Turning Anglo Saxon?

Pernille Rudlin

Rudlin Consulting/Japan Intercultural Consulting

Agenda

Anglo Saxon or Japanese stakeholder? Carrots and sticks in both systems Recent scandals and the need for further

controls Have Japanese companies changed? The supply side – has the Japanese worker

changed? Entrepreneurship

A false dichotomy?

Anglo Saxon Companies should be run to maximise returns

to shareholders Japanese stakeholder model

Companies should be run to benefit the community of employees

Companies should also benefit society

The pitfalls in both models

Anglo Saxon Agency problem

Japanese stakeholder model Free rider problem

Carrots and sticks

Anglo Saxon Carrot – remuneration tied to share price Stick – the sack

Japanese stakeholder model Carrot – status within the group Stick – shame within the group

Distortions and recent failures

Anglo Saxon (or Anglo American) Greed leading to accounting fraud – Enron,

Worldcom, Global Crossing Japanese stakeholder model

Fear of shame leading to cover-ups – Long Term Credit Bank of Japan, Mitsubishi Motors,Kanebo

Corrections

Anglo Saxon (or Anglo American) Corporate governance Sarbanes Oxley

Japanese stakeholder model Move to shareholder model?

Corrections so far

Stakeholder solutions to a stakeholder problem Companies restructuring themselves to make

P&L centres clearer, focus on cash flow, reducing debt

Laws supporting this: Accounting ‘Big Bang’ 1999 - Holding company law

Limited introduction of performanced based pay, mainly to cut pay roll costs

Corrections so far

Other stakeholders – ‘keiretsu’ Reduced cross shareholdings (18.4% of value

of all shares traded in 1987, 7.6% in 2003) Bank borrowings reduced from 1/3 of total

assets in early 1980s to 1/5 total assets But ‘main bank’ concept still persists (96% of

Nikkei 500 corporations surveyed in 2003 said they had a ‘main bank’

Hostile M&A still not happening – acquisitions still perceived as aid to a failing company

Corrections so far

Other stakeholders – the state Amakudari Industrial policy Asia

Successful stakeholder companies

Toyota Lifetime employment “for Toyota an immense

plus” Canon

“Lifetime employment…conforms to Japanese culture and is our core competence to help survive global competition” Fujio Mitarai 2002

‘Family-owned’ Murata, Omron, Kyocera

The supply side – Japanese workers

850,000 NEETs 4m freeters 5m part timers 1985, 12m 2000 = 21% of

workforce, now nearly 1/3 of workforce 1986 Worker Dispatching Law Job-hopping Rising income inequality Entrepreneurs?

Entrepreneurs

May 1 2006, new commercial code (Shouhou) enabling limited liability, ¥1 capital

Previously: Substantial capital required Kabushiki Kaisha needed 3 directors High personal risk to directors as bank

borrowing required personal guarantee, using own money

Entrepreneurship in a group oriented society Outsiders so cannot be controlled through

company-based group status and shame, so have to find other controls?

Society-based group shaming, for anyone seen to act against benefit of society

Roppongi Hills Tribe - Livedoor, Murakami Fund

Softbank , Rakuten – still OK! Corporate venturing

Conclusion

Japanese stakeholder model still alive and kicking

But ‘lost decade’ actually a time of significant adjustments to the model

Younger generation show some signs of entrepreneurship, individualist career development but group orientation still strong influence

As economy recovers, revert to old ways?