Management and Leadership

Japanese employees see promotion to manager as a “punishment game”

Nikkei Business magazine has just run a series on how Japanese employees are becoming very reluctant to be promoted to manager, seeing it as a “punishment game”. Comedy shows on Japanese TV often involve a “punishment game” (罰ゲーム batsu gehmu) where after a bet or a game like scissors paper stone*, the winner inflicts some kind of punishment – like a slap, or eating something disgusting – on the loser.

This reluctance to be promoted to management has been noted for at least two decades now, as the compensation for management level jobs has become less based on seniority increments and more on performance and job content. At the same time, the declining population means there are fewer people below to delegate to and many of the younger generation do not want responsibilities delegated to them.

Playing managers

Japanese managers have felt they have to be “playing managers” a term taken from baseball, meaning that a person has both to manage the team, but also be a high performing player in the team. The strain of doing this is obvious – Nikkei Business cited one woman General Manager who quit because she also had to be a manager of multiple teams, coaching younger inexperienced people, as well as look after her children and parents.

Another issue is that being promoted to manager may now mean you have to manage people older than you – something that was taboo under old seniority based systems. According to the Nikkei Business introduction, the stress of this meant one man left his successful career at a Japanese traditional company to join a foreign owned company, where age related status was not such an issue.

Why over half would turn down promotion

These anecdotes are backed up by a survey by Musashino University of 340 management candidates under 40, which showed that over half (52%) of respondents would turn down a promotion to manager. Other research quoted by Nikkei Business shows that whereas in 1981 a general manager could earn more than double the total take home pay of a non-management employee, it is now less than double. This may be due to higher salaries to retain younger, digitally skilled employees.

Other research shows that the average age of appointment to team leader in Japan is around 38 years old, whereas in the USA it is 34 and in India, China and Thailand it is around 29 or 30. The average age for becoming general manager in Japan is 44, 37 in the USA, 32 in Thailand and just under 30 for China and India. There is also a higher mortality rate amongst Japanese managers compared to European managers.

The legacy of the lost three decades

Japan ranks 43rd in the world in IMD’s World Talent Ranking – which looks at “investment and development” “appeal” and “readiness”- a legacy of the days when managers only had “on the job training”. Switzerland ranks 1st, again, Germany 12th, USA is 15th and the UK has dropped to its lowest ranking since 2019, of 35th – which is where Japan was in 2019. Unsurprisingly, given the inward looking nature of the past “lost three decades“, Japan scores particularly low on international experience and senior management competence.

Nikkei Business says Japanese companies have become wine glass shaped – top heavy with people in their late 50s and 60s, with more people in their 20s and 30s at the base, putting the squeeze on the fewer people who are the “stem”, in the middle management roles in their 40s and early 50s.

The solution is empowerment

Nikkei Business points to some solutions arising from the research, for example that senior managers should not be top down and directive in their style, and to allow their team to have more say and influence in decision making.

It seems to me that there should be less emphasis on quantifiable performance, when deciding how to compensate managers, and more emphasis on job content and qualitative targets, such as developing and motivating employees. This is something that is beginning to happen at some companies (Hitachi, Panasonic Industry and Ricoh are specifically mentioned in the series), who are moving to the “job gata” system, where job content is more clearly defined and employees are meant to take more control over their own career paths and development.

At Japan Intercultural Consulting, our training on agile project management explicitly states that managers should not be “playing managers” but instead focus on supporting the team by providing resources and removing barriers to productivity – a management style known as “servant leadership”.

*Wikipedia calls the game “rock paper scissors” – apparently that’s the more common name in the USA. Perhaps we should all call it jankenpon, the Japanese name. It came to the West from Japan, who, in turn, got it from China.

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Where’s the pipeline? Tokyo Prime-listed companies goal of 30% female board members

The Japanese government has set a goal for Prime-listed companies on the Tokyo Stock Exchange of each having at least one female board member by 2025. The aim is to have at least 30 percent of board members be women by 2030. By the end of July 2022, only 11.4% of all companies listed on the Prime List of the Tokyo Stock Exchange had women on their boards compared to 45% of equivalent companies in France and 31% in the United States.

