Corporate Governance

Top earning foreign executives at Japanese companies in 2021

Seven out of the ten best paid executives in Japan are not Japanese, according to Tokyo Shoko Research. It’s been more than ten years since Japanese companies were obliged to disclose the details of executives earning more than ¥100m (around $900K) and was cited as one of the reasons that Nissan got themselves into such a twist about their CEO Carlos Ghosn’s pay.

No Nissan executives appear in the Top 30 this year, unsurprisingly. The number of executives paid over ¥100m has risen for the first time in two years, and Hitachi has the most – with 15 executives including the British head of the rail division, Alistair Dormer. Dormer is not, however, being paid more than his Japanese boss, Mr Higashihara, although this has happened in the past at companies such as NSG.

The financial group MUFG has 11 executives earning over ¥100m and Mitsui, the trading house conglomerate and Daiwa Securities both have 9. Tokyo Electron and SoftBank both have 8 executives earning over ¥100m. SoftBank’s Simon Segars, British CEO of ARM is the highest paid executive of a Japanese company, earning ¥1,880m (around $17m) and SoftBank’s COO Marcelo Claure is the third highest paid, with SoftBank’s Rajeev Misra, Ronald Fisher, Miyauchi Ken and Goto Yoshimitsu at #6, #7, #12 and #21 respectively.

FANUC, Daikin, Toyota Motor, LIXIL, Sony, ENEOS and Mitsubishi Electric all have 7 executives earning more than ¥100m. I would be surprised if the latter was in the rankings next year, however, given its current difficulties.

Other high earning foreign executives include Christophe Weber at #2 and two other executives at Takeda Pharma, Didier Leroy at Toyota Motor (#4) , Bijoy Mohan at LIXIL (transferred with LIXIL’s Grohe acquisition) and Stefan Kaufman at Olympus.

So if you want to be a high paid foreign executive at a Japanese company, work for a Japanese company that has a high proportion of its business overseas either through organic growth (Toyota) or more likely through acquisition – Hitachi Rail, Takeda, LIXIL, Olympus, SoftBank.

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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.

Japanese business mysteries explained in 5 minutes #3 Antiquated technology

Non-Japanese people who work in Japanese companies are often shocked at how antiquated the IT is in Japanese companies, considering how much Japanese people love new technologies.

Why is this, and will COVID-19 force change?

The next in our series “Japanese Business Mysteries Explained in 5 Minutes”

3 keys to success in overseas post merger integration according to Suntory

Suntory acquired US company Beam in 2014, since which it jointly developed and launched new gins and whiskeys. Overseas sales are now 42.7% of Suntory’s turnover, compared to 25.2% in 2013 and the merger is generally thought to have been a success, according to the Nikkei Business magazine.

Suntory took on a mountain of debt to buy Beam. Suntory President Niinami Takeshi felt in 2014 that Beam’s attitude was complacent, considering the pressures Suntory was under. They were making personnel decisions without any regard to Suntory’s wishes. Beam may have felt that as Suntory’s spirits business was folded into the new Beam Suntory, this meant Beam had the right to do as it pleased.

The three elements Suntory’s President Niinami felt were crucial to post merger integration were:

1. Parent company should make personnel decisions

Niinami transferred the authority to nominate directors of Beam Suntory to Japan HQ, set up a new compensation committee which he chaired, and sent an internal auditor from Suntory to Beam. The CEO of Beam Suntory at the time, Matt Shattock, was not pleased, but Niinami was firm, saying “we are the owners”. Niinami says this was the biggest reason for the successful merger. He made sure that he also listened to Beam executives and ultimately replaced Shattock with Albert Baladi, seeing him as someone who could drive Beam Suntory’s growth in Asia (and indeed they have just announced they will be making whiskey in India soon).

