Management and Leadership

Brexit accentuates structural trends and cultural differences in Europe

Whatever the outcome of the Brexit negotiations, there are two conclusions we can already draw from what has happened so far in terms of how Japanese businesses may need to respond. One is that structural trends in business which were already apparent in Europe will be accelerated and the second is that differences in negotiating approaches in Europe have not disappeared, despite nearly 25 years of the European Union and single market.

In terms of organisational structure, there is a strange mix of physical disintegration and integration on a virtual level. Currently, over half of the biggest Japanese companies in Europe have their regional headquarters in the UK. This is because of the depth of financial and other support services that are available in the UK, the free movement of people that enables hiring many different nationalities in the UK and the ease of doing business in the English language. The latter advantage will not disappear with Brexit of course, but if the UK does not keep its EU financial ‘passport’, it’s possible a lot of the financial and other services will shift to Amsterdam or Frankfurt. Brexit may also bring an end to the free movement of people between the EU and the UK.

In any case, many of the back office, functional, coordinating jobs were already moving out of the UK. Cheaper, English speaking, well-educated employees can be found elsewhere in the EU. Larger Japanese companies are already developing a pan-European management structure, where teams are scattered across several countries. This is proving very challenging for Japanese employees who are more accustomed to a team working physically together, seated in a cluster of desks. Japanese companies will have to put processes in place to enable discussions and decisions to be made via remote communications and maintain a generous budget for travel.

The second conclusion is that Europe is still split between the pragmatists and the principles and rules based groups. The pragmatists, often traditional trading nations such as the UK, Netherlands and Denmark, tend to negotiate step by step, concession by concession, whereas Japanese companies prefer to acquire all information and know all the risks before making one big decision. Principles and rules based countries such as France or Germany clash with the pragmatists because they refuse to make concessions on what they would consider key principles (such as the free movement of people) or deviate from the rules which have been set in place.

This is why the European Union has become bogged down so often in processes and discussions and seems remote, bureaucratic and corrupt to ordinary citizens. Many Europeans – particularly the British – don’t understand or are not attracted to a European vision for the future. There are two further lessons to be learnt from this for business. One is that, no matter what happens in Europe, the British provide an important counterbalance to the French and the Germans in a management team, if you want pragmatic solutions to problems. The second is that management must not become so inward looking that it fails to communicate its vision to the rest of the employees.

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

For more content like this, subscribe to the free Rudlin Consulting Newsletter. 最新の在欧日系企業の状況については無料の月刊Rudlin Consulting ニューズレターにご登録ください。

Why has Japan not had a populist uprising

John Plender sought in a recent Financial Times article to answer the question of why Japan has not had a populist uprising, as so much of the Western world has. One of the possible factors he mentions – the lack of much immigration – was of course immediately taken up in the comments section by various Brexit supporters.

Weeding through the comments and looking at those from people who are actually Japanese or have lived or live in Japan gave some further possible answers and also prompted me to add a few of my own:

Japan already has a nationalist, nativist, populist government

Shinzo Abe – on course to be the longest serving Prime Minister in post-war Japan – is openly nationalist, elected on a ticket of making Japan not “great” again but “normal” – not just to get the economy growing, but also as in being able to defend itself. He was the first foreign leader to visit Trump after his election.

On the immigration front however, his government has quietly been making all kinds of exceptions to the rules in allowing immigration, in particular sectors that are suffering labour shortages, such as the care sector (elderly and childcare). More Asian immigrants, on company traineeships, have been arriving – although there has been controversy over whether they are just cheap, exploited, temporary labour in disguise.

Different histories of immigration

It is true that Japan has not had any large scale immigration, for more than 2000 years. Some Chinese and Korean immigration happened before and during WWII and this remains controversial to this day as much of it was forced labour. Many ethnic Chinese and Koreans have not taken up Japanese nationality. Koreans in particular have been the targets of occasional abuse from far right groups.