This has prompted an outbreak of appointments of women to company boards during this summer’s shareholder meetings, mostly to non-executive directorships. Many of the new women board members do not have direct corporate line management experience, and are lawyers, accountants, academics and journalists. Even then, the scarcity of suitable women has meant a far higher proportion of the women have multiple non-executive directorships, compared to male board directors. Japan’s Financial Services Authority has pointed out that the goal of 30% by 2030 is not to have 30% of board members as external female directors, rather that Japanese companies should be planning now on how to have a pipeline by 2030 of suitable internal female candidates.

Japanese companies are going to struggle with this. One Japanese local bank stated that while 45% of its new graduate entry hires were female, only 6% of its managers were female. Another Japanese business organisation head said “there are no [suitable female] candidates” for the board. But as the Nikkei pointed out, the question is whether there really are none, or that women employees are just not being groomed for the board.

The motivation to change should not just be about caving into government pressure. According to JP Morgan Securities, their stock index compiled of companies with a high proportion of female executives started to outperform the TOPIX 500 in 2020, when the COVID pandemic started. Nishihara Rie, chief equity strategist at JPMorgan Securities, said, “During a crisis like the COVID, investors look more closely at the quality of management and the board of directors. Having women on the management team was seen as a factor in positively evaluating the board.”

Having people without mainstream corporate line management experience on the board is of course itself a sign of diversity and inclusion, and brings a fresh perspective to Japanese companies with long traditions of life time employment and seniority based promotion. But of course if only women from outside the company are appointed to the board, then there is a lack of role models for women employees in the company. Also, women from outside the company will not have the power base and influence within the company that internally appointed men have. I’m not sure 7 years is long enough for Japanese companies to fix this.

My Japanese company family ten years’ on

I met up recently for a dinner in London with most of the members of a team of British and French people I worked with at a Japanese company, ten years ago. An event like this would not be so unusual in Japan, I suppose – an OB-kai (Old Boys’ party) – but it is not a regular occurrence in the UK. In more individualist societies, employees will not have joined the company as a cohort, nor left the company as a cohort on retirement. My team members did indeed join the Japanese company at different times and some have now retired. Some, like me, left of their own accord and others were made redundant.

What united us was the leader of the team, who had handpicked us to work together. He is now in his seventies, and active in U3A (a collection of charities providing education and self-improvement for those who no longer work) and has just moved house, in order to be closer to his grandchildren.

Family was a big theme of the evening with photos shared of children and grandchildren. Health of course was also a topic – one person, now a CEO, had recently undergone a triple bypass operation and been told he should not work full time again. We also talked of the impact on mental health of the pandemic on our children, one of whom had been diagnosed as autistic.

Of those who had retired, two were living in Portugal and one was active as a local councillor in the UK (and could not attend the dinner as he was campaigning). Another person who could not join us was living in Sofia, Bulgaria.

Three of us were working as independent consultants. One was about to start a part time MA in international relations – purely for the intellectual challenge rather than as a career move. He had turned down a senior role at Huawei, because he felt he could not build up the same level of trust that he had felt when he worked in a Japanese company.

Japan was still of interest to everyone. Even though he had been to Japan many times on business trips, one of the group decided to visit Japan again, but as a tourist, with his wife. They had such a wonderful time, they want to go again, to travel to the north and west.

So, as our team leader always used to insist when I wrote a press release or article – reflecting on ten years’ ago and now, what is the action point?

The project we were all working on ten years ago was to define more clearly the values and vision of our Japanese company, in order to bring employees together, globally. Ten years’ on, I still think this is a necessary step but new forces are dispersing employees – such as job mobility, the job gata system (introduction of job descriptions and specialization) and remote working. A good global leader will need to ensure that employees are drawn together again, in an environment where they can build enduring, trusting human relationships.

This article by Pernille Rudlin was first published in Japanese in the Teikoku News, 14th June 2023

Does Japan really have CXOs?

I started a new project last year, delivering online training on B2B services marketing to Japan based employees of a Japanese IT company. It has been challenging in many ways, not least of which is that I have to get up very early, in order to deliver the modules within Japanese working hours.