2. Be based near the customer

Baladi clearly won over Niinami by understanding the importance of the Gemba – the shopfloor, the coalface. Beam Suntory’s headquarters was moved to central Chicago, in a district full of bars and restaurants, from a suburb an hour outside the city. Again, this did not thrill the then CEO Matt Shattock, whose 15 minute drive into work by car turned into a 1.5 hour commute. “It took 2 years to persuade him”, says Niinami.

Being focused on the gemba was not just about the headquarters. Beam previously had frowned upon inefficiencies such as visiting retail outlets frequently to understand what products most matched them. Its emphasis was on short term profits. Niinami changed this by sending several experienced Suntory sales and marketing people to Beam Suntory. One was Takeuchi Jun, who insisted on visiting high class bars and restaurants in Chicago, introducing Beam Suntory products, to increase the fanbase. He was adamant to local employees that sales for home consumption would increase as a result.

Usually, hearing that sales and marketing people from Japan headquarters are coming to an overseas subsidiaries to change the way Western marketing works would make me nervous. Sales and marketing (if it exists at all) are very different in Japan to Western countries, but it seems to have worked. For example, Suntory was able to successfully introduce the Highball Tower machine to bars in the USA – which makes a cocktail of whiskey (in this case Suntory’s Toki) and sparkling water.

3. Return to craftsmanship

Along with gemba, Suntory introduced the Japanese concept of monozukuri. Niinami was shocked that when he visited Jim Beam’s main distillery in Kentucky in 2016, to see that the workers were on strike, angry with management based in the headquarters an hour’s flight away. Bourbon sales were doing well globally, and the management asked the distillery to increase production without anything being changed at the distillery. Temporary staff were taken on with employment terms which the existing workers were unhappy with.

Niinami thought this “monitoring from above” approach was misguided, and removed the factory chief, bringing in the production director from Japan. Distilling space and warehousing were increased with a $500m investment in one year.

Suntory also encouraged joint development of new drinks such as Legent. I noticed in Europe the sake-like gin Roku from Suntory was launched in 2017 (and I’m a big fan). Will they also be moving Beam Suntory in the UK from suburban Uxbridge to somewhere with a night life like Soho?

Rudlin Consulting has assisted many European companies acquired by a Japanese parent. Please contact Pernille Rudlin for further details.

What is a trustee?

Japanese businesspeople often tell me how prominent the charitable sector seems to be in the UK compared to Japan. They often receive requests from employees to sponsor them on a fund raising run, or see many charity shops lining British high streets. Half of the £50.6bn annual income of charities in the UK is derived from individual donations, and the rest is from sources such as government funding, the state-run National Lottery and the private sector.

Earlier this year I became a trustee of two charities – the Japan Society of the UK and also of a charity local to the city I live in which helps refugees, asylum seekers and other immigrants to integrate into British society. Both charities are also “incorporated” so I am both a director, accountable to Companies House and a trustee, accountable to the Charities Commission.

Trustees of charities and directors of companies in the UK have similar duties, arising from their obligation to safeguard the money from donors or from shareholders. They must ensure that the charity or company complies with regulations, that the charity or company acts in accordance with the charitable purpose or strategy they have committed to and that relevant risks are recognised and dealt with.

At the workshop I attended to understand my duties as a trustee, the trainer confirmed my impression that the UK’s charitable sector is much larger not only than Japan’s but also than other European countries’ and the US’s. In other European countries the state looks after its citizens more, whereas in the USA the individual has to be more self-reliant. The regulation of trustees in the UK dates back to the 17^th century, when the gap between what the state would support and what individuals would provide in the UK was filled by charities, often church based. Some of these charities were, however, seen as corrupt or of very little benefit and were not trusted. So citizens were appointed as “trustees” to make sure that the charity was acting in the public interest.

The trainer pointed out another difference between the USA and the UK, which may be of interest to Japanese businesspeople familiar with both cultures. In the US, the ends are all that count – so long as the targets of the charity are met, there is less concern about how that target was reached, or where the donor money is coming from. This is the same in American business life – you have to obey the law, but the morality of what you do otherwise in your business is up to you.

