Reputation

What Japanese companies can learn from HSBC’s compliance struggles

Descriptions of the difficulties faced by the UK multinational bank HSBC in 2015 reminded me strongly of the challenges faced by Japanese companies which are trying to globalise through acquisition. 2015 should have been the year in which HSBC celebrated 150 years since being founded in Hong Kong by British and Anglo-Indian merchants as a trade finance bank. Unfortunately this was marred by a tax evasion scandal at its Swiss private banking arm.

HSBC acquired a Swiss private bank in 1999, a few years after it acquired Midland Bank, one of the UK’s “Big Four” retail banks. Then in 2003 it acquired Household Finance, a US consumer finance operation. Up until this diversification of the business, HSBC managed its network of operations through a tight knit group of expatriates (all male until 1989) who were generalists, who had been trained like army officers in a Hong Kong “mess” (similar to a Japanese company dormitories), and were therefore trusted enough to be sent around the world to be the “man on the spot”.

This group of generalist managers found it difficult to control businesses that they knew nothing about, in countries they were not familiar with, so local executives from the acquired company were allowed to continue controlling those businesses. Unfortunately the scandal at the Swiss private banking arm was not the only failure of this approach. Two years ago HSBC had to pay a US$1.9bn fine to US authorities for failing to stop the laundering of drug money through its Mexican operation – the banking and financial services company Bital that it acquired in 2002.

If leaving control to local managers is too risky, should Japanese companies who are acquiring overseas subsidiaries continue to try to exert control through Japanese expatriates? This is neither practical, nor the solution. There seems to be a shortage of suitably experienced Japanese managers who can be sent overseas. And like the HSBC expatriates, they are generalists, and will therefore find it hard to understand what is going on in specialist areas of the business in a foreign country.

Without the Japanese expatriate acting as a liaison, conduit and interpreter however, the foreign executives soon find themselves swamped by endless requests for information from the Japan headquarters, supposedly for compliance and risk management purposes. They try to respond to as best they can, but get nothing back in return. It can lead to a sense of not being trusted, and confusion as to the right direction to take.

For HSBC, the solution proposed by many commentators and the CEO himself is to do with having a strong corporate culture and values, and processes for communicating them globally, along with rigorously implemented compliance policies. If this is in place, then a certain degree of autonomy can be given to local managers.

For Japanese companies, where human relationships are so important, to ‘process’ and ‘values’ I would add ‘people’. In future articles I will look in more detail at these three elements and suggest some practical steps to take.

This article originally published in Japanese in the Teikoku Databank News 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.

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Shazai and the art of being a corporate shame magnet

I let out a quiet cheer recently when Mitsubishi Materials, a sister company to my old employer Mitsubishi Corporation, started down the road of apologising for using slave labour in WWII. I used to be on the receiving end of campaigns for apologies and compensation from British Prisoners of War (PoWs) when I was in corporate communications at Mitsubishi Corporation and had many debates with my Japanese colleagues on what the right response might be.

Mitsubishi Corporation is a completely different company now in terms of ownership and structure to the Mitsubishi conglomerate during the war. The founding Iwasaki family was, however, not only pro-British, but also Iwasaki Koyata, the President during the war, was liberal and progressive in inclination, and rather bravely (given that other business leaders were assassinated for not being supportive of the militarist coup) spoke out against the war. The view amongst many Mitsubishi people after the war was – it was the government that forced these actions on Mitsubishi then, and it was the government that rightly said sorry and paid compensation to the PoWs afterwards. If there was a need to punish Mitsubishi as well, then the fact that the Iwasaki family and most of the senior managers were removed from their posts and the conglomerate was broken up under the Allied Occupation is surely sufficient.

