(written by: Willy Yanto Wijaya)
— for the preliminary introduction, please read here —
The lecture by Ms. Masako Egawa from Japan Research Center – Harvard Business School highlighted an interesting analysis on why Japanese managers have weak shareholder orientation. This report will put these all analysis into a nut-shell and then connect it with one interesting concept of Japanese perspective, i.e. Kouki (公器) which literally means “public bowl”.
Traditionally, Japan has a very strong banking system. This banking system had rooted since the Meiji Restoration period, and then developed further to become the Zaibatsu (as I had written in my previous note)1. After the WWII, this Zaibatsu transformed into Keiretsu and continued to hold strong power over Japan’s economy2. Since most of the companies got their fund from these Keiretsu, many intervene and management take-over could happen when the companies faced financial difficulty. Therefore, these main banks (keiretsu) will act as the monitoring institution; will have the ability of cross-shareholding, as well as the long-term partner of the companies.
Since these zaibatsu (keiretsu) have massive capital and relied mostly on self-funding, the stock/ capital market didn’t develop very much. Besides, Japanese managers also had skepticism toward short-term and speculative nature of investors. These two factors, added with the inefficient market and market manipulation that once happened at the stock prices of Japan Main Banks in 1984, have yielded weak shareholder orientation of the Japanese managers.
The factors explained above are the structural factors, i.e. factors related to the stock market and economic mechanism itself. However, there are also socio-cultural aspects that make the weak shareholder orientation of Japanese managers. One of these socio-cultural aspects is the concept of 公器 (public entity). This concept is originated from the Matsushita Management Creed by Konosuke Matsushita which has influenced many Japanese managers3. 公器 is about the strong sense of social responsibility that a corporate/ company should have. It indirectly emphasizes the sense that a company should have more responsibility to public, society, and employees rather than to a small group of persons (investors/ shareholders). Traditionally, the culture of “life-time employment” in Japan is also much inspired by the Matsushita commitment to maintain its employees amidst the economic crisis that happened after the WWII.
Another tradition in Japan is the tendency to limit the investors’ ownership to sustain the family business, for example: “Soyu” in Mitsui Family. By doing this, the family (management board) will avoid much conflicts/ confrontation that might be caused by the interest of the investors. Therefore, the management can have more peace of mind in doing business and planning for the long-term growth. This shows us once more of how very natural cultures of Japanese people to avoid friction/ conflicts as well as keeping uniformity and harmony for the growth.
These socio-cultural factors, combined with the economic-structural factors mentioned above, then lead to relatively weak shareholder orientation of Japanese companies. This is indicated by the hampered development of Japanese capital market and financial institutions. However, even though giving some negative implications, these Japanese management perspectives have also given several significant advantages i.e. keeping the low cost of capital for companies; contributing to the rapid economy growth; as well as allowing the companies to plan the long-term growth and enhanced competitiveness.
The last and most difficult question is that should Japanese company management change their perspectives and transform into a stronger, more concerned shareholder orientation? This is a tough question. In my opinion, as long as the current Japanese perspective works well and could overcome the disadvantages it might bring, it will still last for some significant time until the future. In case the contrary results happen, I am sure that Japanese companies will be flexible and will modify their perspectives to meet the challenges that might obstruct them in the future.
The time will answer…
1 Willy Yanto Wijaya. Japanese-style Management: A Preliminary Study, Report 6 Managerial Perspective for Sustainable Engineering, Tokyo Institute of Technology, Tokyo, 2008.
3 John P. Kotter. Matsushita Leadership, Simon and Schuster, New York, 1998.
The untrapped mind is open enough to see many possibilities,
humble enough to learn from anyone and anything,
forbearing enough to forgive all,
perceptive enough to see things as they really are
and reasonable enough to judge their true value.