Management and Leadership

Hitachi power shifts

The management changes announced at Hitachi, in effect from April 1st 2022, reveal changes in the balance of power, not only in Japan headquarters, but Europe. Alistair Dormer, a British executive, who had been CEO of Hitachi Rail, and then became the first non Japanese Executive Vice President of Hitachi, was seen as a rival candidate to fellow EVP Tokunaga Toshiaki, to become President of Hitachi. In 2021, Dormer, resident in Japan, became Chief Environmental Officer and also Chair of Hitachi Europe, both perhaps an indication that he was sliding sideways away from the Presidency.

It now transpires that Dormer has retired from all his positions at Hitachi, apart from Chair of Hitachi Europe and will return to the UK. Kojima Keiji, who was already President, has strengthened his position by becoming CEO as well, following the current CEO, Higashihara Toshiaki, stepping down from the CEO position, but continuing as Chairman.

Kojima reorganised Hitachi from 5 divisions into three, focusing on “digital” systems and services and “green” energy and mobility as growth engines. “Green” was headed by Dormer but will now be directly managed by Kojima. Tokunaga, who spent some time in Silicon Valley, is heading up the “digital” side and is still seen as the hot favourite to succeed Kojima as President. He is quite literally Hitachi born and bred, having been born in Hitachi city, and his father also worked for Hitachi. He is only 55, which would make him the youngest President if he succeeds Kojima in the next few years. Kojima is ten years older than Tokunaga and became President in 2021. Previous presidents Higashihara and Nakanishi were in post for 7 and 4 years resepctively.

All is not lost in terms of having the first ever non-Japanese president of Hitachi, however. A possible successor to Tokunaga, if he is willing to wait that long, could be Claudio Facchin, who joined Hitachi in 2019 as a result of Hitachi’s acquisition of ABB Power Grids in 2020 and is now an executive officer and Senior Vice President of Hitachi, as well as CEO of Hitachi Energy.

The acquisition of ABB Power Grids led to a second shift in the balance of power within Europe. The acquisition resulted in around 15,000 employees joining Hitachi in the Europe, Middle East and Africa region, but did not have so much of an impact on HItachi’s presence in the UK, where its European headquarters is based.

In 2018-9 most of Hitachi’s EMEA staff were in the UK, working for Hitachi Rail and Hitachi Capital but now less than a third are working there.

A further acquisition, of Globallogic, in July 2021, is likely to shift the balance further. Even though it is an American IT company, it has a substantial number of employees in Eastern Europe, including Poland and several thousand who were until recently in Ukraine.

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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.

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.

I decided to stop talking about diversity in Japan – Professor Christina Ahmadjian

The new corporate governance code in Japan puts further pressure on Japanese companies to have external, independent directors on their boards. For those companies wanting to be on the new prime market, the code stipulates that a third of directors should be external. Companies are now facing a severe shortage of candidates deemed suitable to fill these roles particularly if companies are also trying try to be as diverse as possible in who is appointed.

The same faces keep popping up, including people such as Professor Christina Ahmadjian of Hitotsubashi University who is currently an external director for four Japanese companies; Japan Exchange Group (the Tokyo and Osaka stock exchanges), Sumitomo Electric Industries, Asahi Group Holdings and NEC . She was also an external director at Mitsubishi Heavy Industries until June of this year.

Her remedy for this shortage of suitable candidates, which she outlined in a recent interview with Nikkei Business, is to hire people from a wider variety of backgrounds. Not just university professors like her, but Japanese women who are working outside Japan, or even having a quota for people under 30 years of age. In her view, even a third may not be enough, because it would mean that the majority are still “salarymen” who have worked their way up the same company all their careers. “The director’s most important role is to appoint and dismiss the CEO. Previously, when I asked a Japanese company what is the difference between the board positions of a managing director (known as joumu in Japan) and a senior managing director (known as senmu), I was told, when a managing director gets older, he becomes a senior managing director. Such a board of directors will not be able to make the top management quit.”

You need people who don’t read the air

External directors need to be able to reject management policies in board discussions. They must also have the mindset that they can quit themselves at any time. You need people who don’t “read the air” the way salarymen directors do.

“Two years ago I decided to stop talking about diversity. I will not give a speech on it and I refuse to be interviewed on it. It doesn’t change no matter how strongly I put the case. If I give a lecture on diversity, people will listen hard and then say “OK, that was good.” I felt it was just entertainment. Japan’s gender diversity is certainly more advanced than before. More companies are introducing maternity leave systems. But why is it so slow. I think “just do it!””

As for diversity in terms of nationality, there are many students who love Japan and want to come to Japan to study and work for a Japanese company. However, after graduating, if they get a job at a Japanese company, after about five years they quit, as they have realised that they can’t sse a future, and their friends at other companies are being promoted faster and have higher salaries. So ofthen they choose to work for a foreign owned company while living in Japan.

1980s uncle management

“Japanese companies are more concerned with their internal talent management than with diversity. So why not hire in Indians and Russians with the necessary IT skills?” Ahmadjian is concerned that what she callls “uncle (ojisan) management” from the 1980s means Japan will not be able to compete globally.