Why apologise when it is not your fault – and wouldn’t such an apology be meaningless, almost insulting anyway? Actually there is a word in Japanese for apologising when it is not your own personal fault, but some kind of collective acknowledgement of responsibility is needed – hansei. It means reflection on what went wrong, an expression of regret for it having happened – “it shouldn’t have happened” and, most importantly, a commitment to take action to make sure it doesn’t happen again. You can see why successive Japanese prime ministers who weren’t personally involved in the wartime government might have thought this word adequate, as it appears to reiterate Japan’s commitment to remain a pacifist nation.

However equivalent words with the same linguistic roots exist in Chinese and Korean languages and consequently, Chinese and Korean activists do not accept hansei as being strong enough. The problem is it doesn’t contain enough shame. Owabi is a stronger word for “apology”, and contains a character which involves the symbol for “household”. This was the word used by previous Prime Ministers Tomiichi Murayama and Junichiro Koizumi, in addition to “hansei”, when apologising for Japan’s actions during WWII. By saying owabi, you are being remorseful and acknowledging the shame brought upon your group – whether it be your family, company or country.

Whether current Prime Minister Shintaro Abe will or won’t use “owabi” in his speech marking 70 years since the end of WWII has added poignancy, because not only will he be recognising the shame brought upon Japan (which could argue with some justification that at least it didn’t vote for its fascistic government in the 1930s, unlike Germany) but there is a family angle too. Abe is the grandson of Nobusuke Kishi, a Class A War Crimes suspect who was never tried for his part in the Japanese occupation of Manchuria and the use of Chinese forced labour, and went on to become Prime Minister himself in the 1950s.

In societies with elements of Shintoism or Buddhism or Confucianism underpinning it, as in Japan, Korea and China, apologizing on behalf of your predecessors or ancestors is hard to do. Not so much out of a sense of unfairness, but because you are visiting shame upon their memory, when they are no longer alive themselves to deal with it, and so the shame will simply be visited upon you and your peers and family. It feels like an unproductive humiliation, to be forced to attack your forebears, whom you were taught to respect.

The more usual pattern in Japan is for the father or elder to apologise for the sins and errors committed by the junior family members. This was seen most recently when Akio Toyoda apologised following the arrest of Julie Hamp, his personal appointment as Toyota’s global corporate communications chief, for illegally importing opiates into Japan. He even referred to her as one of his own children and then apologised for causing consternation to everyone, rather than any breaking of the law. The words used were yet another way of saying sorry – taihen moushiwake gozaimasen – “there is no reasonable explanation/excuse”. With this he became the shame magnet, taking the hit for Toyota not having somehow prevented her from making a mistake.

Universalist Westerners found this apology perplexing. Their view is that she was an idiot for not realising what the law was, or a criminal for deliberately breaking it. She should therefore be punished, and then maybe can rebuild her career after redemption. Universalists believe the rules are the rules and apply to all, without exception, in contrast to particularists, who take each case on its own merits, depending on the relationships of the people involved.

The Judaeo-Christian view as represented in the Old Testament is somewhat confused – both stating that the sins of the fathers will be visited on the third and even the fourth generation, but at the same time making it clear that the person who sinned is the soul that must take responsibility and be punished. Modern Western ethics, while seeing it as unfair that future generations should be punished for past generations’ wrongdoings, also insist that current generations acknowledge the crimes of the past in order not to repeat them.

In this sense, there is a common thread between East and West. Shame and admission of past guilt are both mechanisms for making sure that the sin is not committed or recommitted – because it is not just you, but your sons and daughters who will suffer the consequences.

By choosing to apologise in English, in the USA, Mitsubishi Materials avoided an oriental linguistic and ethical minefield, for the time being. The question of whether or not Mitsubishi Materials should accept shame will undoubtedly come up when, as they have promised, they apologise to Chinese and Korean forced labour survivors. I sense they were able to start with the apology in English as a warm up to this, with coaxing from Yukio Okamoto, a retired diplomat and renowned smooth operator who is now an external director at Mitsubishi Materials. He does not have to worry about the shame brought on his predecessors, as he is not an insider, and he also probably made sure the word “remorse” was used in English. I would imagine he also understood well the Western mentality that it is not about a Buddhist sense of collective shame so much as a Christian individualistic need to confess sins, publicly take the punishment and thereby gain redemption, allowing all to move on. Or as popular psychology would have it, giving the victims a sense of closure, which will make everyone feel better as a result.

