M&A

Japanese management by telepathy and Ninja skills does not work for overseas M&A

The precis below is from an article written by Chieko Matsuda (Executive Director of Booz Allen Hamilton in Japan) for Nikkei Business Online’s “Corporate Governance for Everyone” series, in Japanese, but I felt as I translated it, that it was my own words, so completely do I agree with what she is saying:

Japanese companies often have an “overseas business development unit” to carry out their global M&A. However the mission of this organisation should change depending on the stage reached in expanding overseas. Even if it starts as “business development”, it often turns out that it has to manage the subsidiaries as well. So at the same time as stepping on the accelerator to grow the business, it is supposed to press on the brake, as a shareholder and auditor. When it comes up with solutions to this dilemma, nobody will help the unit out, claiming that “overseas business is your specialist area”, and “nobody speaks English in our unit”

The audit function needs to be strengthened – Japanese companies are far too weak when it comes to risk management with regard to their overseas operations. It is necessary, if expanding overseas, to “control through structure” and review rules, processes and formats. Japanese style management through telepathy will not work for overseas M&A.

In order to design the structure in detail, it is necessary to decide on the direction. What the company should not do, and what it should preserve. If this is left vague, then it will lead to a sense that “we have no idea what the parent company is thinking”.

The top priority therefore is to set the corporate mission and values. What are we trying to do, how will we do it, which way are we facing – it is control through corporate culture as well as through structure.

The corporate vision needs to be concrete, and something that can be translated in an understandable way into many languages. It should be a base for making decisions – to go left or right – not just pretty words.

If the corporate vision and culture is not secure, then it is difficult for diversity to take root. WIthout diversity, the company will not be competitive. A homogenous workforce was efficient for labour intensive production, but we are now in an era of competition of ideas and innovation. New ideas and innovation require a diverse workforce, and what will unite a diverse workforce is common corporate culture and vision.

It is of course partly up to the top management to communicate this corporate culture and vision, but middle management must also be able to use it within their teams. It can’t just be about “reading the air” in the traditional Japanese Ninja way. What do you do if there is a claim from a customer? It cannot be resolved through kiai (“fighting spirit”) and konjou (“guts”). Wouldn’t it be convenient if you had a touchstone, for when there was a problem to be solved?

If you are being acquired by a Japanese company, you may be interested in Japan Intercultural Consulting’s (represented by Rudlin Consulting in EMEA) post merger integration services.

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Mitsubishi Heavy Industries – feminise and foreign-ise to stop being fossilised

The cover story for the Nikkei Business magazine (JPNS) for October 20th 2014 is somewhat doom and gloom,claiming that Mitsubishi Heavy Industries’ reforms were too slow, and it’s now in the last chance saloon. The four part special includes an interview with the president, Shunichi Miyanaga, who has been leading the reforms and also a handy checklist so you can make sure your Japanese company hasn’t also become fossilised like MHI. One of the items on the list is whether “You have lots of Japanese expatriate staff, and the local hires view them as the secret police”

The online counterpart to Nikkei Business also has an interview with Christina Ahmadjian, an American who has lived in Japan for 17 years and is now a professor at Hitotsubashi University, who was appointed as an external, or “outside” as they say in Japan,director of MHI in 2012. She’s also on the board of Eisai, the Japanese pharmaceuticals company. Needless to say, she speaks fluent Japanese – and was also an “accidental Office Lady” in her past, at Mitsubishi Electric.

She termed MHI “super-Japanese” for its slow decision making and initially did not want to take up the role. Her friends cautioned her, saying there are plenty of other Japanese companies who are more advanced in their reforms that she should consider. However the then President and chairman took her presentation to the board very seriously, which led her to decide to “try it for a year, and quit if it didn’t work out”.

She continues this un-Japanese attitude by regularly asking in board meetings “who is accountable” and asks for specific commitments from anyone who uses the typical Japanese vague term “kento shimasu” (we will study this further). She also insists that strategic rather than technology related subjects are discussed in the board meetings.

President Miyanaga has also changed the board meetings, through reorganising the company into four domains, and decreasing the representatives accordingly to the board, which has allowed for smoother discussions. Ahmadjian says she is surprised by the speed at which Miyanaga has moved, and also how careful he is to share all information with her, including on any M&A activities. Previously, Japanese companies had been reluctant to involve external directors as they were concerned that confidential matters would be leaked.