I have worked in B2B services most of my career – in Japanese, British and American companies, in both marketing and sales functions. So delivering this course is a natural fit for me, but it has also made me more aware than before of the big gap between Japanese sales and marketing approaches and Western methods. Western methods in turn are mainly influenced by American practices, and as is often the case, Americans tend to assume that their practices are the global standard, much to Europeans’ irritation. Nonetheless, particularly in an industry like IT, American suppliers are so dominant, in order to compete with American suppliers it is necessary to understand and use these methodologies.

Behind these methodologies, there are various assumptions which I realise need to be surfaced, and questioned, if they are to be used by Japanese multinationals.

The first assumption is that the target audience within the customer company is the so-called “C suite” or “CXO”. As far as I am aware, job titles such as CEO, CFO, COO and more recently CHRO, CDXO or CRMO were not commonly used a decade or so ago in Japan. There was of course the President, and then various Fukushachou (Executive Vice President), Senmu (Senior Vice President) and Jomu (Managing Director) – and most of them on a very large board. The Jomu in particular were often “in charge” of a particular business or function, so it has been quite easy for Japanese companies to then add a “CXO” title to the Jomu level people.

But I wonder whether this is not just a superficial change. The real meaning of CXO job titles, and why they are the target for B2B services suppliers, is that they are viewed as senior specialists in a particular field, and have the ultimate decision making authority and control of the budget.

In traditional Japanese companies, most of the senior executives would have been generalists throughout their careers – albeit within a particular business or functional area. Westerners are frequently surprised, however, to discover that a Japanese CFO has no accounting or finance qualifications, or takes a passive view of HR or marketing as a support function, not as something which requires a strategic approach. They may have ultimate authority to approve budgets, but much of what they approve has come from a more bottom up, nemawashi and ringi mechanism, rather than a strategy that they have set.

When Japanese suppliers were primarily selling to Japanese multinational customers, global marketing techniques were not needed. But now Japanese multinationals have themselves localised and globalised, so non-Japanese in CXO positions, even in Japan headquarters, have begun to appear. Which is why I expect I will be having to get up early to deliver marketing training to Japanese people for some time to come.

This article by Pernille Rudlin first appeared in Japanese in the Teikoku Databank News in February 2023

Japanese with foreign MBAs are beginning to change corporate Japan

One swallow does not make a summer, and I am not entirely convinced by Nikkei Business’s assertion that there is an upcoming group of Japanese who did MBAs overseas in the 1990s and 2000s and are now taking over and changing corporate Japan.

The examples cited are:

Minato Koji (University of South California Business School MBA 2003), formerly of Oracle Japan, who was headhunted for a CEO position at Itoki, an office furniture manufacturer
Takahashi Hidehito (Columbia MBA 1992), President of Resonac Holdings (formerly Showa Denko)
Matsuoka Yoko (known as Yoky) who is founder of Yohana, a Panasonic subsidiary – who hasn’t got an MBA, but went out to the USA when younger, to become a tennis pro.

Nikkei Business characterises them as familiar with technology, having learned Western-style management through study abroad, including an understanding of how to take risks, and having had the experience of putting this knowledge into practice at foreign-affiliated companies.

Another example is Morimoto Masaru, now chairman of Showa Aircraft, who gained an MBA at Harvard in 1993 when he was working at Sumitomo Trust Bank. He says that in the 1990s, around 20 people a year were sent to study abroad from Sumitomo Trust Bank. “Large companies were competing to see who could send students.” Students studying abroad surged in the 1990s, reaching 83,000 in 2004.

As I was working in Japan in the 1990s (and was sponsored by my Japanese company, the first ever non-Japanese, to do an MBA at INSEAD, in 1997) I saw this for myself. The issue then was that companies did not know what to do with their newly minted MBAs when they returned. Corporate finance, or maybe send them to the USA, was the usual offer – MBAs were jokingly known as Managing Business in America. Many of the MBAs became frustrated and joined foreign companies – which is exactly what Morimoto (Club Med, Coca Cola), Minato (Sun Microsystems, Oracle), Matsuoka (Google) and Takahashi (GE, GKN) all did.

I do agree, however, that it would be positive for Japanese companies if more Japanese employees and young people studied abroad – so long as Japanese companies can work out what to do with them afterwards – perhaps the new job-type systems will help with this. The Japanese government has just announced that it wants the numbers studying abroad to reach 100,000 a year by 2027. This was achieved before, but even in 2019, before the pandemic hit, there were only 77,953 Japanese students abroad, compared to the record high of 115,146 in 2018.