But to see this as a lesson for the UK would be a failure to see the utterly different starting points for the two countries. 98% of the Japanese population is Japanese. Whereas across Europe we have been migrating around each other’s countries for more than 3000 years, and more recently large scale migrations from former colonies and war zones – most countries in Europe have over 10% of the population who are not “native”. If you want to go back to ethnically homogenous nations, then some elaborate and intricate ethnic cleansing will have to happen. I for one will be suspect, as by German definitions, I am an immigrant as my mother was not born in the UK.

The cultural argument

A subtle point was made in one of the FT comments, lost on the Brexiteers perhaps, that because Japan does not have a large immigrant population, immigrants cannot be blamed by Japanese people for any woes they may have. Indeed, one of the strongest cultural characteristics of Japanese people is their urge for self improvement, to the point of blaming themselves or pointing to other’s personal failings, rather than blaming the economy or politicians or the “elite”.

The economic argument – why Donald Trump might be right

Although income inequality is rising in Japan (and surveys show it is the number one concern for Japanese people – whereas in the UK it was immigration and for the US it was terrorism), unemployment remains low. The workforce is shrinking and the population is ageing. Japan leads the world in robotics yet has retained a strong manufacturing base. Real wages have not increase much, rather decreased over the past few decades. The rate of post retirement employment is high.

Initially I was repelled by the bullying way Trump seemed to have forced Ford to rethink its plans to expand manufacturing in Mexico and instead increase production in its Michigan factory, but as another comment in the Financial Times points out, these decisions are hotly contested inside multinationals too. Many managers would rather keep production in their home base, or near the target market if there is sufficient incentive or momentum to do so. The success of Nissan and Toyota factories in the UK shows that the UK could have kept more of its manufacturing base, if we had the management capability and will to do so. Robotics create jobs too, if companies are prepared to invest.

The economic argument part 2 – why Theresa May might be right

One of the factors behind Japan’s relative economic stability and a lack of economic and social disenfranchisement amongst the Japanese “working class” has been the lifetime employment system that still prevails in the larger Japanese companies. In exchange for being multi-skilled generalists, willing to relocate where necessary, Japanese companies offered security of employment right through to retirement and often beyond.

It is generally felt this system – put in place after WWII to deal with labour shortages – has reached the natural end of its life. The number of workers on short term, insecure contracts has been rising steadily. However, I have felt for many years now that it should not be thrown out wholesale in favour of Anglo Saxon shareholder value based capitalism, and despite many adjustments, it still persists.

The downsides of the system have been that while it works in times of economic growth, in times of low growth, when you might want to shrink middle to senior management cohorts, or the shopfloor workforce, you can’t and end up with a large number of expensive, underemployed managers and workers, which are a drain on morale, barriers to change and of course, costly.

Secondly, because people are secure in their jobs, and generalists, there is a lack of clarity about expectations and performance management. Loyalty is rewarded and pay is seniority based rather than performance based. Consequently many Japanese employees have found themselves proving their dedication by working long hours, rather than trying to be as productive as possible in a normal working day. This has resulted in it being almost impossible to have a two career family, as it is just not practical to have children and have both working until late at night every day, however good the childcare provision is. Furthermore, the mental stress caused is clear, as illustrated by the recent suicide of an overworked graduate recruit at Dentsu, the Japanese advertising giant.

Thirdly, Japanese corporate governance has been poor, as the company executives are mostly lifetimers who cover up for each other, and don’t realise when the company is behaving perversely, because they have no experience of other corporate cultures.

The Japanese government response to these pressures is in part to legislate, but mainly to put pressure on Japanese companies themselves to reduce overtime, hire and promote more women and improve their corporate governance.

The view which still persists in Japan is that companies themselves have obligations to society – both to the people they hire and to contribute in terms of taxes and corporate social responsibility and environmental sustainability.

Although I was not happy to be accused of being a “citizen of nowhere” by Theresa May, looking at the context of what she was saying – which was in part about the social obligations global businesspeople have – and the clumsy suggestion from Amber Rudd that companies should tally up their non-native employees, I acknowledge that there is a point to be made that companies in the UK need to take more responsibility for who they hire – British and non-British.

