Join us in reading this book, The Only Way to Survive for Japan, subtitled "Corporate governance is sure to save our country." This book focuses on corporate governance. However, it broadly covers all kinds of organizations and governance as a whole. Peppered with real-life examples of business leaders who stay in power too long, and Japan's postwar success through employee-centric management, the book is also a primer on the rules and cautions of corporate governance in Japan.
Find all published chapters at 'The Only Way to Survive for Japan'
Read Chapter 2.6, the 13th segment of the book:
Vulnerability of Old Leaders
Mr Yoshirō Mori, who was head of the Tokyo Organizing Committee of the 2020 Olympic and Paralympic Games, was forced to resign because of his remark, "If a committee has more women, its meetings tend to drag on." Many people lodged their complaints against him, saying that his remark was nothing short of misogyny. As a result, this brought about his resignation.
What made him make such a statement? The leaders who rest on their laurels in organizations where active discussion is seldom conducted cannot recognize how far they are removed from public sentiment. Mr Mori's remark clearly manifests the danger of allowing an autocratic leader to remain in office.
Mr Mori often made remarks that were far removed from popular opinion. He even expressed his controversial view on sub-replacement fertility, which was interpreted as misogyny, too.
In the Tokyo Organizing Committee, there were a number of people who were active in many different fields, such as intellectuals and athletes. But, unfortunately, there was no objection voiced against Mr Mori's remark on the spot. Even at the time of his resignation, he was criticized for having determined his successor at his discretion.
Overconfident and Out of Touch
This is also true of corporations. Top executives who turn a deaf ear to opinions from the people around them are likely to err in their judgment in time and cause great damage to their companies. If they think their own thinking and judgment are correct and go on with that attitude, they would lose a competitive edge, be out of touch with the times, and eventually bring many people to their downfall along with them.
It follows that the existence of independent outside directors who are blatantly honest and straight with the leaders is deemed decisively important. Of course, independent outside directors are obligated to observe the company from various perspectives and point out looming risks, if any.
Practicality matters most. From that point of view, the system where a leader chooses the independent outside directors should be abolished. Instead, they should be chosen by other independent outside directors. Moreover, leaders are definitely required to listen to outside directors with humility.
Social changes are remarkable nowadays. To prevent themselves from being left behind, corporate leaders should actively continue to debate with people who have varied perspectives and views. It would be out of the question to suppress any such discourse.
(The Asahi Shimbun dated March 2021)
Reforming Corporate Culture
On the 20th of August, 2021, Mizuho Bank, Ltd suffered a system failure. It marked the bank's fifth system failure that year.
Mizuho Financial Group, Inc, the bank's parent, had already experienced four system failures during the short period from February to March that year. It announced that it would undertake preventive measures, listing as many as 50 different items. However, the fifth incident happened right during the process of implementing those measures.
Mizuho's frequent system failures indicate that the true cause of trouble may lie not only in a defect in the system, but somewhere else, too. Many people think that problems of corporate culture, attributable to the merger of the three banks that had consolidated into Mizuho, lurk at the basis of such failures.
The investigation committee released its report in June 2021, pointing out that corporate culture, which discourages individual initiative and voluntary actions, underlies such problems. Beyond that, something negative could be deeply ingrained in the merger on equal terms among the three banks.
Changing Corporate Culture From the Top
If the bank intends to seriously tackle the reform of its corporate culture, the top executive must take the initiative and make it move forward. At the time, there were thirteen directors of the Mizuho Financial Group. Six were outside directors. However, the pro forma employment of outside directors just for making up the number is not of utmost importance. It would be beyond impossible for outside directors to change corporate culture.
In order to change the deep-rooted corporate culture derived from the merger on equal terms among the three banks, the top executive had no other choice but to exert so-called autocratic leadership. Giving consideration to treating the three banks on an equal basis cannot overrule that duty. All that the outside directors had to do was just carefully watch over it.
For example, another company, Kirin Brewery Company, Limited, worked to foster a better corporate culture through unconditional talks between the top executive and the employees. It thereby successfully regained the largest market share in 2020 for the first time in eleven years.