In the UK however, trustees and directors are meant to be concerned about the means as well as the ends. You are judged in court not just on whether or not you broke a law, but by whether your behaviour was “reasonable”. So long as you made sufficient efforts to do the right thing, a mistake, an oversight or a failure to reach a goal is forgiven.

This article was originally published in Japanese in the Teikoku Databank News on 9th October 2019

The cause of Japan’s low productivity: 5 generalists doing one specialist’s job

In the Nikkei Business series on how to “wake up Japan”, Senior Chairman and former CEO of Japanese leasing and financial services company Orix Yoshihiko Miyauchi sees three mistakes that have led to Japan’s “lost three decades”

Allowing an asset bubble to develop in Japan the first place
Not stabilising the economy after the asset price crash.
Not restructuring the Japanese banking system quicker – real restructuring did not happen until the 2000s, 10 years after the crash.

As a result, Japanese companies were “like tiny boats on a big ocean, using all their energy to avoid large waves. Rather than innovate or grow, they focused on cost cutting”, says Miyauchi.

Miyauchi rates Japanese employees very highly – “they have a strong sense of responsibility, and do all they can to fulfil their obligations. But there is a lack of creative thinkers. There is a problem in the way we develop people – Japanese companies are always developing generalists, when in the future we need to focus intensively on supporting the development of specialists. If you don’t have specialists who are the complete experts, then you cannot achieve high performance. Japanese companies end up having 5 ‘semi professionals’ doing one specialist’s job. ”

“It would be a big shock to change this immediately, so probably Japanese companies will need a hybrid development system with a specialist track and a generalist track.” I agree, but I have seen that in the past when this is done in Japanese companies, the specialist track is seen as a demotion away from line management. Japan may need to introduce specialist, professional organisations such as the various chartered institutes we have in the UK, which certify qualifications and support continuing professional development, to ensure that specialists are less reliant on the prejudices of their company’s HR system for their careers.

Myth 1. Young Japanese aren’t loyal to their employers

“They just use the company as a stepping stone”

Japanese companies have been worrying for a while now that young people are job hopping far more than previous generations. A Mynavi survey shows that only 22% of graduate recruits starting work in 2019 said they would be interested in staying at their company until retirement, 8% for over 10 years, 10% 6 to 10 years, 15% 4-5 years, 22% up to 3 years and 24% were “not sure”.

According to Nikkei Business, in their special feature on the myths of why young people quit, the reality is that because young Japanese people like the company they chose, they can’t bear to watch it decline. The Nikkei gives an example of an anonymous new graduate recruit who left her company after 3 years. She had studied abroad, had good language and communication skills and a strong interest in human resources. She thought working for a Japanese manufacturer had a romantic appeal, and the HR department wooed her heavily. Her reasons for quitting were that the general manager level was resistant to change, and when a new President took over, the direction of the company turned 180 degrees, making her worry about the lack of corporate governance.

Myth 2 Young Japanese lack perseverance

“They immediately complain when work gets tough”

The Nikkei points to a survey of managers of people in their 20s and early 30s which discovered that most managers thought that a much higher proportion of their team were proactive and willing to take up challenges than were not.

If anything, it’s the bosses who do not persevere, says Nikkei Business. They cite a young employee who quit a major insurance company in 2019 after 4 years who said that he was was highly motivated by tough challenges. He had looked forward to putting his energies into sales, but was repelled by how his boss – who took no responsibility and only thought about promotion – was so well evaluated.

Myth 3 Young Japanese quit because their pay is too low

“They prioritise pay because they are worried about their future”

A survey by Japan Net Bank in 2017 showed that 21% of 18-25 year olds did not expect to earn more than their parents over their lifetime, and 43% thought it was unlikely that they would do so.