The education argument

The UK’s economy is now 80% services based, but this should not mean that companies should get away with zero hour contracts and pressurising British workers with the threat of using cheaper temporary labour from the EU. They should indeed be offering apprenticeships and job security but also multi-skilling opportunities to counterbalance that. They should help and expect their workers to relocate or retrain them (or as in Japanese factories, spend time on cleaning and maintenance if production has to be ratcheted down) rather than simply shut down and fire.

We need better managers and companies willing to invest in training and technology, but the UK also needs a better educated workforce to begin with. That’s where government does have a role, as all the evidence shows early intervention in children’s education is the most effective in reducing later inequalities. And that’s probably the final factor in Japan’s lack of a populist uprising – a highly skilled, highly educated workforce.

Overcoming British negativity

According to a FT/ICSA Boardroom Bellwether poll in 2015, only 7% of UK companies were willing to speak out in favour of the UK staying in the European Union, even though two thirds believed leaving the EU would be damaging for them. Of course the Greek crisis made it difficult to say anything positive about Europe, but I also think the British have a strong preference for talking negatively rather than positively, when asked to make a commitment to something, particularly if they feel there are plenty of downsides to getting involved.

Then, like the British professor of economics I met recently – who not only forecast the 2008 Lehman shock but also advised the UK against joining the euro – we can say, smugly, “I told you so”, when things go wrong. This apparent wisdom does not, however, take into account what might have happened if we British had got involved. Maybe the Eurozone would have been better structured and managed, or a more balanced approach taken to Greece’s membership conditions and current difficulties if the UK had participated, not only to point out the problems, but find solutions.

I’ve noticed when working in European teams that British pragmatism acts as a good counterbalance to French rhetoric and German methodological rigour. Both Japanese and American managers are united however, in finding the British urge to be upfront about all the likely problems and obstacles, without suggesting any solutions, very frustrating.

Americans want to “just do it” and are not interested in the past, whereas the British look to history and their own experience, so as not to repeat mistakes. A Japanese manager who had become used to the American management style said to me recently “how do I motivate British staff? In the US, my team will do as I ask, because I can promise them a bonus or threaten to fire them if they don’t do it, but the British team don’t seem to be so motivated by money, and they know it’s a lot harder to fire them here than in the US.”

Some British employees are of course motivated by money, particularly in the financial sector, but for most British workers the motivation is more around self-fulfilment, a chance to put their expertise and experience into practice, to make a difference. So if they believe that they will not be able to do something, they won’t even try, as they know how demotivating and humiliating failure will be.

I discussed with the Japanese manager the concept of “jinji wo tsukushite, tenmei wo matsu” (do all that is humanly possible, then wait for the heavens to decide) – that Japanese also have a sense of fatalism, but that does not preclude doing whatever you can to make something work. I described this conversation to a senior British executive, and she started smiling ruefully. It turned out she had insisted to a Japanese boss that a particular course of action was not feasible. He had persuaded her (I expect through appealing to her expertise and experience) and so she eventually went ahead, and to her surprise, she succeeded.

This article was originally published in Japanese in the Teikoku Bank News on 12 August 2015 and also appears in Pernille Rudlin’s new book “Shinrai: Japanese Corporate Integrity in a Disintegrating Europe” – available as a paperback and Kindle ebook on Amazon.

Why the British and the Japanese are less productive than the Dutch

When I was visiting the Netherlands last week, one of the Japanese managers I met said his main concern was how to motivate his staff. I hear this question often from Japanese managers working in Europe, and I always want to ask – what do you mean by motivation – what would it look like?

Usually a motivated employee is thought to be an employee who makes an effort and perseveres. This is hard to measure objectively, and it is a worry amongst Europeans that Japanese managers evaluate employee motivation by how many hours employees are at their desk. This is a justified concern, reinforced recently by a report I heard regarding a Japanese GM in Spain who was worrying why his Spanish staff were away from their desks far more than Japanese or even British staff.