Nonetheless, MHI is still slow compared to the foreign competition, she says. MHI is beginning to appoint non-Japanese to senior positions overseas but there is a lack of candidates internally. It’s not always the case that it is easier to get rid of people in foreign companies, she argues – in Europe the unions can be very strong and she suggests that some Japanese companies are using legal barriers as an excuse not to restructure, and are in fact “zombie” companies.

“I am a watch dog, making sure MHI do not slack off on their reforms” she concludes.

The 4 types of Japanese expat manager

Susumu Okamura, a veteran of Daiichi Life, DIAM in the US, UBS Global Asset Management and a Columbia MBA alumnus, believes experience of secondment to another company is a must for survival in the global economy. Thanks, however, to ‘Naoki Hanzawa’ (a TV series in Japan about a heroic salaryman banker), being seconded to another company has a thoroughly bad image in Japan. However in global companies, where spin off companies are multiplying, being seconded has become part of management development.

Foreign business people are particularly enthusiastic about being sent to manage acquisitions or struggling subsidiaries. They see it as a valuable chance to put their ideas into action and do things their own way, says Okamura.

Okamura views joining your first company as a second birth, with being seconded to another company as a third rebirth, but unfortunately many Japanese managers do not see it that way. Okamura sees four types of secondees:

The depressive – who has dropped off the elite track of the headquarters, so becomes disillusioned and loses his spark. However they are often given an important role in the subsidiary company, so they are the worst kind of boss for the employees of the subsidiary.
The look backer – who wants to make headquarters regret pushing him out by producing great financial results. Tries harder than the depressive, but his aggressive, inflexible management style can warp the subsidiary
The phlegmatist – has the same laid back style wherever he goes. Works steadily, doesn’t try to change anything.
Mindset changer – is thrilled at the chance to start a new chapter in a new organisation, pursuing new dreams

As Okamura says, in traditional Japanese companies, secondment damages your chances of becoming a top executive in the headquarters. “But I want to ask instead, is it really fun to stay in the headquarters? What are you learning which is of value in the marketplace? Do you think that value will still hold in 10 years’ time?”

“We are in the middle of a diversity boom. However, unfortunately in many cases, the foreigners, women, mid-career hires and the disabled that are hired all end up being ‘dyed the same colour’. It’s not obvious why diversity was such a reason for hiring people. But being seconded is different – there is an unshakeable diversity to having to become part of a different corporate culture.”

Japanese firms might gain from looking to outsiders for insights

At the beginning of our training sessions with Japanese expatriate managers, I describe to them the positives and challenges Europeans say they face when working in Japanese companies. If I have already done similar sessions with Europeans in that company, then I also highlight those aspects which are specific to the company or were give a particular emphasis.

You can probably guess what the common positives and challenges are. The European employees usually say they find their Japanese colleagues are polite/friendly/calm, take a long-term view and have a high degree of commitment to their jobs and the company. The challenges that they find are communication problems centering on indirect/direct communication styles and attitudes to conflict, and also the long-winded, nontransparent decision making processes.

It is often said that Japanese people are more than usually curious about how they are perceived by other cultures. Certainly my list of common positives and negatives arouses great interest among Japanese participants. However, when I try to turn it into a debate about the company’s culture – asking questions like, “Do you think your company is more or less nemawashi (consensus based decision making) oriented than other Japanese companies in your industry?” – there is hesitation, a few tentative comments, and then thoughtful silence. It is almost as if such questions had never been considered before.

As lifetime employment has been so prevalent in these large companies, and still is for the majority of employees, the opportunity to compare the company you chose to join at the age of 22 with another company only arises once – during the graduate recruitment process. Because this a career-long commitment, both the graduates and the companies put a great deal of effort into the process of finding out whether there is a good fit between the candidate and the company culture.

But the actual nuts and bolts of working in a company – how decisions are made, attitudes to process, risk, hierarchy and so on – are not made so explicit, because the candidates have never worked in a company before and have no way of identifying these characteristics. If you are going to stay at the company for the rest of your career, then you just accept that “this is the way things are done around here.”

Now that more Japanese people are changing employers, and mergers between companies are increasing, it is surely time to be more aware of these differences, so that adjustments can be made by employees and companies.