Where there is a malicious corporate culture, there is a scandal. Try to detect the root cause and leave its solution to one person ー this is the lesson we should learn from the recent scandals. But if a single person has been wielding autocratic power for a long time, outside directors should come into play.
(The Asahi Shimbun dated September 2021)
Governance Reform of Kansai Electric
Kansai Electric Power Company has been brought up as a topic again. It has been almost two years since the scandal of receiving money and goods occurred. However, I wonder if the company is even halfway down the road to its corporate reform.
On September 14, 2021, Kansai Electric disclosed another scandal. This one was regarding the business of cutting trees adjacent to its power lines. A member company of the group had paid land owners and leaseholders much larger amounts of compensation than the in-house standard and lied about the number of trees cut down by including trees that had actually not been chopped down. What was worse, the company had continued this practice even after the disclosure of the scandal of Kansai Electric directors receiving money and goods.
The compliance committee set out to conduct an investigation and to establish the cause down the road.
Give Outsiders the Information to Catch Problems
This committee was established in 2020 in the wake of the initial scandal of receiving money and goods. It was composed of a majority of outsiders, including its head, and aimed at strengthening the compliance function of the group as a whole. In the first place, Kansai Electric, having converted to a company with a nominating committee, etc, in the wake of the scandal of receiving money and goods, should have been in the process of promoting governance reform.
As it turned out in July 2021, some employees of the member company illegally acquired national qualifications as construction management engineers. In fact, however, they had not obtained sufficient hands-on experience required for the acquisition of such qualifications. This was revealed through whistleblowing by a law firm that was an outside liaison. Also, it was announced that a third-party committee had been set up to investigate the cause and recommend preventive measures.
In the face of the money and goods scandal, the third-party committee suggested that important information be supplied to the board of directors as a preventive measure and that the governance system be reconstructed. That would enable the board's direct involvement in probing a hotbed of possible scandals.
Should the uncovering of scandals be regarded as a sign of progress in its governance reform?
First and foremost, Kansai Electric is obligated to demonstrate steady progress in improving its governance by conducting further investigation into the exposed scandals and honestly implementing preventive measures. It would be a start from behind for the group as a whole.
(The Asahi Shimbun dated October 2021)
Corporate Governance and Workers' Perspectives
Japan's corporate governance has recently been branded as multistakeholder governance. It is a perspective that values not only shareholders but also employees.
These are, however, "employees" within the framework of a company. Meanwhile, the existence of "workers," or wage earners, who constitute a considerable part of society, seems to be neglected. Instead, the point always emphasized about corporate governance is to increase the number of independent outside directors or to promote discussion with shareholders.
Therefore, corporate efforts do not seem to be penetrating the innermost depths of a corporation.
Preserving the Employee-centric Social Consensus
Why are no opinions heard from the workers? It may be because the promotion of corporate governance has been done in line with the guidelines of the government, governmental agencies, and the stock exchanges. The way to promote corporate governance has been given from on high, but did not come up spontaneously as a social consensus.
It is, of course, partly attributable to the fact that corporate governance itself was introduced to Japan from the United States as new shareholder-centric liberalism. In Japan, however, it has uniquely developed into an employee-centric policy as an antithesis, which has had a strong influence on Japanese corporations.
Other countries have their own institutions and systems, which are born out of their historical developments. We cannot employ any of them as they are as if to steal food from the kitchen.
Post-war Japan has successfully grown through employee-centric corporate management. The top executive of a company has been chosen from among the employees and manages the company, creating social consensus together with them.
Unless we deepen discussions on corporate governance by paying attention to "workers" by extension, Japan's corporate governance will not practically serve its purpose. Just copying the corporate governance of the United States, whose social consensus has been created under different circumstances, is perfunctory and superficial and thus is of no significance to Japan.
(The Asahi Shimbun dated November 2021)
Follow the book from Chapter 1, as it is published.
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Author: Shin Ushijima