If you ask Dutch people what motivates them, according to a long-standing Japanese resident in the Netherlands, they will say “boss, just don’t waste my time.” In other words the main way to demotivate the Dutch is to waste their time.

The Dutch have high productivity (usually defined as GDP per hour worked), and also the happiest children, according to various OECD and UNICEF surveys. The connection between the two is pretty obvious when you look out of the window in Amsterdam – the streets are full of mothers and fathers on their bikes, with their children in little carts or on a tandem, going to and from school. Dutch families like to eat supper, together, at 6pm. They also like to spend the evenings doing sports or other hobbies – and allow their children plenty of freedom to come and go as they please. The streets and housing seem clean, safe and spacious, with offices, schools and housing all mixed together, so commuting time is relatively short.

The Dutch people I met said it was quite normal to work one or two days at home, particularly those who had jobs which required regional or global coordinating activities, so didn’t need to be in the office to see their team. It is also quite normal for men and women to work part time if they have children, but retain their management roles. So in other words the best way to motivate Dutch employees is to ensure they feel productive – that they can get a lot done in a short amount of time.

However, I overheard a pair of British managers in the hotel at breakfast talking about their Dutch colleagues. They agreed – “the trouble is, although the Dutch are efficient at getting things done, they just wander off on their own and do it, and you end up with everyone going their own way, it’s really hard to coordinate.”

Maybe this is why Japanese and British productivity, particularly in the services sector, is lower than the Dutch. We spend a lot of time coordinating and monitoring other people’s work rather than producing added value ourselves – perhaps too much time?

This article originally appeared in Japanese in the Teikoku Databank News and also is published in Pernille Rudlin’s new book “Shinrai: Japanese Corporate Integrity in a Disintegrating Europe” – available as a paperback and Kindle ebook on Amazon.

Save

Why the Japanese should be more like the British

A book about the British way of life – “The British clear cut, simple way of working: How they achieve results with the minimum necessary effort” – has just been published in Japan, written by Kazuya Yamazaki, who lived in the UK for 12 years, practising as an architect. He recommends that Japan adopt the British attitude as a way of dealing with an ageing, post-industrial society. This does, however, mean that Japan has to drop its “customer is god” belief.

He asserts Japanese business people experience unnecessary stress being pushed around by unreasonable demands from their colleagues and customers. The UK has the image of a mature, “country of gentlemen” where people try to get to the pub before it gets dark and give the impression of not working that hard. However, Yamazaki says, through meeting many types of British people in the course of his work, he has come to realise that the British people have the knowledge of how to live in a matured country and not to struggle for impossible growth.

He contrasts this with the “majime” of Japanese people. Majime is one of those untranslatable Japanese concepts – a mix of serious, earnest, honest, diligent, solemn. Japanese “read the air”, “are strict about punctuality”, “rigorous in their provision of customer service”, “try to do their work perfectly” it is said. Majime is of course meant positively, but can be the cause of excessive stress, he says, and I cannot but agree. And this is particularly bad, I understand, in Japanese architectural firms where I have heard it is the norm to sleep under the desk at night.

Yamazaki is keen to say he does not mean the British are not serious, rather that they have the secret of how to “unhunch” their shoulders and produce results, step by step. The key is to be warikitta “clear cut”, or rational in your thinking, Yamazaki stresses. For example, rather than aiming for 100%, aim for 70% if it achieves your objectives.

The customer and the supplier are equal in the UK, says Yamazaki. The British way of communicating reflects this. It may seem like they are being argumentative, but the idea is to debate, exchange opinions and through this find areas of compromise and pitfalls in each others arguments. “Good enough” may feel to Japanese like they have given up, but for the British there is no such negative connotation. It has two meanings – firstly, for present purposes, it is sufficient, and it is a decision not to make unnecessary efforts. Secondly, rather than try to achieve what has been decided, keep calculating backwards from the objective. Japanese people instead think too much about what should be, trying to do what has been decided in the way it was decided it should be done. Of course it is important to carry out what has been decided, says Yamazaki, but if you try to do it perfectly you end up taking unnecessary steps, which is a waste.