Some insights will of course come from the job hoppers themselves, but it might also be time for Japanese companies to lose their allergy to using outside consultants. As a consultant myself, I would say this, but consultants who have worked with a range of companies probably have the best overall view of how Japanese companies differ from each other.

As the British writer Rudyard Kipling famously put it, regarding English insularity, “And what should they know of England, who only England know?”

This article by Pernille Rudlin originally appeared in the The Nikkei Weekly

“Japan is different, but other countries are different, too” – Takeda’s Weber

Japan’s annual shareholders’ meeting season at the end of June went relatively smoothly for most companies, as their results had improved, in part due to the impact of a cheaper yen. Takeda was one of the exceptions, however, with the new President, Christophe Weber, facing protests from a 100 or so shareholders, more than half of whom were ex-Takeda employees.

Their 7 point letter claimed that the acquisition of Nycomed and Millennium Pharmaceuticals were failures, that the way Takeda was globalizing and the low morale of scientists in Japan called into question management effectiveness, that the way Weber was appointed as Hasegawa’s successor was questionable, that the focus on the executive management committee, largely peopled by “foreigners” was causing the board meetings to become a mere formality, that it was not clear why high dividends should be paid out when the financials were worsening, and finally that responsibility was not clear for the fine of $6bn in the US for concealing the risks for Actos, a diabetes drug.

Diamond Online analyses why Takeda is being criticised “from within”. Takeda was at a high point in 2006, but in decline since then, as four of its blockbuster drugs came off patent in the US. The search for new hit drugs led down the path of M&A. Takeda was the dominant Osaka pharmaceutical company, squaring up against Sankyo the Tokyo-based pharmaceutical giant. Behind the scenes, however, there were merger talks between the two. In the end Sankyo chose to team up with Daiichi.

So Takeda embarked on overseas acquisitions – Denmark’s Novo Nordisk and then Millennium in the USA in 2008, and finaly Nycomed in 2011. These acquisitions required substantial post merger restructuring, however there was noone capable of this in Takeda. The management layer below Hasegawa was “thin” ( a problem common to many Japanese companies, who cut back hiring of that cohort during the first oil shock). Hasegawa appeared isolated, and reliant on foreign executives and Japanese executives who had worked in foreign companies (in other words, not including the indigenous Japanese within Takeda)

Weber’s recent interview in the Japan Times, in which he emphasises that Takeda will remain “Japanese” is an attempt to reassure the Takeda founding family and domestic Japanese management, but whether an interview in English in Japan Times (an English language daily) is sufficient is doubtful. A charm offensive on the Nikkei group of publications might be advisable.

Hitachi’s new President, Toshiaki Higashihara Q&A

As blogged previously, Hitachi announced their new President and COO Toshiaki Higashihara, on January 8th. The Nikkei Business magazine’s Q&A with him in the 20th January edition asked him for his views on how Hitachi was going to grow, and what would change.

Higashihara emphasised “One Hitachi”, bringing together services, products and solutions to address customer needs such as energy saving and improving productivity. The differentiator for Hitachi against Siemens and GE being that in the infrastructure business, Hitachi can also bring ICT skills and solutions around cloud computing and big data.

A sense of speed is needed, he added, and this means that not all decisions should be made in Tokyo headquarters. R&D, purchasing and ICT systems should be looked at in a global context. He also made positive noises about further acquisitions.

What will remain constant is Hitachi’s 100 years of “monozukuri” (making things/craftsmanship) and SQDC: Safety, Quality, Delivery Time and Cost.

It seems Higashihara was close to current President Nakanishi (who becomes Chairman and CEO), as a kohai (protege) and also brings global experience – a masters’ degree in computer science from Boston University and was President of Hitachi Power Europe.

First non-Japanese CEO in Takeda’s 230 year history

Takeda, Asia’s largest pharmaceutical company, caused a sensation in November when it announced that it intended to appoint Christophe Weber, a French 47 year old outsider from GlaxoSmithKline, as its next CEO, subject to board approval. Not only is he not Japanese, but he is much younger than the average Japanese President, and he is the 20 year old veteran of another rival company.

He was not unknown to Takeda however, as he was key member in the collaboration between Takeda and GSK on a vaccine joint venture. However, when I discussed this appointment with the President of a Japanese start up company in the same healthcare sector he was not impressed – “a paucity of management” on the current CEO Yasukichi Hasegawa’s part, he harrumphed.

