GERHARD FASOL
Physicist. Enterpreneur. Board Director. Japan M&A.
O C T O B E R 1 9 , 2 0 1 3 B Y G _ F A S O L
Japanese management – why is it not global? asks Masamoto Yashiro at a Tokyo University brainstorming Lecture summary written by Gerhard Fasol, with revisions by Mr Masamoto Yashiro. All Rights Reserved. Contact us by mail Receive an email with a link to download our article on Japan’s Corporate Governance reforms when you register for our newsletters:
Masamoto Yashiro: Japan leader and Chairman emeritus of Esso, Exxon, Citibank, Shinsei Bank Masamoto Yashiro at brainstorming by President of Tokyo University Masamoto Yashiro is a legend in Japan’s banking and energy industry. He built Shinsei Bank from the ashes of the bankrupt Long Term Credit Bank of Japan, and served in leadership positions (Chairman, CEO, Board Member) in Esso, Exxon, Citibank, Shinsei Bank, and the China Construction Bank. Tonight a small group of about 60 people were invited to join Masamoto Yashiro and the President of The University of Tokyo, Professor Junichi Hamada, for an evening workshop and brainstorming event about globalization of Japanese corporations at The University of Tokyo. Participating were a selected group of The University of Tokyo graduates, faculty, and selected alumni from several elite Universities associated with The University of Tokyo, and currently working at major Japanese trading companies, Ministry of Finance, financial firms, global consulting firms and other global firms. After The University of Tokyo President Junichi Hamada’s introductory words, we heard Masamoto Yashiro’s fantastic overview of how he thinks Japanese companies need to change and why, followed by Q&A, then by a brainstorming session in the format of changing groups of four on about 15 separate tables between the participants, and then followed by buffet and drinks reception. Topic of the evening was the globalization issues of Japanese corporations, also discussed in our work about Japan’s Galapagos issues: The Galapagos Effect (American Chamber of Commerce in Japan) Japan's Galapagos effect (Galapagos syndrome) Japan's Galapagos effect How to turn 'Galapagos' into a competitive advantage in both directions (Embassy of Sweden, Stockholm School of Economics)
About Masamoto Yashiro () Wikipedia pages: Masamoto Yashiro (English) (Japanese) Masamoto Yashiro graduated from Kyoto University (Law Faculty) in 1954 and The University of Tokyo Graduate School in 1958, and entered Standard Vacuum Oil Company. In 1964 he became Director of Esso, and later Special Assistant to the Chairman of Standard Oil New Jersey, and in 1986 President of Esso Sekyu KK. In 1989, Masamoto Yashiro moved to become Japan representative of Citibank NA, and Chairman of Citicorp Japan in 1997. IN 1999, Masamoto Yashiro became CEO of New LTCB Partners CV, the company emerging from the bankruptcy proceedings of the Long Term Credit Bank of Japan, and was in charge of the revival of LTCB as Chairman and CEO, with investment from Ripplewood Investment Fund, creating today’s Shinsei Bank. He resigned as CEO of Shinsei Bank in 2005, but returned as Chairman and CEO in 2008, from which he retired in 2010. In 2004, he was appointed Director of the China Construction Bank.
Masamoto Yashiro (former Chairman of Shinsei Bank, Chairman of Citicorp Japan and President of Esso Japan, Director of China Construction Bank)
Japanese management – why is it not global? What should we do? asks Masamoto Yashiro Note: this record was reviewed personally by Masamoto Yashiro, who made some corrections.
Japanese management – why is it not global? Outline: Some people may argue that Japanese companies need not be global. Why? We must accept that English is an essential tool for international communication. Some impediments that Japanese companies face: 1. The traditional approach is not effective in developing future leaders. 2. The Japanese-style board structure is not appropriate to ensure sound corporate governance. 3. Management structure needs to be changed to suit a global business. 4. The current limited role of foreign nationals in the management and board structure What should be the most important corporate objective? Concluding remarks
Masamoto Yashiro (standing at the podium on the right hand side) presenting and President of Tokyo University Junichi Hamada (sitting on the left) listening
Summary of Masamoto Yashiro’s talk: Some people may argue that Japanese companies need not be global. Why? Some superficial discussions about “Japanese companies” contrast “permanent employment” and excellent pensions in Japanese companies with jobhopping and bad pensions in other countries, however, Masamoto Yashiro points out that during his time at Esso and later Exxon, most employees stayed 20-30 years at Exxon, and received excellent pensions, so “permanent longterm employment” or pension system has nothing to do with globalization, and Japanese leading companies are no different than leading companies in other countries in these respects. We have to search elsewhere for the causes of current problems most Japanese companies are facing. Around 1990, about 20 years ago, Japan was extremely self-satisfied by the successful reconstruction after the war and economic growth and success, and Japan felt that Japan does not have anything to learn from others. This time is now over, Japan is in stagnation, and many Japanese companies are not globally competitive, and Japan and Japanese companies must change to become competitive again.
