Japan's old guard

 

JAPAN:TWENTY-FIRST CENTURY it may be, but in Japan old guys still rule the roost. Tokyo boardrooms are stuffed with sexagenarian, septuagenarian and even octogenarian bosses, including Mitsubishi Corp chairman Mikio Sasaki (74), Canon chairman and Japan Business Federation chief Fujio Mitarai (76), and Masamoto Yashiro (82), chairman and chief executive of Shinsei Bank.

Patriarchal leadership is deeply embedded in Japanese corporate culture. Some of the biggest stars in the country’s corporate galaxy, including Panasonic, Sony and Honda, were almost personal extensions of the men who ran them for decades. Camera- and watch-maker Casio is still helmed by three brothers with a collective age almost as old as the United States.

In an era of increasingly global corporate governance, however, the clash between that culture and the modern capitalist world can be painful, as Olympus has discovered.

The Japanese camera and optical equipment maker appointed Englishman Michael Woodford president and chief operating officer in April, hoping he would chart a course through the shark-infested waters of global business.

Instead, Woodford ran straight into the man he supposedly replaced, Olympus’s 70-year-old chairman Tsuyoshi Kikukawa, as he tried to dig into a multi-billion dollar accounting scandal.

After battling ineffectually with the firm’s imperious shadow shogun, Woodford took his concerns to accounting firm Ernst and Young. His reward was to be sacked at a board meeting which, he says, Kikukawa chaired like a school headmaster.

“The board all voted and their hands all went up like little children in a classroom,” Woodford recalled last week in Tokyo. “There was no thought, no consideration of the facts; it had all been decided in advance.”

Though initially ignored by Japan’s mass media, the Olympus scandal is increasingly being seen as indicative of a wider disease – calcified management and a startling lack of boardroom diversity. Women still make up just 1.2 per cent of top Japanese executives, and foreign board members on Japan’s roughly 4,000 listed companies are as rare as sparrows in winter.

Elderly chairmen and chief executives retire “yet still come to the office on almost a daily basis, still wielding considerable power and undermining the authority of the new head,” says William Saito, a Tokyo-based venture capitalist and long-time business commentator.

“Shareholders rarely fight management,” he says, especially when so many companies are tied to main banks and subsidiaries through cross shareholdings. “The board doesn’t represent the shareholders’ interests but their friends internally.” Regulators employed to show this system functions along standard capitalist lines rarely bare their teeth.

For decades, Japanese companies were largely insulated from the West and operated in a way which most modern US or British chief executives would find incomprehensible, flaunting many of the accepted “rules” of global capitalism.

The Japanese way – of long-term, government-directed industrial planning, strong banks and weak shareholders – was immensely successful, and drove the economy to the top of the economic league tables before it ran out of steam in the early 1990s.

During Japan’s journey from ruined second World War pariah state to the world’s second largest economy, boards of directors were by and large considered rubber-stampers, not governing bodies as they are understood in Britain or the US.

The lengths to which board members and shareholders will go to avoid open conflict with corporate patriarchs became clear during another business scandal this month.

Mototaka Ikawa, chairman of Daio Paper Corp, a huge toilet- and tissue-paper company, siphoned off at least $140 million from company subsidiaries to feed a gambling habit, without being challenged. His trump card was his powerful father, who in effect ran the company and who, in turn, was the son of Daio’s founder.

South Korea, another successful developmental state dominated by powerful business conglomerates, known as chaebols, suffers from similar structural problems. Almost 40 per cent of the entire economy is run by roughly 30 family-run chaebols, which are often overshadowed by elderly male patriarchs. But that system has suffered recent setbacks. Three years ago, Lee Kun Hee, the reclusive chairman of Samsung, the largest chaebol of all, was forced to resign and apologise after trying to illegally help his son take over control of the company.

The previous year, the chairman of the giant Hyundai Group, Chung Mong Koo, was sent to prison for three years following an embezzlement scandal (he was subsequently released on appeal).

Those landmark events were taken by many as a sign that the elderly men who run Korea’s conglomerates were at last being subjected to independent scrutiny after years of flaunting the rules. It remains to be seen if the same will happen in Japan. At Olympus, Kikukawa resigned as chairman and president and faces a police investigation.

“I think he will go to prison,” says Shigeo Abe, editor of the small Japanese magazine Facta, which broke the Olympus story. He says Kikukawa’s arrest is a small but important step towards corporate transparency and openness in Japan. “I think there are other companies that are hiding problems.”

But the Olympus mess could also make other Japanese corporations wary of outside scrutiny – and of appointing another gaijin (foreign) manager.

Graham Harris, a Japan-based British business consultant, says it has exposed how little has changed in Japan’s airtight, all-male corporate boardrooms. A short time ago those who support the “Japan is changing” theory would have been able to cite the appointment of a gaijin president at Olympus as evidence of this.

“Now, as we get a glimpse below the surface, we see that ‘old Japan’ continues to thrive, even in a Japanese company with an international reputation.”

‘I’m a businessman, but I find myself in a John Grisham novel’

WHEN OLYMPUS chairman Tsuyoshi Kikukawa appointed Michael Woodford chief operating officer earlier this year, he must have thought he was getting a good deal. As head of the company’s European operations, the Liverpool native had boosted profits and performance.

Perhaps more importantly, as a three-decade veteran of the Japanese company, he was in effect a “salaryman”, who seemed to have proved he was a safe pair of hands.

Woodford had other ideas. Alerted by the tiny Japanese magazine Facta to massive accountancy irregularities, he embarked on a quest that, in business commentator William Saito’s words, upset the wa (harmony) of the Olympus establishment.

“No one expected Woodford to actually bite back – [they] probably forgot that he wasn’t Japanese because he spent so much time working for them,” he says.

Woodford knew he was in for a fight after he confronted Kikukawa over the story, which claimed Olympus had paid $800 million for what he called “Mickey Mouse companies” and another $687 million on advisory fees in a $2 billion deal for British medical equipment firm, Gyrus. “Kikukawa said I’d not been told because I was so busy, but that was ridiculous to me.”

The “bizarre acquisitions” included a pet food company and a face-cream maker, none of which had turned a profit. Exactly why a camera and optical machinery maker had spent so much money on 100 firms with “zero synergistic” value to the company is still unclear, but in a second exclusive article, Facta offered a possible reason: pay-offs to “anti-social forces”, the Japanese euphemism for Yakuza gangsters.

Disbelieving and increasingly nervous, Woodford faced off with his former mentor, and was fired. “It’s an extraordinary action, almost unheard of in Japan,” he recalls.

As he walked out of the Olympus office in central Tokyo after surrendering his mobile phone and company car, Woodford’s “hands were clammy”, and he feared for his safety. “I mean, they did mention anti-social forces,” he says.

Woodford did the only thing he could think of – he called a foreign reporter, meeting him in a public place with lots of people around.

As the story later winged its way around the world, Olympus fought back hard, accusing him of not understanding or liking Japan, and of not being in the country enough, a charge he angrily rejects.

“Look, 70 per cent of our global sales comes from the US and Europe. I spent 40 per cent of my time in Japan, more than other foreign executives. It was exhausting. Olympus is working hard on its black propaganda.”

Today, he waits for Japanese prosecutors to indict the main players in the scandal. Kikukawa has quit, down but not out. Woodford spends his time talking to journalists and investigators in the UK, the US and Japan, wondering what will eventually come out. “It’s a bizarre situation. I’m a businessman, but I find myself in a John Grisham novel.”