Ahmadjian has lived in Japan for over 20 years, and was herself an office lady at Mitsubishi Electric in the early 1980s. She served tea and wore a uniform. “I really enjoyed it then, but it was a world of old uncles.” “When I asked the top management of a company what is the definition of young, I was told 55 years old. I got them to lower the definition to 50 years’ old.” Japanese-style management may have worked well as a system in the postwar context, but I think it is time to reconsider.”

The prime minister of the Japanese business world

We were very sorry to hear of the passing of Nakanishi Hiroaki, Chairman Emeritus of Hitachi. There was a nice tribute to him in the Nikkei Business magazine (JPNS), calling him the prime minister of the Japanese business world, who was not afraid to speak out. Not only was he instrumental in turning around Hitachi, along with Kawamura Takashi, but he was a champion of making sure the voices of women and younger people were heard.

He was highly critical of Keidanren (the Japanese business association)’s resistance to increasing external directors on boards, and urged Japanese companies to pay higher wages to their employees. He was also insistent that if Japanese companies did not tackle environmental problems immediately, they would lose their competitiveness. As the head of Keidanren, he fought for Namba Tomoko of DeNA to become the first female vice president of Keidanren, accusing it of being overconcerned about the size and seniority of companies in its hierarchy, saying that to younger people it had become a fossil. He pushed for targets for women in management, declaring that the Japanese economy would sink if its male oriented society was not changed.

Even as he struggled with his illness, he continued to speak out, unafraid of criticism, and wanted not just his successor at Keidanren, but also Japan as a whole to feel free to express their opinions.

The path Japan should take to zero carbon – former Hitachi president Kawamura Takashi

Kawamura Takashi is famous in Japan for being instrumental in turning Hitachi round after its largest ever loss in 2009. He has just finished 3 years as chairman of TEPCO (Tokyo Electric Power). Nikkei Business asked for his view on the Japanese government goal of achieving zero carbon by 2050. While more diplomatic than Mr Kobayashi of Mitsubishi Chemical, he points out that country level goals need to be translated into industry based goals, and this cannot be left up to individual companies. Government, electric power companies, manufacturers and citizens will have to unite to do this, he says.

This could apply to Japanese companies in Europe as well in our opinion. There is more scope for Europeans working in Japanese companies to network with each other to collaborate to achieve sustainable development goals, and not just leave it up to the Japanese exaptriates.

Kawamura points out that it’s tough for each company to go it alone. Equipment around the world for companies such as steel manufacturers will become obsolete if they were to switch away from current product methods. Chemical companies could no longer make plastic from petroleum but artificial photosynthesis has been worked on for decades and is still unsuccessful.

“But if it cannot be done, the earth will be destroyed first”. It may seem that the solution is for Japan to “choose the path of returning to the lifestyle of the Edo period (1603-1868) living quietly with a small population” but Kawamura thinks this is not a responsible thing to do when Japan has the third largest GDP in the world.

Hydrogen can be one solution but the problem is making it. It can be made from water with nuclear power but of course this is controversial. There are few regions in Japan where the efficiency of generation of renewable power is high enough to make hydrogen however. So it might be necessary to find methods of producing hydrogen from overseas renewable energy power generation and transporting it to Japan for distribution as energy.

Kawamura says Japanese business leaders are too emotional. They cannot cut business lines which have been developed in their companies over the years, so end up having to bring in foreign executives to do it. “It’s a lie that Japanese can’t do it. Japanese companies don’t want to make calm decisions based on economic rationality, but Japanese really should do this for themselves.”

Asked if he will stay on another 3 years at TEPCO to help with zero carbon he says that at 81 he is too old and he is wanting to do things that give him ikigai (a reason for living outside of work – see our Japan Intercultural Consulting video on this) such as taking his time to read books, which he said he could not do when he was an executive.

“Almost” no hesitation appointing a Belgian president – Mitsubishi Chemical chairman

Yoshimitsu Kobayashi, chairman of Mitsubishi Chemical was interviewed towards the end of 2020 by Nikkei Business magazine. Mitsubishi Chemical is not in our Top 30 Japanese employers in Europe, as it only employs around 3,200 in the region – mainly via the UK company Lucite International which it acquired in 2008 and other acquisitions in Germany, Italy and Switzerland.

Kobayashi has always been his own man, and somewhat unconventional by Japanese corporate standards, having studied at the Hebrew University of Jerusalem before joining Mitsubishi Chemical in 1974. He is nonetheless a leading light in Japanese business circles and sits on various government and employer bodies.

He was asked if capitalism will change, as there seems to be renewed interest in the kind of stakeholder capitalism that Japanese companies prefer to practise. His view is that Japanese companies should not just say “sampo yoshi” (three way satisfaction for the buyer, seller and society) and be complacent, but have to improve their productivity and capital efficiency, and make a profit.