In a way it’s easier not to change, to just carry out what you have been told is the decision. To be flexible, and change as necessary, reviewing the problem, requires wide knowledge and experience. It may sound as if a “matured country” has no further way to develop, but Yamazaki thinks that if Japan could be more “clear cut” about what to choose and what to throw out, it could clear a path to the future.

Save

Why is there no Japanese word for ‘risk’?

Listening, or rather looking at the presentation of Kazumasa Yoshida, the CEO of Emergency Assistance Japan, I was yet again struck by the fact that there is no direct translation in Japanese for the English word “risk”. Yoshida even had a slide to define “risk”, with “risk” written as “リスク/risku” in katakana, which is the Japanese alphabet used for borrowed, foreign words. His definition of risk was the potential for a crisis to occur, which if then becomes reality, is a threat, and then when there is harm, is a crisis.

Crisis is “kiki/危機” in Japanese, and “kiki” is sometimes used instead of “risku”. This causes problems when trying to distinguish between risk management and crisis management in Japanese. Risk management then becomes two borrowed foreign words “リスク・マネジメント/risku manejimento” and crisis management is the entirely Japanese “kiki kanri/危機管理”.

I asked Yoshida why there was no word for risk in Japanese. He said it was indeed puzzling, when you considered how prone to natural disasters Japan was. His view was that it was something in the Japanese mind-set, that cannot deal with a crisis in advance, only if it happens in front of their eyes. This, he added, is why Japan has not coped so well in terms of preventing natural disasters from turning into wider crises, as with the Fukushima earthquake.

This kind of explanation can shade into the Myth of Japanese Uniqueness/Nihonjinron school of thought, which I am not so keen on. My preferred explanation is a mix of more universal psychological, geographical and religious influences. Most humans are bad at assessing and dealing with risk, vastly overestimating the probability of facing situations they cannot personally control (airplane crashes, terrorist attacks) and vastly underestimating the risk posed to them by situations they think they can control, such as crossing the road, or skiing. So it’s the very fact that Japan has had a history of massive and regular natural disasters such as earthquakes, volcanoes and tsunami, that causes a numbness to set in. The Japanese expression “carp on a chopping board” springs to mind. Apparently carp, when faced with a chopping board, know the end is nigh, so stop fighting it and face the inevitable.

This kind of acceptance of fate, and seeing struggle as a waste of effort, is very much a Buddhist teaching. And yet, looking out of the window of a bullet train in Japan, you can see the enormous but often useless efforts being put into preventing a disaster from occurring or having an impact in Japan – the concreting of the bottoms of mountains and the sides of rivers to prevent landslides and flooding and the huge concrete boulders and walls that cover the coastline. But the markers left by previous generations who survived tsunami, warning that houses should not be built beyond that point, were ignored.

Japanese companies are riddled with processes for double and triple checking, imposed after a mistake has happened. When a mistake does happen, it is usually covered up rather than dealt with. A participant in one of my seminars told me how a misdirected client confidential fax, which ended up on the private fax machine of an elderly Japanese lady (fax machines are still quite common in private homes in Japan) resulted in the old lady ticking off a senior director, who then immediately imposed a “fax buddy” system on the entire company – Japan and overseas. Any employee sending a fax must be accompanied and monitored by another employee.

This story found its way into an article in the Nikkei Asia Review, by Michael Stott, a Financial Times journalist who heard it at one of our Japan Intercultural Consulting seminars in Japan. As his article observes, “the painstaking decision making processes, the elaborate corporate hierarchies, the extreme fear of failure and the entrenched conservatism have not changed much” for Japanese companies over the past couple of decades.

Yoshida had a clear recommendation for what Japanese companies should do, namely, appoint an executive to be responsible for “risk”. They should not be someone who has been moved horizontally away from business line management because they are deemed to be no longer effective (which would be a classic Japanese corporate resolution). They need to have the ear of the President and be able command business units on what they should do. It should therefore be an important and recognised role – either for a specialist, or be made as a precondition that any President should have occupied the role. And they should be someone who, as he put it, “doesn’t run away.”