Post confession, there is a sense of relief and a way to move on and move forward – and that is why I cheered when I read the coverage of Mitsubishi Materials’ apology – everyone behaved with dignity and sincerity and there was a sense of positivity. The Japanese participants seemed to have overcome the fear that with shame, there is no redemption, it endures, and it affects the whole group.

The worry is that if the shame magnet-father figure is not strong enough, the wider society will keep pressing until a bigger magnet is found. This is currently being played out with Toshiba’s accounting scandal. Despite the top executives resigning, bowing down for a record breaking 15 seconds of shazai (another word for apology, which contains the character for sin or guilt) and using the word owabi, the pressure keeps on. Hardly a day goes by without someone in the media questioning whether the root causes have really been exposed and whether enough has been done to redress them.

When the Nikkei announced its acquisition of the Financial Times, many Westerners commented that the Nikkei gave Olympus too easy a ride for its financial misconduct, unlike the Financial Times’ investigative approach. Compared to Toshiba, Olympus is not as iconic a company in Japan, therefore there was less sense of a wider reaching shame. Toshiba, however, was one of the Denden Kousha ‘family’ (suppliers to NTT when it was part of the ministry of telecommunications) and continues to be very tangled up in government industrial policy – most recently in joint ventures with another shame magnet, TEPCO of Fukushima infamy, acquiring a majority share of US nuclear power company Westinghouse in order to promote Japanese nuclear power capabilities overseas. Hisao Tanaka, the President who led the apologies and resignations, is seen as the fall guy. Even though his predecessors also resigned, the worry is that the shame is not just on Toshiba, but the Japanese political-industrial nexus as a whole. As Mitsubishi Materials has shown, the industrial side of Japan is beginning to find their shoulders are broad enough to take the hit and move on, whether the political side is too, Abe is about to demonstrate.

Famous in Japan, utterly unknown in Europe

25 years ago I became one of the first ever graduate trainees at the London office of the US public relations consultancy Burson Marsteller. Burson Marsteller told me they were starting various joint ventures with Dentsu in Europe, so it seemed like a great opportunity to use my interest in Japan and my communication skills to support Japanese companies who had been arriving in Europe in increasing numbers in the past decade.

PR in Europe at the time was mostly staffed by ex journalists, focused on producing press releases, and wining and dining journalist contacts so they would write favourably about clients. Changes were in the air, however, which is why major PR consultancies like Burson Marsteller were starting to hire and train new graduates to be “communications professionals”.

In the late Eighties, the Big Bang revolutionised the City of London’s investment banks and stock market, and nationalised industries were being privatised. I was assigned to a corporate PR team, looking after British Gas (which later became Centrica) and a building society, which was thinking of floating on the stock exchange.

They were both facing the new pressures on companies to communicate to stakeholders. Not just to their new shareholders, but also to the communities in which they operated. They needed to show they could still be trusted, even if they weren’t owned by the state, or by account holders. There was also a need to polish their reputation so they could attract high potential graduates.

Japanese companies in Europe have the same needs – now as they did then – but unfortunately I do not think much progress has been made these past 25 years. There are so many companies which are famous in Japan but are either utterly unknown in Europe, or the name is familiar, but there is no notion of what they do, or whether they are good corporate citizens.

Nothing came of the Dentsu joint venture twenty five years ago, but I see now that Dentsu itself has started acquiring companies in Europe and other Japanese PR and advertising companies are strengthening their presence here.

Not only do Japanese companies have foreign shareholders to keep happy, but if they are to succeed in overseas social infrastructure projects, they must ensure that the communities affected are informed and welcoming, and that the best overseas graduates view them as a prestigious place to work.