Hasegawa himself had been appointed by Kunio Takeda, scion of the founding family, in 2003, with Takeda stating “I’ve reached the limit of what I can do to globalize the company”. Hasegawa took up the baton, acquiring US cancer R&D company Millennium Pharmaceutical in 2008 and Swiss biotech company Nycomed in 2011. He tried to retain many of Millennium’s executives such as CEO Deborah Dunsire, who also joined Takeda’s unusually “diverse” board which includes Japanese American “Tachi” Yamada, President of Global Health at the Bill and Melinda Gates Foundation and Frank Morich, ex Bayer. However she resigned in 2013 as a result of the restructuring that Hasegawa pushed through, to integrate Millennium more fully into Takeda and streamline operations.

Apparently, a couple of years’ ago, Hasegawa said he wanted to have a Japanese person succeed him. He felt that diversifying the structure and bringing in non-Japanese was going to take time to show results, and he would have to pass the baton on before then.

Although my healthcare industry CEO used “paucity” to describe Hasegawa’s management capability, it seems from this that there is a paucity of internationally capable management within the Takeda home country organisation to carry on and support the bold moves that are being made – a situation many globalizing Japanese companies are facing.

5 conditions for successful Japanese cross border M&A

SoftBank’s acquisition of Finnish mobile games maker Supercell in 2013 for $1.5bn did not grab the headlines to the extent its $21.6bn acquisition of Sprint did, but Nikkei Business in its December series on cross border M&A points to it as evidence of the final characteristic necessary for successful acquisitions – “animal spirits” – a hunger for growth with the acquisition showing the direction in which Masayoshi Son wants to take the company.

The Nikkei Business magazine goes on to conclude the series with “Five Conditions for Success” in cross border M&As:

1. Do not go near M&As without a concrete and detailed management strategy for what will happen after the merger

2. Set up a specialist team within the company, which investigates target companies and draws up shortlists

3. Be very strict on the contents of the agreement. It will be vital when unforeseen problems occur after the acquisition.

4. For cross border acquisitions, the key is to motivate the management team in the acquired company. However a proper agreement must be put in place regarding switching to other companies and performance based compensation.

5. Make preparations in advance for all kinds of scenarios. Although it’s hard to predict events like the Lehman shock, preparations will help with coping with change.

I would add a few to that. For example, whilst it might be best to take some time before making radical changes to the acquired company, symbolic changes such as taking the parent company name relatively early on help focus the two companies on “what is different now” and “what we have in common” and stop both companies from sliding back into their pre merger habits, with the acquired company feeling neglected and directionless.

Try to bring the acquired company executives into the HQ fold as soon as possible. Even though it’s best to delegate to them the authority they are used to, it’s also important for them to understand how to socialise their proposals through nemawashi with their peers in the headquarters. Actually moving to Japan seems to have been a step too far for many non-Japanese executives, but frequent business trips should be encouraged and supported. Perhaps even a mentor could be appointed.

Finally, as the Nikkei Business itself points out, it’s actually the Japan HQ that needs to change if their acquisitons are to succeed.

If you are being acquired by a Japanese company, you may be interested in Japan Intercultural Consulting’s (represented by Rudlin Consulting in EMEA) post merger integration services.

Successes of cross border M&A #6 – Terumo

When Terumo, Japan’s biggest medical device maker bought CaridianBCT from Gambro AB for $2.63bn in 2011, it was expected that the head of Terumo’s BCT unit, Hiroshi Nagumo, would take over as CEO of the new Terumo BCT company. However Nagumo decided to appoint the CEO of CaridianBCT, David Perez, as CEO instead, with Nagumo reporting into him as SVP and GM for Japan. Perezalso became an executive officer on Terumo’s main board and the headquarters of Terumo’s blood management unit was moved to CaridianBCT’s base in Colorado.

Nagumo says he made himself “Number Two” after objectively considering whether he could really perform as “Number One”. At the time Terumo’s total turnover was Y328bn,of which the blood management unit represented around Y25bn. CaridianBCT’s turnover was double that at around Y50bn. A third of the combined company’s sales were to the USA, and around 20% to Japan.

“When I thought about appointing myself as the CEO, and leaving the headquarters in Japan, I realised that I would always end up thinking about the customers that I had known the longest, the doctors in Japan” and that this would be counter to the objective of the acquisition, which was to develop new products and expand market share globally.