Asked about the surprise appointment of Belgium-born Jean-Marc Gilson to President of Mitsubishi Chemical, Kobayashi said they had been preparing the ground for some time. Even when he chose the previous president, Ochi, he found it hard to make his mind up. So he set up a nominations committee with external directors with overseas experience. They were tasked with finding the best person globally – but it took five years for this message to get through.

He had “no hesitation – almost no” in appointing a foreign president. Rather, he was more afraid of turning back to the past and appointing a Japanese president. He wanted to make sure that whomever became president understood the “KAITEKI” philosophy that he had been promoting and take a radical approach to zero carbon and reduce reliance on oil and coal. This probably needed an outsider to push this portfolio transformation and improve Mitsubishi Chemical’s market capitalization. “What this company lacks most is the awareness of how to make money. I talked to Mr Gilson about this four or five times over Zoom, as he also had experience in a private equity fund, he explained this point very clearly. I hate to say, but a Japanese president could not give such a presentation.”

“Rather than Gilson’s own performance, I am hoping that by him becoming President, the whole company will up its game. Rather than being told to study English or speak English, wouldn’t you try to speak English of your own accord because the president is foreign?”

He is quite critical of the current Japanese government announcing zero carbon by 2050 without any actual design behind it. “There is no serious discussion at all” and yet per capita GDP in Japan is lower than Singapore, Hong Kong and South Korea.

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

Finding a balance in employee development

At a meeting I facilitated of Japanese and non-Japanese board directors of a financial services company in London, the Japanese directors had many questions about employee development in the UK. They wanted to know how the highly specialized professionals in the firm gained the management knowledge needed to reach senior management positions. The answer was that in the UK this is largely through attending externally provided courses, in contrast to Japan where this knowledge has traditionally been gained “on the job” through job rotation.

This then led to a further question – what is the incentive for employers to invest in externally provided training if employees just use this as a springboard to go to another company?

The answer to this was that British financial services companies are under increasing pressure from the regulatory authorities for managers to be accountable for not only their own conduct and behaviour but also that of their team. This means that the annual performance appraisal is not just about whether performance targets have been met but also behavioural goals. Any gaps between expectations and achievement in terms of performance and behaviour should then lead to a development conversation about what kind of training and resources the employee needs to do their job better.

With the introduction of “job type” (job kei) HR systems, this kind of approach will be needed in Japan too. It is different from seika shugi/performance based systems because seika shugi was more focused on performance targets and the impact on bonuses, whereas job type appraisals are both on performance and behaviours and what this means for the person’s future development.

Managers cannot just leave it up to HR departments to take their usual approach to training each cohort simultaneously because the training has to fit the job descriptions and personal development plans. Similarly pay and bonuses cannot be set at a “one size fits all” basis across every department either.

It may take a while for a graduate recruit to grow into the job, however, depending on the function or business they are allocated to, so it would be unfair if there was too much disparity in the way the graduate intake was treated, early on.

This is why major employers in Europe such as Unilever have multiple graduate training programmes. Unilever offers 7 different tracks for its Future Leaders Programme for new graduates: marketing, HR, finance, R&D, supply chain and engineering, technology management and customer development (sales).

I nearly joined the Unilever marketing track (more than 30 years’ ago) but rejected the offer because I felt overwhelmed by the huge binder they placed in front of me, mapping out my first three years in minute detail. Instead, I joined a PR company as one of their first graduate recruits. I later came to regret this choice, as the training programme was entirely in-house, poorly executed and graduate trainees were treated inconsistently. Japanese companies need to find a balance between these two extremes and the Japanese one cohort model, both overseas and in Japan.

This article was originally published in Japanese in the Teikoku Databank News on 11th November 2020

An end to one size fits all training in Japan

This then led to a further question – what is the incentive for employers to invest in externally provided training if employees just use this as a springboard to go to another company?

With the introduction of “job type” (known as “job kei” in Japanese) HR systems, this kind of approach will be needed in Japan too. It is different from seika shugi (literally “results based system”, introduced in many Japanese companies in the 1990s and 2000s) because seika shugi was more focused on performance targets and the impact on bonuses, whereas job type appraisals are both on performance and behaviours and what this means for the person’s future development.

Managers cannot just leave it up to HR departments to take the “yoko narabi” (one size fits all) approach to training each cohort simultaneously because the training has to fit the job descriptions and personal development plans. Similarly pay and bonuses cannot be set at a “one size fits all” basis across every department either.

This article by Pernille Rudlin originally appeared in Japanese in the 11th November 2020 edition of Teikoku Databank News

Category: Management and Leadership

Hitachi power shifts

Japan’s less equal companies

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

Weak black companies

Motivation to work

I decided to stop talking about diversity in Japan – Professor Christina Ahmadjian

You need people who don’t read the air

1980s uncle management

The prime minister of the Japanese business world

The path Japan should take to zero carbon – former Hitachi president Kawamura Takashi

“Almost” no hesitation appointing a Belgian president – Mitsubishi Chemical chairman

Culture and conduct

Finding a balance in employee development

An end to one size fits all training in Japan

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