This is not just a Japanese problem – I recently participated in a survey which I assume was commissioned by Siemens. The survey asked whether I knew that Siemens had been in the UK since 1843, was one of the largest graduate employers in the UK, with 12 factories, and involved with all kinds of sustainable energy and infrastructure projects. I was ashamed of my own ignorance of this, but amused to see that one of the competitors they were benchmarking themselves against was my old client, Centrica.

This article was originally written in Japanese for Teikoku Databank News and also appears in Pernille Rudlin’s book “Shinrai: Japanese Corporate Integrity in a Disintegrating Europe” – available as a paperback and Kindle ebook on Amazon.

“White hands, yellow hands” – the early days of IBM Japan

Takeo Shiina became president of IBM Japan in 1974, at the age of 45. He joined IBM Japan just after studying in the US in 1953. “In those days, gaishi (foreign owned companies) were seen as bad. A major newspaper wrote a series called “White hands, yellow hands” basically saying white handed gaishi were “dirty” and that they would disrupt the markets in Japan, make lots of money and take it all back to the US.

“The Ministry of International Trade & Industry also did all they could to support domestic computer manufacturers. They passed a special law so that the amount of tax that IBM Japan paid every year was recycled into supporting Fujitsu, NEC and Hitachi.”

Shiina took the brave decision to study in the US, after graduating from Keio University because his father had also studied abroad, in Germany, and so he was not afraid of becoming a foreign student. As for joining IBM, the auditor of his father’s company knew the President of IBM Japan and suggested it to him, He trained at the IBM plant in Canada and was shocked when he returned to Japan, to find that IBM Japan’s main office was in the middle of a bomb site. The factory was also just an old Japanese house, with a strong smell of a cesspit toilet as you walked through the door.

Shiina became head of the factory at the age of 32 and started a new site up as well as inadvertently offering the first ever online system to a steel factory. He assumed that IBM must be doing that sort of thing in Europe and the USA, but actually it turned out there was nothing to copy.

The contract was also tricky, in terms of persuading IBM HQ in the USA to accept it. Due to a mistranslation of “this is no problem in Japan” as “in Japanese this is no problem” IBM HQ finally accepted it, as noone could read the original Japanese anyway.

Shiina is proud that IBM Japan is now seen as a desirable company to work for, particularly in terms of opportunities for women, and having performance based pay. His interview with the Nikkei Online, the basis of this precis, is illustrated by his calligraphy which reads “Building a new country – young people, women, regions, foreigners”.

What I think about Japanese employee engagement – it’s all in the family

Somebody writing a white paper on the reason for low engagement amongst Japanese workers contacted me this week with some questions, which I answered (possibly in more detail than was helpful!) as follows:

As you may have gathered from the articles I have written, I am cautious about applying Western standards, using surveys which are basically translations of (usually American) methodologies and materials, to Japanese companies.

Whenever I find something that is puzzling about Japanese companies – in this case that employees in Japanese companies have consistently lower engagement levels than companies with other countries of origin – then I use the framework developed by Fons Trompenaars and Charles Hampden-Turner, in Riding the Waves of Culture, which classifies Japanese companies as “Family” type companies, as distinct from Missile type companies or Eiffel Tower type companies or Incubator companies. Please see http://changingminds.org/explanations/culture/trompenaars_four_cultures.htm for a summary.

For Family type companies, the primary motivation is to put food on the table and look after the members of the family, and secondarily the long term survival, and therefore the reputation of the family and its acceptance by the community in which it is based. In Missile type companies motivation is more about success – personal and the company’s and therefore being materially rewarded and recognised for your contribution to that success. Eiffel Tower companies are about believing in and executing the strategy and being rewarded through promotion/status. In an Incubator company, your motivation is self fulfilment – to have a job which makes the most of your skills and interests, and make a difference or do something new.