Nikkei Business comments that the key concern of young Japanese employees is whether their job has meaning, and is of value. It quotes a young bank employee who thought that by working for a regional bank, he could support local businesses. However he did not see the point of the products he was selling and his request to transfer to a different department was refused. So he quit after 7 years.

Myth 4 Young Japanese quit out of youthful impetuosity

“They don’t have any responsibilities, so they quit on impulse”

It is true that Japanese are marrying later than before (75% of men are unmarried at 29, over 60% of women), so family responsibilities do not weigh so heavily on people in their 20s. “If I think about my future, I care more about how I am valued outside of the company than inside” says one high flier who quit a very prestigious trading company job. He had hoped to use his corporate finance and accounting skills and venture capital experience to help people in emerging markets. However he was placed in a division which did not make use of his expertise and was unexpectedly asked to transfer to another area.

Myth 5 Young Japanese quit because of too much overtime

“They want to have an easy life and hate overtime”

“I’m happy to do overtime, if I feel it’s adding value to the world” says a young Japanese rising star who quit her company after 2 years. She thought the company seemed very diverse and liked the way board level directors were involved in recruitment. However after an exhausting worklife, she felt she would be better in a job where she really felt she was contributing to society.

It’s hard to see any major cultural difference or something uniquely Japanese about this mismatch. I have vague memories of similar frustrations and worries when I was a young person thinking about joining a big multinational organisation after university 30+ years’ ago.

The dangers of going for the obvious solutions

The second part of this feature goes on to look at what Japanese companies could do to improve retention, and points out that the tactics that are usually proposed may be mistaken.

For example, thinking that there should be more 1:1 meetings between younger staff and their bosses could just increase frustration, if nothing is done as a result of the meetings. Having a system whereby young staff can request transfers is also pointless if the transfer is not approved, and often the dissatisfactions continue even in the new role. Internal commendations can also feel hollow, mentors often fail to turn up for mentoring meetings and simple pay rises don’t address key concerns about personal development either. Talking up the bright future of the company can also seem like just so much hot air.

More innovative approaches to retention

Nikkei Business recommends more innovative approaches, to address the fundamental reasons young people leave their companies. They point out that even good contributors, or employees who were reasonably happy in their work quit their employers, for reasons which are more to do with wanting to expand horizons, develop specialist knowledge or skills, or to have a job which better fits their lifestyle.

One recommended approach is to transfer young people abroad, or to more challenging environments. I would add a note of caution here, which is that I have often seen young people enjoying the freedom and challenge of living abroad, and then not wanting to return to their traditional Japan HQ, and quitting. Nikkei Business also suggests an “intermediate” mentor – closer to the junior employee in age and seniority, who acts as a go-between with the more senior mentor. Finally they recommend using AI to understand the motivations and fit of the person with various job roles.

I would add to this that Japanese companies might need to consider setting up continuing professional development associations similar to the ones we have in the UK – whereby members advance through a professional hierarchy through self study and examinations, in professions such as HR, accounting, finance, IT etc. Then, even if the company cannot offer them roles which have an instant career development impact, young employees can gain satisfaction from developing their knowledge and skills, supported by their employer.

Japanese companies need to add professional accountability to their corporate governance

When the topic of meaningless meetings in Japanese companies comes up in my training workshops, I often tell the story of how I once had to attend a meeting in the Japanese headquarters of the company I was working for, as the representative of the corporate planning department, on a topic I knew nothing about. I was told to read the ringisho and not say anything, except for “ryōkai” (understood, agreed) at the end. “It was two hours of my life I will never get back. The two people in charge of setting up a loss-making factory simply read out the ringisho (circular memo for making a decision) line by line and then asked for approval to write off several hundred million yen. This had been approved already, so obviously we just said yes. I still don’t know to this day what the meeting was for – perhaps it was a kind of punishment”.

Japanese companies have internal accountability

On reflection, I think it was about ensuring internal accountability – to give an account of decisions made, actions taken and the reasons behind them. Most Japanese companies have these kinds of mechanisms for internal accountability and their executives are also expected to be accountable to Japanese society for any failures, hence the succession of shazai (deep bowing to apologise) rituals we have seen recently.