New approaches by Japanese companies to Generation Z

Judging by this article in the Nikkei Business magazine (¥), many of the concerns and values of Japan’s Generation Z work are equally applicable to young people in other countries. However, the adjustments that Japanese companies have made or need to make, to ensure Generation Z’s engagement and retention, reflect some of the unique aspects of Japanese corporate culture.

The article, co-written by female Nikkei journalists, two of whom who are themselves Generation Z, outlines 5 key points of the Generation Z work ethic:

Work is just one aspect of “life” – the company is not at the center of this generation’s life, as it has been for previous generations in Japan. Generation Z are keen to improve their own happiness through self improvement, hobbies and family. So employers should not say “that’s just how it is” but rather try to find new value in work that they are assigning to Gen Z.
They want self actualization and to contribute to society – so an employer needs to find common ground between the employee’s goals and the company’s goals, in order to motivate them.
Time performance – Generation Z are used to picking through mountains of information to get answers, so emphasise the value of producing results efficiently in a short space of time. They want to be trained, and given clear direction and targets. This is often misinterpreted by Japanese bosses as an unwillingness to do any more than is asked and an insistence on going home on time.
They are fearful of failure and look for empathy and sharing of problems. It is important for managers first of all to praise work that they have done well, and then help them improve through advice
They prioritise a healthy working environment and good human relationships. Managers must look to communicate on a frequent, individual level with Gen Z team members and make sure they don’t feel isolated.

Specific examples given of what Japanese companies have done include how juniors at Sumitomo Chemical are encouraged to recommend and review books to executives as part of their training. A junior engineer in the article described his delight at receiving a positive response from a managing executive officer to one of his recommendations.

NEC has online drinks parties – where 4 younger employees and 1 executive participate from their own homes, in casual clothes. The meetings are streamed online and can be viewed by other members of NEC. “Some of the executives wear cute T-shirts and by seeing an unexpected side of executives, young people realise they are not so remote from them,” says the organiser. One of the executives is quoted as saying “I want to create an atmosphere in which young people’s opinions and ideas are positively considered.”

Other companies are experimenting with putting new joiners into teams to work on projects together, rather than having the 1:1 apprentice/master relationships with senior employees that were normal in the past. Training has become much more formalised that the “On the Job Training” offered to previous cohorts. NTT Data is rotating new recruits around various assignments and training courses, three months at a time – which has been the norm in Western companies for graduate recruits.

The pressures on Japanese managers to respond to the challenges of Generation Z means that we at Japan Intercultural Consulting have seen an increase in demand for our leadership courses in Japanese, where we cover topics such as psychological safety and servant leadership.

Hitachi’s new risk management

Up until now, Hitachi’s risk management team was mainly centered on the legal department – which I suspect is probably the case in most Japanese companies. Now Hitachi’s President Keiji Kojima has added the finance department to it, wanting the company to take a more proactive approach to global risks. The aim is to visualize risks – such as the impact of the economic slowdown in Europe due to the Ukraine crisis and soaring component costs due to inflation – and respond quickly.

When Russia invaded Ukraine, GlobalLogic was empowered to act quickly to evacuate 7,200 local employees in the country – and was told that they could put off contacting Japan HQ until later. By the end of April, remote working and overseas bases had been put in place and the operations were back up to 95% level.

Hitachi’s overseas business has expanded recently thanks to the acquisition of US company GlobalLogic and the power grids business of ABB, now Hitachi Energy.

Strengthening the risk management system is one response to this, along with introducing a global standard job description system to the Japanese organisation, aiming to have 30% women and 30% non-Japanese representation ont he board by 2030, aiming for zero carbon by 2050. Five out of the 9 external directors are non-Japanese.

Hitachi has learnt from past failures in overseas expansion, such as the Horizon Nuclear Power project in the UK, and the failure of a joint venture thermal power project in South Africa.

These changes have impacted the way the board operates. Now, when an executive officer reports that a plan has not been achieved, the non-Japanese directors respond “so?” – by which they mean, don’t just report the result, tell me what you are going to do next. A former external director of Hitachi, Harufumi Mochizuki comments in the Nikkei that “thanks to training by foreign directors, the executive officers have acquired a world class management style, and the ability to action, with a sense of speed.”