Yoshida said the question he usually gets asked is how he ended up founding the company – which, as the name suggests, provides assistance to Japanese overseas who find themselves in life threatening situations. It would seem in itself to be a risky venture, given that Japanese notoriously won’t pay for something which is simply a service. As a consultant to Japanese companies, I do indeed recognise this problem. He said when he was working for Yamaichi Securities in Paris, he came across a similar French company and thought Japan could do with such a service and then what with one thing and another…

He did not need to specify – the name Yamaichi Securities alone tells the story for Japanese business people. It was one of the most famous casualties of the 1997 Asian financial crisis and the uncovering of illegal trading which in turn was covering up losses made on client accounts. The company’s last president made a famously tearful public apology on television. Unfortunately, lessons in managing risk do not seem to have been learned twenty years’ on, with a seeming procession of Japanese Presidents bowing their heads in shame at unanticipated risks and covered up mistakes which escalate into full blown crises. Judging by the other reactions to Yoshida’s presentation, the audience at least will be lobbying their companies to appoint a senior risk executive as a matter of urgency.

“Japanese companies are too scared to touch their overseas acquisitions” – Nidec’s Nagamori

Shigenobu Nagamori, the billionaire founder of the world’s biggest manufacturer of micro-motors for hard disks and optical drives, Nidec, has acquired more than 40 companies in Japan and overseas. He comments in a Nikkei Business article that “you cannot just leave foreign acquisitions alone to get on with things by themselves. You need thorough mutual understanding and to even replace management if necessary.”

“Although you no longer hear about Japanese companies sending lots of managers over to their overseas subsidiaries who end up issuing all sorts of misguided directions, you now hear of companies who say ‘we think the same way as the counterpart management’ and so decide to buy the company and then just leave the management as is.”

“This is an illusion. Actually they are being left alone because the Japanese company doesn’t really understand what they are doing. It ends up with compromising on the necessary management reforms and profit targets.”

“I have regrets myself. We acquired 10 or so companies in Europe and North America from about 2010. We were warned by various companies who had M&A experience and financial institutions that we couldn’t restructure foreign companies the way we would Japanese acquisitions and that it was best to ‘leave it up to the foreigners’ otherwise they will quit”

“I thought that was true at the time. I also took on board the advice that Japanese managers needed to be people with Harvard degrees and a network amongst foreign executives.”

“However one company did not make any improvement no matter how often I set profit targets. I thought there must be something wrong with the company management as such a company should as a matter of course achieve profit margins over 15% but I was told that it was the limit for their industry.”

“In Japan you would try to persuade the management to adopt our “kaizen” knowhow (knowledge of how to improve) but we hit a wall with this in the West. So in 2012 we changed the management of the acquired company. But you can’t do it like pulling a trigger. I make a point of visiting each company at least once a year and have dinner not just with the executives but also the managers and discuss things with them. I also encourage them to send emails directly to me and I respond to them. I am trying to understand all the ideas people have for improving profitability.”

“It’s important that people in the company understand my thinking and I understand whether they are capable of understanding. If they are then it doesn’t matter if the CEO is changed. ”

“It’s the same in Japan. Communication is important. If you just cut back costs and improve profit, the company will not survive in the long term. Where is there waste, how can we make the most profitable products – the basics are the same in Japan or elsewhere. If this is understood, then overseas companies can be reformed too.”

“I think Japanese companies are too scared to touch their overseas subsidiaries. They overthink the differences. I used to be like that, but there is no need. The basics of management are the same everywhere.”

Japanese boards in Europe should reflect their customers, employees and community

I have just completed the first phase of research into how diverse the European subsidiary boards of the biggest Japanese companies in Europe are, both in terms of the nationality mix of Japanese and European directors, and also the number of women on the board.