There is a missing piece though, both in the recent Japanese corporate scandals and also the sexual harassment revelations in the Western media and entertainment industry, which is professional accountability. As Japanese companies globalize and diversify their workforce, I believe they will have to add this piece to their corporate governance and compliance systems.

A wide range of professions in the West, from traditional professions such as law, medicine and accountancy through to newer professions such as HR, banking or engineering all have associations to which professionals are expected to belong if they want to practice. They sign up to a set of ethics and regulations and are expected to take exams in order to progress through a series of grades and also undertake a certain number of hours of professional development every year.

Professional qualifications help diversity

Although it has proven tricky to get mutual recognition across countries of professional qualifications, it does help companies build a diverse workforce because they can be “blind” to the gender, age, disability or ethnicity of the person they are hiring, if they have the necessary professional qualifications.

Japanese companies will find it easier to ensure accountability internally and externally when they operate overseas if they employ professionals. Employees who have professional accountability know they will lose their professional status if they do not abide by ethical and regulatory standards, and this gives them the strength to resist any unethical pressure that is put on them by their bosses or customers.

Ensuring accountability is a two-way process, however. Although employees will be accountable internally and to their professional association, their bosses will still be accountable internally and externally for their subordinates’ behaviour. This means that bosses must enable an environment of trust, achievable targets and adequate resources.

This article appears in Pernille Rudlin’s latest book “Shinrai: Japanese Corporate Integrity in a Disintegrating Europe” available as a paperback and Kindle ebook on Amazon.

I love Japan but I don’t want to work in a Japanese company

I’ve done a screencast (around 11 minutes long) of my talk at the Centre People Appointments HR seminar earlier this year, on why people love Japan, but don’t want to work for a Japanese company, and what Japanese companies can do about it.

If you want to know more about working in a Japanese company, you can find our Japan Intercultural Consulting e-learning modules on Teachable, starting from £39 https://japan-intercultural-emea.teachable.com/

If the nail sticks out too much, you can’t hammer it down

One of my least favourite and most used expressions about Japan is “the nail which sticks out gets hammered down”. It does however have its use in explaining Japanese risk aversion when it comes to individuals going against the group. Of course many successful business people did well precisely because they were not conformists – and Japan is no exception to this. Tadashi Saegusa, now senior chairman of Misumi and Yoshimitsu Kobayashi, chairman of Mitsubishi Chemicals are both nails which stuck out, despite their senior status in the Japanese business world.

In a conversation moderated by Nikkei Business magazine, Kobayashi talks about how he did not join Mitsubishi Chemical until the age of 28, having spent some time in post graduate study, including in Israel. He therefore missed the usual graduate entry scheme. “I was an outsider from the start” he says. Saegusa initially joined a predecessor company of what is now Mitsui Chemical but then left to join the Boston Consulting Group – the first person to be recruited by them in Japan.

Japan has become complacent

Both worry that Japan has become complacent during the 30 years of the Heisei era. Japan’s GDP has stayed flat, whereas the USA’s GDP has doubled during that time, says Kobayashi. 7 of the world’s top 10 companies were Japanese in 1989 (mostly Japanese banks) whereas not one of them is in the top 10 now. Kobayashi worries that Japanese people are not aware of how this seems from the outside – citing a survey that shows that 83% of young Japanese people are satisfied with the current situation.

Saegusa agrees that there is no sense of crisis in Japanese companies and of understanding what is lacking. For 27 years people have been told not to spend money or invest, which is the same as saying “don’t challenge the status quo”. “Everyone is in the same situation in Japan, so we’re rotting from the inside, if we don’t challenge ourselves.”