If you think of Japanese employees as members of a family, and replace “company/employer” with the word “family” then you can quickly see that they will have trouble answering questions in employee engagement surveys which are more suited to Missile, Eiffel Tower or Incubator companies. For example, “would you recommend your family to others/are you proud to tell people you belong to/work for your family” – when it would be seen as boastful to tell others what a great family you have, particularly for modest Japanese people – and traditionally it’s been very difficult for people to join big Japanese family style companies later in their careers, so why would you recommend it to your friends? You wouldn’t say – hey why don’t you leave your family and be adopted by mine?

Families all pull together, nobody expects to be rewarded individually, and if they were this would cause big arguments and accusations of favouritism. So again, there is likely to be a negative to neutral response about being rewarded or recognised or able to make an individual contribution/impact.

Families don’t have strategies, mission and purpose other than, as I said above, long term survival and protection of their reputation. So questions about whether you understand the mission and purpose and strategy will be tough to answer. Japanese employees are used to doing what they are told by mum and dad, and the mission of the family is implicit, not explicitly explained.

So if you asked Japanese employees different questions about their motivation, like “do you feel confident or secure that your company will look after you and your family in the long term” or “do you believe your company acts in the best interests of the community and therefore gives you the opportunity to contribute to the community too” then they might be much more positive.

Even questions about teamwork are tough to answer for Japanese employees – you would expect your family to be supportive and work well together because you know each other so well, so Japanese companies don’t spend much time thinking consciously about teams and individual roles within those teams. They are also, like families, very well aware of each others’ flaws and also the flaws of their seniors – mum and dad – who are the leaders but also just ordinary people who happen to be older – you didn’t choose for them to be your parents.

So Japanese do tend to be highly critical of each other and their companies in general – but just like families, are extremely defensive if someone outside the company/family tries to criticise it.

Overall, I would say, even if you asked more culturally sensitive questions in an employee engagement survey, (by the way, even the word ‘engagement’ has no direct translation into Japanese), you would probably still uncover a motivational problem. Japanese companies have gone through a very tough 20 years. Many of them are still struggling to find their “raison d’etre”, and are having to make unpleasant decisions about axing businesses, which means that their employees do not feel as secure and protected as they used to, nor do they feel that their company is making the contribution to society it used to. Plus the number of “contract” staff has increased to over 30% of the workforce now – these are not members of the family, and have none of the benefits the family members do.

Even the family members are being forced into taking very early retirement (basically redundancy) and the younger family members are wondering whether staying inside the family until retirement is quite as attractive as it used to be – as so many are not getting married or having children, they have less need for a secure and protective employer.

What we did at Fujitsu was to refresh the values and vision, to try to come up with something that made sense inside and outside Japan. We communicated them internally and externally, with a new visual identity and some very emotionally driven advertising about contributing to society through supercomputers etc. Interestingly, the Japan side of Fujitsu were not so keen to have workshops about the values and vision but the one thing they did do was to compile a book of stories of individual employees, – called something like “the power to challenge” in Japanese, translated into “Fortune Favours the Brave – the Fujitsu Way”. So it was celebrating individuals, but again in a very family type way, which is to create some new inspiring family myths/stories.

I think this is what Japanese companies have to do – they usually have some great stories about what the founding fathers did – they need to revisit these, but also develop some new stories about the younger generations. That should help employees feel more motivated – about their ability to contribute individually but also that the company/family can do great things as a whole – in the future, not just the past.

Families like to tell good stories!

If you want a different perspective on this, you may want to speak to my US colleague, Rochelle Kopp, the founder of Japan Intercultural Consulting – she has just published a book in Japanese on why Japanese employee motivation is so low, and I think an English version is due soon. She takes a more HR systems approach – her basic point is that “jinji idou” – the rotating staff system whereby employees have no say in where they are posted – is a key demotivator.