We must accept that English is an essential tool for international communication. Masamoto Yashiro is convinced that Japanese companies must globalize, and must make English a business tool. He feels it is a great disadvantage that Japanese political and corporate leaders, when participating in international conference, such as Davos, mostly need to use interpreters, and this reduces their global impact and exchange of ideas dramatically.
Some impediments that Japanese companies face: 1. The traditional approach is not effective in developing future leaders. The traditional approach in Japan is to rotate career employees every two years between totally different functions, in order to “develop well-rounded managers”. The result of this process are non-experts, which are not expert in anything. As an example, during his leadership at Shinsei Bank, Masamoto Yashiro once requested a meeting with the IT Department leadership. To his great surprise 60 people turned up for the meeting (he had expected 2 or 3). He asked the Department Chief for particular information, and he could not understand the question and could not answer, same result one management lower. Only at the third layer from the top, Masamoto Yashiro could get his question answered – the top two management layers could not answer his questions about the work of the IT Department. Quite generally there often far too many people at meetings at Japanese companies. When at Exxon in the US as a relatively junior manager, Masamoto Yashiro, was asked about his opinion regarding the termination of a particular jointventure relationship with a mid-size petroleum refining company in Japan known then as who had financial trouble. Exxon had a 50% interest in this company and its relations goes back to very late 1950’s. In late 1985 at the Exxon Management Committee meeting in New York, all other managers favored to terminate the relationship with this joint venture partner in trouble in order to limit financial exposure, while Masamoto Yashiro argued that it was better to support the troubled partner and assist him with Exxon staff and expertise to return to profitability. To his great surprise the Chairman and his superiors at Exxon sided with his recommendation and changed their previous position following his advice. Generally he felt that in the USA his opinion as a Japanese manager was highly valued, because it provided a different view point. In his experience in Japan the situation is totally opposite: Japanese senior management generally does not listen to junior employees, and particularly not to foreign nationals in the rare cases that there are any in Japanese companies. In fact, the most frequent question senior management at Japanese banks ask, is not for original ideas or creativity from junior staff, but instead: “What do other banks do?” This deplorable Japanese situation even contrasts strongly with the situation in China, where Masamoto Yashiro was a Director of the China Construction Bank: in China leaders moved from Government agencies and Ministries to Banks, and to private industries and back. Generally Masamoto Yashiro expressed the view, that the development of leaders is totally inadequate in Japan, and is better in China than in Japan. In addition to the inadequate development of leaders in Japanese companies, the number of foreign nationals in management, Board and other leadership positions in Japanese companies is minute, there are no programs to attract and develop foreign nationals in leadership positions. On the contrary, when Shinsei Bank showed losses in the aftermath of the Lehman shock, Japan’s Financial Services Agencies ordered that Shinsei Bank must pay all foreign nationals on exactly the same pay levels as Japanese employees. Since foreign nationals typically have much higher schooling and other costs in Japan than Japanese staff, essentially all non-Japanese staff at Shinsei Bank left soon after. Leaders can make a real difference. How leaders are selected is of utmost importance. At Exxon, senior management devote specially reserved time to identify suitable candidates for future leadership positions, “who can potentially be our CEO in the future”. The selected candidates are given special attention and special opportunities to train and develop their leadership abilities. Masamoto Yashiro has never heard about such special leadership development programs at Japanese companies.
2. The Japanese-style board structure is not appropriate to ensure sound corporate governance. In Japan, Board Members are almost always managing employees of the company, so the question arises who’s interests they represent on the Board. Do they represent the interests of the institution (the company), the employees or the interests of the shareholders. In Japan often the CEO of the company after his retirement remains as a Chairman for several years, keeps his office, secretary and company car, and creates large other expenses. Why? Probably because Japanese CEO pay is too low, so that the CEO does not wish to retire gracefully. This is totally different in Western companies where retired CEOs leave the company and have no further role in the company in most cases. Masamoto Yashiro mentioned the retired Chairman of Exxon, who after his retirement naturally travelled by taxi. In Japanese it would be unthinkable according to Masamoto Yashiro that the retired Chairman of a major corporation would travel by ordinary taxi cab like ordinary people (Masamoto Yashiro did not mention subway or bus, or driving his own personal car….)