The next challenge for Hitachi will be to make the best use of the global human resources that it now has thanks to its acquisitions. Only three of Hitachi’s 34 executive officers are non-Japanese. The Nikkei comments that these changes are very much in line with the vision of Mr Nakanishi, the former President and Chairman who died in 2021, for an organisation with world class leaders who can respond quickly to global risks.

The inside story on how Mitsubishi Chemical selected a non-Japanese president

“Many Japanese executives are unable to think critically”, says Hashimoto Takayuki, an external director (ex IBM Japan) and chairman of the nomination committee of Mitsubishi Chemical Holdings, in a recent interview with Diamond Online.

“There is no right answer to how to manage a business now” he adds. The traditional Japanese model of low-cost, high quality, on-time delivery, based on conventional mass production methods is no longer sufficient. “There is a need for management that resolves conflicts, balancing social and economic benefits, such as carbon neutrality.” So it is not enough for a President or CEO to just have the traditional ability to sell as well as a top sales person or have a great track record as a factory manager.

Japanese people are not very good at managing subsidiaries acquired overseas

“Broadly speaking, the president has three duties. The first is the corporate branding of the company – the “purpose” that is attracting so much attention recently. The second is portfolio management – business consolidation. An appropriate business structure has to be built, in line with trends such as ESG. The third is global governance. Japanese people are not very good at managing subsidiaries acquired overseas, but it is an essential skill for a global company.”

“I believe that people who are future presidents/CEOS will need to be educated within a special track in the company, as a profession, much as you would with marketing or sales. They need to have assignments which will stretch them, such as developing an overseas business from scratch, or rebuilding a poorly perfoming subsidiary.

This is why the top person from within was not selected to become the President, because they had not been educated in management. There were many excellent performers heading up business divisions, but whether they can become President is another matter.

We asked a headhunter to produce a long list of candidates to be President – there were more than 30, including people from outside Japan. The shortlist had 4 people from outside the company, outside Japan, and 3 people who were in-house candidates.

Why an external, non-Japanese candidate was selected

“Mr Gilson gave a good impression of deep understanding of Mitsubishi Chemical’s vision of KAITEKI management. Other people wanted to change this vision as soon as possible, but that was not the kind of successor we were seeking. Also, external candidates may want to bring in a team they are familiar with, but Mr Gilson clearly said he would prioritise teamwork with the current management members.”

Furthermore, during the interview, Mr Gilson summarized his business improvement ideas in a proposal of 2 sides of an A4 and presented them. The proposal was accurate, but above all, it showed a passionate intent.

There were some concerns, as Jean Marc Gilson‘s previous company (Roquette Freres) had sales of several hundred billion yen, compared to Mitsubishi Chemical sales of nearly 4 trillion yen.

Avoiding backlash

“I expected a certain amount of backlash within the company, but I’ve heard that actually there was a more welcoming atmosphere amongst the younger employees. After all, the younger the person, the stronger the desire for change.

Having the former chairman of Mitsubishi Chemical (and the person who came up with the KAITEKI vision), Yoshimitsu Kobayashi on the nomination committee was also a big factor. It was the first time Mitsubishi Chemical appointed a president through a nomination committee, so there was a risk that a decision made solely by people with no experience of Mitsubishi Chemical would not be seen as valid.

Mr Hashimoto still thinks that it is best if the President has been developed within the company, but it takes time to reform internal systems and culture. If this is not worked on right now, the company will never change.

Top earning executives in Japan 2022

As in previous years, the top earning executives in Japan over the past year include many non-Japanese people. At number 1 is Shin Jingho, Korean founder of Line (Japanese messaging app), far outstripping all the other big earners, pulling in US$315m to March 2022. He moved to Japan in 2008 to turn around parent company Naver’s websearch business, and somewhat alarmingly, claims to have learnt Japanese by watching gangster movies.

At number 2 is Kurotsuchi Hajime, the 100 year old chairman of Daiichi Koutsu Sangyo, a taxi and real estate firm in Kyushu. He has just announced he is retiring and intending to start a foundation for small to medium sized businesses. Perhaps that is where some of his US$138 million earnings will be going.

