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A significant factor that affects corporate governance in Japanese companies, particularly when it comes to whistle-blowing, is the sempai/kohai (senior/junior) dynamic. These relationships are particularly prevalent in large Japanese companies that retain lifetime employment systems.

Typically, when a Japanese graduate joins a domestic blue-chip firm fresh out of school, he or she will already have acquired a few sempai – literally, “person in front” – who are senior to them in the company hierarchy. There is also an implication, it seems to me, that a kohai comes from or has ended up in the same place as the sempai.

So these sempai may include the person who recruited the graduate on campus, and therefore hails from the same university, or the person who the graduate first shadows in their new team. Or perhaps it could be someone in another part of the company who is linked to the graduate via shared family, friends or neighborhood. Sempai often become mentors, and even more often, strong factions develop among sempai and kohai in a particular department or business unit.

Executive-level appointments are usually negotiated through factional horse-trading and strong sponsorship from sempai. Conversely, it can be very hard to remove someone or shunt them out of the way in the organization, however incompetent, if they have a strong faction backing them.

Strong ties of loyalty and also obligation therefore join sempai and kohai together, cemented over the roughly 30-year career life span of each employee.

It is thus easy to see why it’s so hard for anyone to blow the whistle on corporate malpractice, or even to point out damaging mistakes. In general, Japanese and other Asian cultures avoid causing other people in their group to publicly lose face; causing a sempai to lose face is almost unthinkable. When it does happen, you can be sure there has been irreparable damage to the sempai/kohai relationship and an emotionally explosive situation has developed.

In this world, it’s tough to be a professional services firm – such as a management consultancy, law firm or auditor – advising from the outside. You may diagnose problems that are clearly damaging and need to be fixed according to your professional code of practice, but you will be warned by the client that you are in danger of fraying the delicate web of intra-company relationships with your prescriptions.

I have even heard of one young auditor who was told by a client that if he refused to sign off on an audit because of a long-standing misrepresentation on the books, then he was going against his own sempai in his auditing firm. In the past, the sempai had happily signed off on the discrepancies.

Taking a stand as a matter of principle, or in the pursuit of what you believe to be the truth, is a hugely brave – some would say downright stupid – thing to do when it harms the people you are completely dependent on.

This article originally appeared in the 31st October 2011 edition of the Nikkei Weekly

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Last updated by Pernille Rudlin at 2020-09-30.