More boards in Japan had women on them than in Europe, which is surprising if you were expecting boards to reflect the employee mix – particularly the pipeline of managers coming through the ranks of an organisation – as there are without doubt more women employees and proportionally more women managers in Japanese companies in Europe than there are in Japan.

The proportion of directors with European nationalities on the board of Japanese subsidiaries varied wildly from none in the case of Toshiba, Sharp and Fast Retailing (the Uniqlo subsidiary in the UK), through to 100% in the case of Asahi Glass, Bridgestone, Canon and Nidec. So national diversity does not seem to be influenced by which industry the company is in. This also means that what to me is the most compelling case for a diverse board, that it should reflect the customers it is serving, is not the key factor I thought it would be.

20 years’ ago, becoming less reliant on Japanese customers abroad as well as in Japan, was the driving force for many Japanese companies embarking on “kokusaika” (“internationalization”). Canon was a pioneer then in appointing Europeans to senior positions in overseas subsidiaries and does as a consequence appear to have fared better than other companies in the consumer electronics sector, both in Japan and in Europe.

The current favoured path to globalization for Japanese companies is through M&A rather than growing international businesses and executives internally, and the major acquisitions of the past decades account for the diverse boards of Asahi Glass (who acquired Glaverbel) and other companies that still have a high proportion of European directors such as Fujitsu (International Computers Ltd), Nomura (Lehman Brothers) and NSG (Pilkington).

There is some sectoral influence. For example, the financial services industry is under intense scrutiny by European regulators who have the power to approve board appointments. They expect directors to have deep understanding and experience of local markets – something which not many Japanese executives can claim.

Both Fujitsu and Hitachi have substantial public sector oriented businesses in the UK (government services, nuclear power and rail) which means that they not only need to meet the diversity requirements of government purchasing but also gain acceptance of the communities in which they operate. For example, the board of a Japan-owned UK utility recently advertised for a director, with a requirement that applicants be a customer of that utility.

For smaller Japanese companies, or those which are just starting in Europe, it is tempting to stick with a small board with just a couple of non-resident Japanese directors, but as boards come under pressure to have greater transparency and better governance in Europe, appointing local directors from the start should lead to better relations with regulators, customers and employees.

(This article first appeared in Japanese in the Teikoku Databank News in December 2015 and also appears in Pernille Rudlin’s new book “Shinrai: Japanese Corporate Integrity in a Disintegrating Europe” – available as a paperback and Kindle ebook on Amazon.)

Governance – interview with Yoshimitsu Kobayashi, external director at Toshiba and Tokyo Electric Power

Yoshimitsu Kobayashi, chairman of Mitsubishi Chemical Holdings, seems to be attracted to intractable problems. Not only has he become an external director of Tokyo Electric Power Company, post Fukushima but is now also a director of Toshiba, as it goes through a massive restructuring of its business, following its falsified accounting scandal (see our previous post – Toshiba – where did it all go wrong?). On top of all that he is also the chairman of the Japan Association of Corporate Executives.

Asked by the Nikkei Business magazine why he has taken on both TEPCO and Toshiba, he explains that he regards both as extremely important to the Japanese economy. “Nuclear power is a Japanese national policy, and Toshiba is a national policy company. If it is damaged, then it is damage to the whole Japanese economy” (as we explained in another post Shazai and the art of being a corporate shame magnet). “That doesn’t mean we have to preserve it at whatever cost. We need to be open about all the bad parts of Toshiba, and take responsibility for explaining what happened. Then we can rebuild. Governance needs to have concrete substance, not just on the surface.”

Nikkei Business calls 2015 “Year Zero of Corporate Governance” for Japan. Kobayashi says it will take 10 years to change corporate culture at the roots. Toshiba and TEPCO resemble each other, he thinks, in that TEPCO is learning to be a privately owned company, that looks after public infrastructure, which is similar to Toshiba.

“Aspects of Japan that had been good such as life time employment and seniority based promotion have now become a minus, and Japan has lost its competitiveness. Companies should not rely on politicians. It is not just about deregulating but changing the spirit behind the regulations.”