In 2012, the sales of the combined company’s blood management business actually fell in Japan, but thanks to growth overseas, the total turnover rose 4.1%.

As Nikkei Business points out in their series on cross border M&A last month, in the past when Japanese multinationals acquired companies overeas, they tended to send in Japanese managers to run them, but this does not work so well if, as in this case, the acquired company is larger than the acquiring company’s own business in that sector. It can lead to the demotivation of the staff in the acquired company and loss of customers.

However Terumo did reshuffle the management, and had a strong sense of how they wanted to proceed after the acquisition. Nagumo had been preparing a project called “Unite” from a year before the acquisition – it aimed to integrate sales, customer service and logistics across the two companies. Terumo fitted itself to CaridianBCT’s structures, except in Asia, where Terumo was stronger than Caridian, so a different structure, where Terumo’s operations there became TerumoBCT’s representative dealers.

It took a year to discuss, and then in 2012 it was announced as a one “fell swoop” integration – “we did not want to take so long that customers became confused” says Nagumo.

Production is taking longer to integrate. Decisions have to be made about what products will be made in the factories in the USA, Japan and Northern Ireland. On the other hand, Terumo’s quality control management has been introduced into Caridian’s operations already. As a result, claims have dropped to a quarter of the level before the acquisition.

Not everything went smoothly – Perez was amazed at the number of meetings deemed necessary by Terumo before a decision was made. At the same time, Terumo was puzzled as to when a decision was made, when it had not been properly “socialised” within the company. “A certain amount of time has to be allowed to understand what is different, culturally”, says Nagumo. In 2013, former Terumo staff will be posted long term to the USA and in 2014, former Caridian staff will be posted to the Japan office.

As a result of the success of the BCT business, Terumo has also moved its artificial heart business to the USA, a unit it purchased from 3M in 1990. As the Nikkei comments – it’s a nice illustration of how to make sure a post merger management structure fits market and customer needs.

If you are being acquired by a Japanese company, you may be interested in Japan Intercultural Consulting’s (represented by Rudlin Consulting in EMEA) post merger integration services.

Japan’s M&A boom – a way of forcing globalization?

I was reading the last chapter of a book (The 1990s and beyond (pdf)) I wrote which was published in 2000 about the history of Mitsubishi Corporation in London, and was reminded that I had come up with a concept of “forced globalization” to describe what Japanese companies might need to do to truly globalize, based on their experiences up to the 1990s. Much of what I said still holds true, but what I had not anticipated was the surge in cross border acquisitions by Japanese companies as another route into globalization these past ten years.

My view then was that Japanese companies will not “naturally” globalize, in a business-led pursuit of profitable growth, because of the “representing Japan” mindset of companies such as Mitsubishi Corporation, and the fact that so much knowledge creation and business creation is in Japanese and the Japanese staff feel most comfortable with keeping it that way.

I proposed that human resource-led “forced” globalization – starting with globalizing the management, might be the only way to break the mould.The graphic I produced to illustrate this is not in the pdf, so I have reproduced it here:

“Natural” globalization:

“Forced” globalization:

I was imagining Japanese companies would continue doing what we attempted at Mitsubishi Corporation in the 1990s, which was to hire and develop more non-Japanese people, in the hope that they would then create more global business. This strategy still continues for many Japanese companies, but as I predicted, takes time, and often the non-Japanese employees quit before it bears fruit, through frustration.

Acquiring an overseas company is an instant way to globalize the business, and in theory should instantly globalize the management. But as described in previous posts, often the overseas managers are kept at an arm’s length.

The bottom line from all of this, which has not changed at all in the past decades, is that Japanese companies will only do what the Japanese employees of that company see the need to do. The majority of Japanese employees are not likely to want to become global themselves – it is too far out of their comfort zone. Nor do they want to bring non-Japanese into their circles as this would be a threat to their own careers and status in the company. Nor do they want to be actively involved in the management of the overseas subsidiaries – the risks of being associated with any failure are too great.

The constructive message of this, however, is it is therefore up to the employees and management of the acquired company to take the initiative and ask to integrate with the Japan parent – just as the Brazilian employees and managers at Schincariol asked Kirin to change the company name to Brazil Kirin. Japanese executives are familiar and happy with complying with requests that come from “bottom up” and represent the consensus views of a group of employees.