years’ previously. Itochu has always been seen as the more progressive and radical of the five big trading houses, true to its Kansai textile merchant roots rather than dominated by heavy machinery, commodities and energy businesses as with the other trading groups. The CEO of Itochu in 2010, Okafuji Masahiro, purged the board of 13 officers and sent some of his textile division buddies to the food division, the power base of the former chairman Niwa Uichiro, to ensure his own power base was secure. Dissatisfaction was silenced by the fact that he produced results. The reason Diamond magazine feels moved to headline its feature as the “fall” of Mitsubishi is because for the first time in history, Itochu’s market capitalisation exceeded Mitsubishi’s earlier this year, while Mitsubishi made a loss in 2016, declared it would move away from the resources trading and was then promptly rescued by a V shaped recovery in its resources business. It is expected only to make half the profit of Itochu this year and is also badly impacted by its investment in Mitsubishi Motors.

Mitsubishi Corp executives are taking the “no pain, no gain” approach to change management. Diamond magazine wonders whether the organisation will collapse if it cannot bring its employees with it, however, and concludes gloomily that the suffering faced by the Mitsubishi Group is a symbol of the suffering of Japanese companies as a whole.

Last updated by Pernille Rudlin at 2022-01-19.

Corporate culture

Category: Corporate culture