3. Management structure needs to be changed to suit a global business. In non-Japanese companies in almost all cases have a thorough performance evaluation system. When performance is evaluated, the resulting distribution must be similar to a normal distribution, i.e. with considerable part of employees at the high end and substantial numbers at the low end of the performance curve. If this is not done, top performers cannot be sufficiently rewarded and will leave the company, while low performers would hold the whole company back. In most Japanese companies on the other hand, if a thorough performance evaluation is done at all, in most cases a huge proportion of employees are just evaluated as average, satisfying performance, without clear distinctions between top and bottom performance. Promotion and salary on the other hand in traditional Japanese companies is purely according to age, which leads to many problems, and causes underperformance of the whole company. These problems are increased by the fact, that Japanese companies typically do not give the same evaluation or opportunities to non-Japanese nationals.
4. The current limited role of foreign nationals in management and board structure. Even in the rare cases where foreign nationals are employed by Japanese companies in management or leadership positions e.g. in foreign subsidiaries, often junior Japanese employees which much lower rank and local knowledge do not respect and bypass non-Japanese management, and there is typically no fair evaluation system, evaluating Japanese and non-Japanese management according to the same standards of performance. The change of this mindset (to keep non-Japanese out of management or leadership positions at Japanese corporations) is extremely important. The change of mindset (to keep non-Japanese out of management or leadership positions at Japanese corporations) is not difficult at all and can be done quickly.
What should be the most important corporate objective? When considering corporate governance it is important to develop a view on the objectives. When discussing the interest of shareholders, it is important to ask “which shareholders”? The interests of large shareholders who may own 10% or 20% of the corporation, or the interests of individual smaller shareholders? Other stake holders’ interests also need to be taken into account. In general, Masamoto Yashiro expressed the view that both the institution’s (the company’s) and the shareholders interest are best served by stable longterm growth of the company. He mentioned as an example Exxon which showed triple-A rating and annual rate of growth of 15%-17% for over 100 years.
Concluding remarks. Around 1990 Japan was self-satisfied with the economic success, and Japanese people thought that they have nothing to learn from anybody. This time is over now, and Japan and Japanese corporations much change to regain growth and to become competitive again.
Professor Junichi Hamada, President of The University of Tokyo, listening to Masamoto Yashiro’s talk
Japanese management – Q&A with Masamoto Yashiro (selected questions) Q. You want Japanese companies to change. What are the good things you want Japanese companies to keep? A. Loyalty. Consideration to stakeholders. Q. Your work at Shinsei. A. Communication was most important. When Masamoto Yashiro took over at Shinsei, the Bank has just gone through bankruptcy proceedings, so the moral was extremely low. Masamoto Yashiro had to reestablish optimism and moral. To do so, communication is most important. Masamoto Yashiro held weekly telephone conferences and every employee who wanted to could participate: from top management to cleaning staff/janitors. Everyone could come forward with his concerns. Another fact was that there were so many traditions which made no sense. For example, female employees with University degrees would wear their own clothes, while female employees without University degrees would need to wear company uniform. There was an issue that lower paid staff had difficulty to afford appropriate clothing for bank work – so Masamoto Yashiro decided to award a clothing allowance to employees so that they could afford appropriate clothing. Q. Many Japanese companies cannot hire young employees, because they cannot fire/discharge non-performing older employees. A. Firing/discharge of non-performing employees can be done by paying adequate severance compensation. Considering that a non-performing employee who remains on the payroll for several years in addition to salary also creates a lot of secondary costs, it is typically cheaper to pay an appropriate severance package, and most people are happy to leave with an appropriate severance package, and often move to a more suitable position at a different company – this helps everyone. Of course some companies want to save money at all cost, and fire employees without adequate package and that can lead to problems. Q. Having worked much of your career at global oil or energy companies, what to you think about Japanese oil companies? A. Japanese oil companies are not really oil companies, because they do not invest enough upstream. Q. Leadership? A. Japanese companies must change. The mindset must change. Q. University of Tokyo? A. University of Tokyo at the moment I think is ranked on 30th or 40th position globally in most rankings, maybe top in Japan or in Asia, but that does not count, we need to look at the whole world, not just Japan or Asia. I think University of Tokyo should make the changes necessary be at least in the top ten globally. To get into the top ten globally, University of Tokyo needs to hire outstanding Professors where the best students from the whole world want to come and study. To get the best Researchers and Professors University of Tokyo has to pay what is necessary. Does not matter which language, English or Japanese or any other language. No outstanding student from other parts of the world wants to study Japanese first before studying at University of Tokyo. University of Tokyo should make the necessary changes so that the best students from top Universities globally also want to come to University of Tokyo. Mr Masamoto Yashiro’s talk and Q&A were followed by a brainstorming session in groups among all participants of four about globalization, and global leadership development.
Read more about Masamoto Yashiro Forbes “The Outsider” BusinessWeek “Masamoto Yashiro” BusinessWeek Online Extra: Q&A with Shinsei Bank’s Masamoto Yashiro CNN Transcript: Masamoto Yashiro, former chairman & CEO, Shinsei Bank
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