Can Japan Inc find its purpose again?

Part I of 2

George Olcott speaking at G1 Global Conference 2022

With clear vision and purpose, Japanese rebuilt their country from the ashes of WWII. Yet once great companies such as Toshiba, NEC and Fujitsu have since withered under increased global competition. Can Japan Inc repurpose itself, in a more globalized and competitive world? A panel of experts speaking at G1 Global Conference 2022 in Tokyo discussed the topic late last year.

The panel argued firms place employees’ interests before that of shareholders, raising existential doubts about the ability of corporate Japan to survive.

During its high growth years, 1950 - 1973, Japan reinvested corporate profits to expand sales and market share. Today, it must ensure shareholders earn acceptable returns while under fierce global competition from countries like Taiwan, China, Korea and the United States. “Japanese companies must produce the kinds of returns necessary to attract capital “or they will not survive,” warns G1 panelist George Olcott.

Olcott is among the few foreigners with a deep expertise of corporate Japan. In the late 1990s he worked, as CEO, to bring western-style business practices to the asset management subsidiary of Long-Term Credit Bank of Japan, following the subsidiary’s acquisition by UBS AG. During that period, the firm transitioned from a 100% Japanese firm to a 100% foreign owned company. He also has a long experience as a board member of 7 Japanese firms, including Tokyo Stock Exchange listed Nippon Sheet Glass.

According to Olcott, postwar firms in Japan are communities which exist mainly to serve Japanese employee interests. Their purpose is to perpetuate a 'club' of mostly Japanese males who entered the company straight from university. Western companies, on the other hand, employ a more flexible and diverse workforce whose purpose is mainly to maximize shareholder wealth.

Recent voices call for western companies to embrace a broader set of objectives beyond serving the interest of shareholders. Olcott too believes company purpose should not only be about maximizing shareholder value. But it must include it, if firms are to remain viable.

In a follow-up interview, Olcott told this author that tight-knit workplaces have many good features.

Strong community creates meaningful places for employees to contribute to society. Workers enjoy high levels of trust because people learn each other’s strengths and weaknesses. "Salarymen feel part of the same family — even if they don't necessarily like all the family members," he says.

Japan’s employees enjoy job security. Firms look after them from cradle to grave, although not necessarily within the same firm. "Even if they get tapped on the shoulder, as many people do in big Japanese companies, they will be found another job."

Strong ties have disadvantages, though. Salarymen typically work long hours at jobs and locations of the firm’s choosing. Sometimes, they must transfer to distant cities, separated for long periods from children and wives. "There is much pressure" on workers, Olcott admits.

The biggest danger, however, stems from there being too much harmony and too little diversity. There is danger of ‘groupthink’ arising in the workplace, because, “everybody thinks in the same way.” As a result, management often fails to consider the wider environment when deciding important issues.

For example, firms, even global companies, often focus on Japanese competition rather than on what foreign competitors are doing. They still focus on achieving topline sales, overlooking the need to produce sufficient returns for shareholders.

When the current CEO rises to become chairman, he chooses a successor from inside the community in his own likeness—perpetuating the inability to change. “That’s become a chain around the neck of Japanese corporate competitiveness,” he thinks.

To become more profitable, management must ask: Which markets are we competing in? Who are our competitors? What resources do we lack and what do we need to compete in those markets?

“We need a bit more ‘Milton Friedman’ in Japan,” says Olcott.

Part 2 of this two-part article will be delivered shortly…

Richard Solomon is an author, publisher and spokesman on contemporary Japan. He posts Beacon Reports at beaconreports.net