“Japanese managers have been brainwashed by the West” and should aim to be ‘virtuous companies’ instead

An interview with George Hara, currently Chairman of Alliance Forum and former board member of various Silicon Valley start ups as a venture capitalist kicks off Nikkei Business’s attempt at finding a new standard for evaluating Japanese companies, beyond the shareholder capitalism model.

Instead of “Good/Best company”or “Great Place to Work” and all the other awards you can get, the Nikkei proposes ‘Yoi‘, which can be translated as ‘good’ but is probably better translated as ‘virtuous’. They even deliberately write the headline ‘Yoi kaisha‘ (‘Virtuous company’) in Japanese brush stroke calligraphy.

Hara doesn’t think the term ‘stakeholder capitalism’ quite covers what he and the Nikkei are getting at, even though he says the company should be measured on the benefit to employees, customers, partners and regional society as well as shareholders. He prefers ‘shachu‘ (which my dictionary translates as clique or troupe) or public benefit capitalism – meaning that all the concerned parties have a common objective.

He particularly criticises the way companies in the US – the home of full blooded shareholder capitalism – such as Hewlett Packard or Dupont find that putting shareholder interests first means firing people even when there are record breaking profits, or not being able to invest in long term projects to develop technologies which will benefit society.

Japanese corporate leaders used to be much more inclined to public benefit capitalism, and the cause is not lost yet, says Hara – citing that when he showed the great and the good of the IMF around Tokyo’s underground system recently they were full of praise for how clean, orderly and busy a city supposedly suffering from a 20 year recession was. Japan should be setting its own standard for the rest of the world, he feels.

Following on from this, Nikkei Business have come up with a Yoi company metric, based on profit, changes in employee numbers, corporate tax contribution and share price over the past 10 quarters for 3841 Tokyo stock exchange listed companies and the top 10 are:

Softbank
Fast Retailing* (Uniqlo) (Yanai, the founder and also board member of Softbank is quick to throw this back in the face of those who have termed Fast Retailing a “black company”)
Keyence
Fanuc (the current target of shareholder activist Daniel Loeb)
Yahoo
Aeon Mall
Rakuten
Mani (medical devices)
Japan Tobacco
Takeda Pharma *
Central Japan Railway
KDDI
ABC-MART
Sumitomo Real Estate
USS　(car auctions)
Astellas Pharma*
Toyota*
SMC (automatic control equipment)
Nakanishi (motor spindles, micro grinders)
Trend Micro (security solutions, founded in the USA, HQ in Japan)
Sysmex (healthcare)
Hisamitsu Pharma
Komatsu*
Terumo
Canon*
Honda*
Makita
Nitori Holdings (furniture)
Shimano
J Trust

Other of our Top 30 Japanese companies in Europe* in the top 100

Bridgestone #41
Denso #46
Sumitomo Electric Group #51

In our Top 30 in Europe but not in the Top 100 Yoi companies:

Fujitsu, Ricoh, Sony, Asahi Glass, NSG, Toshiba, Hitachi, Panasonic, NTT Data, NYK, Fujifilm, Olympus, Mitsubishi Chemical Holding, Nomura, Nidec, Sharp, Daiichi Sankyo, Kao, Seiko Epson

Why Mitsubishi executives rarely represent Japanese business

The heads of the Japanese Chamber of Commerce and Industry, the Keidanren (Japan Business Federation)and the Keizai Doyukai (Japan Association of Corporate Executives) are considered to be the three key positions for business and industry in their interactions with government – to influence government policy and “receive ministerial guidance” in return. So business and political commentators always like to speculate and analyse who has been chosen and from which company, and why.

When the appointment of Yoshimitsu Kobayashi, the current president of Mitsubishi Chemical Holdings as the new head of the Keizai Doyukai was announced in November of last year, Nikkei Business magazine jumped on it as an opportunity to look at how the corporate culture of the Mitsubishi group (keiretsu) is perceived by the Japanese corporate world.