Kobayashi points out that while Japanese companies have been investing large amounts in overseas M&A, domestic M&A is still a fraction of that. There are 3 nuclear power companies, 8 car companies and yet 20,000 chemical companies. As a consequence, research and development is behind the West and China.

“What’s key is for Japan to keep hold of its traditional technical strength, but work out how to team this up with services.” “Mitsubishi Chemical Holdings is doing this – working on new materials, for the environment and healthcare… and also for light weight cars”.

Kobayashi also believes that top executives in Japanese companies should walk away once they have finished their stint as chairman. However he think that it takes 10 years at the top to really understand a company. The Toshiba system, whereby Presidents only stayed in post for 4 years, but then carried on for many years after as advisors was not healthy. “Maybe it’s because their remuneration is not as high as in the West that they stick around. Dow Chemical’s CEO is earning 50 times what I earn. Although Mitsubishi group companies don’t have so much cross shareholding in common now, we keep an eye on each other’s governance, so oldies are not allowed to hang around”

“Toshiba has a surprising number of businesses. In companies like that where there are many capable people, there are a lot of big fish swimming in small ponds. They think they are the company, and forget the public interest.”

Virtue or vice? “Hear no evil, see no evil, speak no evil” – Japan HQs in the Year of the Monkey

We have decided to celebrate in 2016 – with a series of lunch seminars for clients – the 12^th anniversary of the founding of our company. The excuse is that we have completed the full cycle of the Japanese/Chinese years, back to the Year of the Monkey.

Reflecting on the trends we have seen evolving over the past 12 years for Japanese companies, the most obvious development has been the increase in major acquisitions by Japanese companies of Europe-based multinationals. Most recently, Mitsui Sumitomo Insurance Group acquired UK Lloyd’s underwriters Amlin for £3.5bn and Hitachi has just finalised the acquisition of AnsaldoBreda and Italian company Finmeccanica’s stake in Ansaldo STS, for around €800m.

Both these acquisitions are representative of a structural change I have seen evolving in quite a few Japanese multinationals. Hitachi has moved the global headquarters of its rail business to the UK and it seems the Japanese insurance majors, who have all now acquired underwriting firms based in the UK, are hoping that their acquisitions will act as pivots for further global expansion.

Clearly Japanese companies are not just buying into a market with their acquisitions, but hoping that they have also acquired global management capability. Whereas in the past there were some examples of Japanese companies using their US subsidiaries to manage the global network, it seems now that Europeans are being asked to manage operations in the US and beyond.

This is partly due to another long term trend in Japan, which is the lack of “global jinzai”, particularly at senior management level, to manage overseas growth, but it also reflects the fact that European multinationals are used to managing companies scattered across many countries, in a virtual matrix structure. This means the heads of various business units or functions may not all be physically located in the same headquarters. European managers need to have strong, globally effective professional expertise but also good cross cultural communication skills to be able to manage teams remotely.

Europeans are comfortable with doing this in Europe and to some extent working with the US too. However working with Japan is still a new experience for most of them. They are often baffled by the fact that their professional expertise and remote communication skills are not enough to persuade or win support from Japan headquarters. Managers in Japan headquarters are only used to communicating with people who are physically present in the office. They tend to be generalists, who do not find arguments grounded solely in expert opinion all that convincing.

Unless conscious effort is made to overcome these communication barriers, Japan headquarters maybe behave like the three monkeys, who see no evil, hear no evil and speak no evil. In Japan my understanding is that this is seen as virtuous behaviour. However, in the West this is seen as ignoring problems and misbehaviour until it is too late. I foresee the next twelve years of my business as being about opening eyes, ears and mouths on both sides of the world.

This article originally appeared in Japanese in the Teikoku Databank News on 13th January 2016 and iis in the introduction of “Shinrai: Japanese Corporate Integrity in a Disintegrating Europe” by Pernille Rudlin, available on Amazon as a paperback and ebook.

Category: Management and Leadership