It can’t just be about the art of manufacturing, it’s how you design the business too

Even in basic research, China is top, and Japan is somewhere between 4th or 10th depending on the survey, says Kobayashi. “Yes Japan still leads in some sectors globally, but starting with semi conductors, there are many areas where it has lost share. How long can Japan keep its share of the carbon fibre business when Taiwan and South Korea are chasing it? It’s just a question of time. It can’t just be about monozukuri (craftsmanship, manufacturing ability). It’s how you design the business itself.”

Saegusa believes that such a large gap has opened up with the US in some sectors that it’s too late to catch up. “But Japan has just let this situation drag on. You can do something when a company still has life left in it, but when there is no money or resources left, then it’s too late. You have to look at the worst case scenario and focus the business, showing a path to survival, before it happens. That is what a leader needs to do.”

Only 10-20% of people in a group will take action

“Only 10-20% of people will actually take action in any large group of people” says Kobayashi. So many Japanese companies are still sitting on their cash, despite Abenomics. “Companies and their managers have lost the will to fight and just want to avoid doing anything extreme. They’ve lost speed and dynamism.”

“If you look at the US in the 1990s, it was revived by venture capitalists, university researchers and professional managers who would trigger changes. If you took a risk as an individual and succeeded, you would earn big money. But Japanese companies put priority on balance and are group oriented – it’s difficult to develop professionals. If you try to become a professional, you get slapped down. Everyone turned into salarymen, who would not take risks. That’s why we we’ve ended up not being able to develop managers.”

The age of the individual and platformers

Kobayashi believes this model worked in times of high growth and mass production. But now in the age of the individual, it is the platformers like Google, Amazon, Facebook and Apple who are using new cultures and innovations as triggers. “Japanese businesses do not realise what a handicap their culture is.”

Japanese companies have become too big, says Saegusa. “There is not that ‘create, build and sell’ mentality you get in the US. Bloated companies don’t give rise to leaders, rather to people who are good at pulling everything together.”

See your predecessors as war criminals

When he was working at Mitsubishi Chemicals, Kobayashi would say “see your predecessors as war criminals” (senpai wa senpan 先輩は戦犯). “If your predecessor did something wrong, you have to say so and do something about it, otherwise it won’t change. And when you become a senior manager, you have to be prepared to be treated like a war criminal.”

“A nail which sticks out too much cannot be hammered down” says Saegusa, noting that Kobayashi is rooted in a strong sense of values. “But such people are rare, even though they are needed right now.” When Saegusa left his Mitsui group company, he was seen as an outsider but now more and more people say that his life choices were the right ones. “If organisations treasure outsiders, they will find the old order breaks apart – but they may fear this kind of revolution.”

When Kobayashi was running Mitsubishi Chemical, he appointed a CTO, CIO and CMO from outside the organisation. “I felt that we could not develop such people inside the company. Now I am an external director of Toshiba, and we appointed a CEO from outside the organisation. Japan will have to change its corporate governance radically in the next five years to deal with the fast pace of change globally. If you make use of an external perspective early on, then you can deal more effectively with changes such as more vocal shareholders.”

Mitsui and Mitsubishi must lead the change away from big company disease

Saegusa worries that it might take 20 or 30 years more, to reach an absolute bottom, before Japanese people understand what their fundamental strengths are. Large groups like Mitsui and Mitsubishi must take responsibility for leading the change away from “big company disease”. “We have the information resources to know that we are losing on a global level.”

“It’s not over for Japan. I also think Japanese people can be great, but we need to reflect on what has happened and realise we have become complacent. We have been totally defeated these past 30 years, but if we can work together to find out spirit to fight back, we can be a strong country once again”, says Kobayashi.

This dialogue seems in strange contrast to the kind of articles we read in the Western press in recent years saying that while Japan is not Number One any more, there are so many good things about the country in terms of civility and a general good standard of living. And this is reflected in how Japan has become such a popular tourist destination. I suppose we recognise there are worse models than becoming a gently stagnating, ageing society where people are polite and kind to each other.

Category: Corporate Governance