Apparently Kobayashi’s appointment had the unanimous support of the Keizai Doyukai members and his contribution as a member of the government’s Industrial Competitiveness Council also stood him in good stead. It’s also thought that he will step down as President of Mitsubishi Chemical Holdings in 2015 so will be able to devote himself full time to the association.

Kobayashi stated that he “wants to be involved in economic activism from the basis of contribution to society [corporate social responsibility]” – presumably an echo of the “kaiteki” philosophy he espoused at Mitsubishi Chemical Holdings, and also to counter the kinds of accusations that the Nikkei Magazine journalist himself goes on to make, which is that the Mitsubishi group of companies has so far been seen as being mainly concerned with protecting its own members’ interests.

The Nikkei points out that no member of the Mitsubishi group has headed up any of the three organisations for the past 20 years. Yorihiko Kojima, current chaiman of my alma mater Mitsubishi Corporation, the group’s trading company, was mentioned as a possible successor to lead the Keidanren, but in the end Sadayuki Sakakibara of Toray was chosen, as it was felt that it was better to have a manufacturer at the helm. Hideaki Omiya of Mitsubishi Heavy Industries was also in the frame, but rejected because of MHI’s involvement in the defence industry.

All these appointments, it seems to me, can be explained by the way Japanese businesses strive to be seen as socially responsible and ethical and as representative of Japan’s self image as a nation, as much as it is about political connections.

Mitsubishi is usually contrasted with the Mitsui group as being “organisation” focused whereas Mitsui is more about “people”. I’ve asked many Japanese business people what this means in practical terms. Apparently when dealing with Mitsui, internally or externally, who you know and who they know is the key to getting business done, but with Mitsubishi, the individual is less important than getting the organisation to work for you. The Nikkei says it means Mitsubishi group companies are motivated to do things only by how the group will benefit as a whole, which accounts for the caution with which they are treated by other companies outside the group.

So why was Kobayashi chosen? Partly because there were no other candidates, says the Nikkei. Lawson President Takeshi Niinami (who is actually a Mitsubishi Corp alumnus, and Lawson is a Mitsubishi group company, so I think the Nikkei might be overstating the case somewhat re Mitsubishi’s lack of involvement) has been poached by Suntory Holdings so is out of the race for such positions. Also many Presidents are too busy with global competitive pressures to spend the money and time needed to head up the top of a business group.

The Keizai Doyukai is also seen to be losing influence. It was close to the opposition Democratic Party of Japan, but now the ruling LDP has revived, the Keizai Doyukai has lost its raison d’etre. “I was worried during the vetting process, but I slowly began to realise it was something I had to do” says Kobayashi, which Nikkei terms a rather innocent comment – “Kobayashi is being viewed somewhat coldly by those around him.”

Oxford Boat Club vs Japan’s “Black” companies

Maiko Tajima, formerly of KPMG, now working for the World Food Programme, explains in Diamond Online why the rest of the world does not understand Japan’s so-called “black” companies. As she points out, if a native English speaker heard “black company” they would probably think “black enterprise” was meant, ie a company run by someone of what in the UK would now be called “black or minority ethnic” origin. Apparently there’s also a series of novels written by an American author called The Black Company.

Anyway, the closest translation would probably be “sweatshop” but most in the West would think of this as referring to factories, or workshops, in the US or Europe in the 19th and 20th centuries, and more recently in developing countries, and find it hard to believe Tajima when she explains that such conditions are occurring in a developed country such as Japan, in the 21st century. A recent survey of its employees by Sukiya, a late night restaurant labelled a “Black Company” revealed comment such as “regardless of night or day, put all your life into your work, and if you survive, then you get to give the orders next time” and “work until your nose bleeds and you faint. Then you won’t be able to say anything is impossible any more”.