Yoshida Kenichiro, CEO of Sony, is the third highest earner, on US$137m. Christophe Weber, French CEO of Takeda Pharma is at #4 with US$135m. Kawai Toshiki, CEO of Tokyo Electron is in 5th place with US$121m.

Nikkei points out that the number of executives earning over Y100m a year (US$728,000) has increased to 652, 105 up on the previous year, the highest number in 3 years. It sees this as proof that Japanese executive compensation is shifting towards Western standards. With the top 5 including two Japanese executives who are not also founders (Yoshida and Kawai), this does seem to show a move away from the usual rule in long standing blue chip companies that the president should only earn around 10 to 20 times the average salary (around US$40,000).

Hitachi has the highest number of executives (18) earning over Y100m a year, then MUFG with 13, Toshiba also with 13 (presumably danger money for being associated with it), Mitsui & Co (9), Daiwa Securities (9), Tokyo Electron (8), Mitsui Real Estate (8) and Bandai Namco (8). Companies with 7 Y100m earners are Daikin, Sompo, Fujifilm, Nissan and Nomura.

Non-Japanese executives resident in Japan in the Y100m club include Simon Segars at SoftBank (British former CEO of ARM), Andrew Plump at Takeda, James Kuffner Chief Digital Officer at Toyota, James Shea at Sompo International, He Xian Han at Ferrotec, Costa Saroukos CFO Takeda Pharma, Stefan Kaufmann, CAO Olympus, Rony Kahan, Recruit (founder of Indeed), Eric Johnson, CEO of semi conductor company JSR, John Marotta former CEO of PHC (was Panasonic Healthcare) holdings and Alistair Dormer, former board director of Hitachi.

Working from home means you won’t get promoted – in Japan and elsewhere too?

Even before the pandemic, Japanese employees only took around half of their paid leave. I remember 30 years’ ago the company union of my Japanese workplace campaigning every year to get its members to take more than the 10 or 11 days holiday a year they would take out of the 24 or so they were due. In the USA around 70% of paid leave is taken and in Europe it’s closer to 100%.

Professor Hajime Ota of Doshisha University points out that this is partly because in many Western countries, companies must compensate employees for holidays not taken or are required to make employees take holidays – in the financial services industry in the UK for example. Japan is also facing a labour shortage, so people feel under pressure to do overtime instead.

A 2010 survey by the Japan Institute for Labor Policy and Training found that the top reasons for not taking paid leave were: “because it would cause problems for my co-workers”, “because other employees are not taking their annual leave” and “my boss is not happy about me taking leave”. Similarly, a 2005 survey found that people were working overtime because “my boss and co-workers are doing overtime” and “it is difficult to leave the office if others are still working.” So it is basically social pressures – face time overtime – that are at the root of this.

Overtime pay is lower in Japan than elsewhere too – 25% of normal pay as compared to 50% or more in Europe or the USA. Also many Japanese employees are doing “service overtime” where they are not getting paid at all, even though this is supposedly illegal.

Professor Ota says that this shows Japanese employees want the approval of their co-workers and boss rather than extra money for their overtime. People who take all their leave and only work their set hours are looked askance at. So it is understandable that working from home and flexible working, workations and so on are not popular in Japan – unless all employees take it up.

As I have frequently said, and Professor Ota confirms, in many Japanese workplaces there are no clear job descriptions, so it is difficult to evaluate individual performance objectively. The feelings and emotions of the evaluator tend to be more influential. A 2001 survey of 1,406 white collar workers in Japanese and Western companies found that 75% of Western respondents said that they would not give softer evaluations to subordinates just because they were pleasant to work with whereas 29% of Japanese respondents said they would not. Conversely 6% of Western respondents said they may give a softer evaluation to a pleasant subordinate and 20% of Japanese respondents said they would.

Western respondents may well be fooling themselves that they are capable of such objectivity, and Japanese respondents are being more honest. Professor Ota also puts it down to the importance of the “in-group” in Japanese workplaces, and therefore the need to be “close” to your boss in all senses. But this concern that working from home impacts promotion negatively is not confined to Japan – as many recent articles and surveys publicised in the Western media confirm.

Last updated by Pernille Rudlin at 2023-10-15.

Category: Management and Leadership