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The changing face of Japan Inc

(Photo credit: The Economist)

The recent escape from Japan of former Nissan CEO Carlos Ghosn and the change in corporate culture of established Japanese conglomerates has resulted in the country’s reputation being called into question. 

Japan, as a nation, has a rich cultural history that dates back millennia. The norms and traditions that help define this East Asian country have been around since time immemorial. The samurai, the ancient warrior-class that remains indicative of Japanese culture, especially to those of us not from the Land of the Rising Sun, neatly encapsulate its way of life.

The samurai lived by a code of ethics known as Bushido, loosely analogous to the European concept of chivalry, stressing a combination of frugality, sincerity, loyalty and honour until death. The samurai may have disappeared towards the end of the 19th century, but they maintain a powerful hold on Japanese consciousness and society to this day. This hold permeates almost every facet of modern-day life, including business.

For a long time, Japanese businesses have enjoyed a global reputation for integrity, honesty and the ease with which one can do business with them, once a relationship has been established. 

However, the events this week, which saw ex-Nissan CEO, Carlos Ghosn, escape the country allegedly in a double base case, is the latest example of corporate culture among certain businesses that has led to Japan’s reputation being called into question. The corporate culture of these firms no longer mirrors the temperance and humility we have come to expect from Japanese companies. Instead, in the Middle East, the Far East and Africa, they have increasingly shunned their founding values for short-term profits.

Recent top-level shake-ups at three of Japan’s largest manufacturers, Nissan, Kansai Paint and Hitachi, have ushered in a new generation of executives with a slightly more complex relationship with honour.

In 1999, three of the world’s largest car manufacturers, Nissan, Mitsubishi and Renault, formed a strategic partnership in which they agreed to act in the financial interest of one another while maintaining their unique brand identities. Carlos Ghosn, the man behind the alliance, succinctly characterised this partnership as similar to that of a marriage.

He explained how, “a couple does not assume a converged, single identity when they get married. Instead, they retain their own individuality and join to build a life together, united by shared interests and goals, each bringing something different to the union. In business, regardless of the industry, the most successful and enduring partnerships are those created with a respect for identity as the constant guiding principle.”

Under the stewardship of Ghosn, the alliance produced phenomenal financial results. That came to an end in November 2018, when he was arrested on charges of financial misconduct. Having previously served as Mitsubishi chairman and CEO of both Renault and Nissan, Ghosn was the glue that held the 20-year alliance together.

Since his very public arrest, the relationships between each of the alliance partners has been fraught. The carmakers have since looked to repair the damage to their reputations by purging all Ghosn-era executives.

Though it would seem that despite intense public attention, Nissan is reluctant to change what has clearly become a toxic, win-at-all-costs culture.

The company developed a new management structure with Makoto Uchida at the head, now supported by a COO and vice-COO. Uchida has said he intends on reforming the culture at Nissan, switching focus to long-term business development rather than short-term profit gains. The new tripartite system is designed to bring greater scrutiny and, as Nissan’s chairman Yasushi Kimura said, make the decision-making process fairer and more transparent.

But these reforms appear merely cosmetic. Thierry Bollore, the now-former CEO of Renault who, as part of the alliance, sat on the board of Nissan, reportedly wrote to his fellow board members expressing his deep concern over some 80 managers embroiled in similar accusations of financial impropriety.

He further attempted to highlight alleged conflicts of interest with the internal investigations procedure alongside Nissan’s weak corporate governance. Bollore penned this letter on 7 October 2019, but was dismissed from his post four days later, on 11 October 2019. Renault claims this was owing to his close association with the alliance’s founder, Ghosn.

But Nissan has not been the only one to act irresponsibly. Kansai Paint, an Osaka-based chemicals company and leading original equipment manufacturer of both automotive and industrial paints, has also been in the spotlight over the way it has acted recently.

Towards the latter half of the 20th century and into the start of the 21st, Kansai Paint expanded its business into a plethora of both emerging and mature markets across the globe, from Vietnam to Indonesia, Tanzania to the Middle East.

Hand-in-hand with its strong ties to the automobile industry (Kansai supplies paints and coatings to well over 60% of all Japanese cars manufactured globally, including Nissan and Toyota), the company’s overseas revenue has gone from 40% of its total in 2010 to 60% today, while over the same period, its share price more than doubled.

Kansai Paint’s erstwhile recent presidents, Shoju Kobayashi, Yuzo Kawamori and Hiroshi Ishino, struck that perhaps oxymoronic balance of humble ambition; growing the business yet managing to keep the company firmly rooted in the traditional values of humility and deference. Hiroshi Ishino once told how the key to Kansai’s success was having “a long-term strategy and go forth simply and honestly without betraying trust”.

Yet under its new chief, Kunishi Mori, rumours abound of Kansai’s strong-arm tactics in dealing with the various partners with which it has engaged overseas. From Thailand to Malaysia and East Africa to the Middle East, company executives have reportedly attempted to squeeze profit margins through its control of raw materials, only to increase its shareholdings at a reduced price.

Another Tokyo-listed conglomerate, Hitachi, has been accused of myopic profit-seeking. Like Nissan, Hitachi is one of the world’s most widely recognised brands and arguably one of the country’s most successful exports. But it’s carefully choreographed image, developed in-part through its educational partnerships with institutions such as Cambridge University, is slowly beginning to undo itself.

In November 2018, Hitachi Chemical – a majority-owned subsidiary of Hitachi that supplies, among other things, materials for semiconductors and lithium-ion batteries – was accused of negligence when it admitted to widespread inspection failures across all its Japanese factories, impacting some 1,900 businesses and 30 products used in both cars and consumer electronics. 

The company then found further discrepancies in its testing of materials used to encase semiconductors. These extended to the revelation that several of its test results had been falsified. The fallout led to a 15.6% drop in the company’s share price.

The scandal emerged after Hitachi was forced to tell 500 clients it had not conducted the appropriate testing on the industrial lead-acid batteries it had supplied to them. Lead-acid batteries, if not tested properly, could be at risk of causing serious harm. Electrolyte acid contained within the batteries is extremely corrosive and the batteries themselves are at risk of exploding due to the gases within them.

A new era of Japanese executives would appear to have thrown caution to the wind. The examples of Nissan, Kansai Paint and Hitachi have fuelled speculation surrounding the reputations of these storied firms. The uncodified ethics with which these corporations lived by is at risk of being supplanted by a new-found greed oft associated with other parts of the world.

Perhaps, as with the Samurai and their Bushido, the idea of compassionate capitalism that Japan Inc. has been known for, for well over 100 years, is soon to die out. Let’s hope this is not to be the case.

Roderick Ngoche is a Nairobi-based business school graduate, who works as a renewable energy consultant across East Africa.


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