She explains how this occurs by contrasting her experiences as a member of the boat club in Oxford and also of a fencing club in a Japanese university. In the Japanese university club, the concept of “sempai” (seniors) was strongly adhered to – she calls it a “caste system”. You could not eat before your coach and your seniors started eating. Practice was to see how much you could endure. If they felt you lacked “konjo” (guts, willpower), it was the collective responsibility of the rest of the club too, so you all had to sprint around the sports hall. Tajima did get results in her matches, but she is not sure to this day if the “guts” she had at that time has really helped her in her life since.

As a member of an Oxford University Boat Club, there were of course the early morning, 5:30am starts on the river, that had to be endured over several months, but the reason behind this was “doing what we had to, to win” – starting with the desired outcome and working backwards.

The team was multicultural – American, British, Indian, Chinese and Taijma herself, and teamwork was heavily emphasised, but only in terms of getting the team to be a winner – there were no bonds outside the boat club. You were also allowed to make suggestions as to what should be done. “It was not what you could or could not endure, just what was the most rational course of action in order to win.”

As she points out, in European countries such as the Netherlands, there is the right to leave work 2 hours early, if the previous day you worked two hours overtime, and plenty of maternity and paternity leave. The focus is on trying to have a “good life” both in work and home life, as part of government policy.

She thinks that the roots of the 21st century Japanese “black companies” lie in the kinds of behaviours described by Ikujiro Nonaka in his book “The Essence of Failure” – an organisational study of the Japanese armed forces in the Second World War – emphasising human relationships over rationality, and to strive for spiritual virtue, no matter what had to be endured.

“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.

6 reasons Japan is behind as a global brand

Prof Noboru Sato, of Nagoya University and formerly of Honda Motors and Samsung gave the following 6 reasons (article in Japanese) that Japan is behind, not only in the globalization of business, but in terms of global cultural influence – in the arts and sports and also the strength of “Brand Japan”. Many will come as no surprise to Japan watchers:

1. Education

Fewer Japanese students are studying abroad and Japanese universities are slow in increasing the number of foreign academics they hire. As Sato acknowledges, Japanese universities need to make their academic staffing more meritocratic if they want to attract the best in the world.

2. Young Japanese not working abroad

Sato points to how Japanese companies have not been proactive in hiring “returnees” – Japanese graduates who have spent part of their education overseas. However, and I would concur, he acknowledges this has changed recently, and many companies have been taking steps to hire foreign employees and returnees in Japan. But, as Sato points out, Japanese companies do not make any distinction in terms of pay or promotion prospects for people who have Masters degrees. This makes them an unattractive prospect for returnees and foreign graduates.

3. Uncompetitive education

Although Japan has very high literacy and numeracy rates, its educational spending as a proportion of GDP is one of the lowest in the world. In other words parents in Japan are footing the bill. Computer literacy is lower than most developed countries.

4. Industry’s lack of global competitiveness

All the famous names in electronics have been suffering recently – however Sato sees some grounds for optimism that they may regain their strength.

5. The penetration of Japanese food culture

Sato gives the first 4 reasons a fairly cursory explanation but really goes to town on this one – he’s clearly had one too many bad “Japanese” meals abroad. In Sato’s view, the “fake” Japanese restaurants, run by non-Japanese, in Europe, North America and South Korea, are ruining the Japan brand, as are the recent scandals in Japan’s own restaurants and department stores, where lower grade foods were passed off as higher grade, or wrongly stated to be from specific regions.

6. Tourism

Japan ranks #33 in the world for tourist numbers, and South Korea, with half the population of Japan, ranks 23rd. Japan should be attracting more tourists given the richness of its culture and food.

Sato concludes that much of this could be solved if there was more sense of a need for competitiveness, from primary education onwards, in Japan. There needs to be more external stimulus and awareness of the need to be competitive relative to other countries. He does not give any concrete proposals on how this is to be achieved, however. In a sense Japan has got itself in a virtuous (or vicious) circle, in that it has become one of the nicest places to live in the world, so why would Japanese people feel any sense of urgency to compete with or live in other countries, which seem more dangerous and insecure – and as for the food…

Category: Reputation