Of Culture and Business

There is an oft told story of a Japanese department store enthralled by the western notion of Christmas without completely understanding it. Visitors to the store one Christmas were somewhat bemused to encounter, above the main entrance to the store, a large, smiling Santa Claus nailed to a cross.

The story is entirely fabricated of course, but like so many urban legends, it provides wonderful insights, however unintentionally, on both the subject of the legend and the teller of the tale. The story plays on the perceived Japanese enthusiasm for foreign cultures. In contrast to many western nations, who seem concerned at the degradation of their culture, the Japanese appear to happily take artefacts from foreign cultures, but adapt them so thoroughly that the originating culture would barely recognise that artefact.

Perhaps this is most evident in the Japanese language. Up to forty percent of the nouns and verbs appearing in a Japanese newspaper are Chinese in origin and a vast number of words are essentially English, but most of these have been completely adapted to Japanese. The words aisu kuriimu, uisukii and ea kon for example would be barely recognisable to an English speaker.

From factory floor employees to the archetypical sarariman, senior management and directors, Japanese corporate structures can be viewed and explained in terms of both legal and cultural influences. The impact on Corporate Governance within Japan of these constructs can be used as a means of illustrating some of the specific challenges that are presented by the Japanese approach to adapting western principles.

Perhaps the best known feature of Japanese employment is the concept of “lifetime employment”; a practice by which employees are hired into an organisation with the expectation, from both parties, that they will remain employed by the same firm until retirement. This approach to hiring needs to be understood within both a cultural context and a legal context.

There are, in fact, few legislative impediments to dismissing an employee. It is case law that plays the central role, accepting that legislation had been translated from German and French in the late 19th Century and adapting it to reflect the national culture. Precedent has developed establishing that a dismissal that is not “objectively reasonable and socially appropriate” (Neihon Shokuen Seizo Co. Ltd. Case, 1975) is an abuse of power and thereby void. For example, to retrench employees for economic reasons, a company must pass a series of tests to demonstrate that dismissal was a matter of last resort in the face of permanent, not temporary, financial impediments. To dismiss an employee for poor performance is perhaps even more difficult. In one case, a news presenter who had overslept and missed a live broadcast twice in a single fortnight was reinstated as the court found the actions of the employer “harsh and unreasonable”.

As a cultural device, legal precedents reflect the Japanese concept of “group”. They are a manifestation of both the perceived responsibility of the company to care for the employee and for the employee to remain loyal to the company.

The notion of the “in-group” has strong influence in other areas of corporate behaviour too. For example, there is an aversion to implementing measures of control that may give the appearance of mistrust to ones colleagues. In an interview with a Japanese executive based in Australia, I was once told; “these are your colleagues, of course you trust them”.

Equally, the structure of Japanese boards is affected by cultural expectations. Appointment to a directorship is often seen as a reward for service and, as a result, large boards consisting entirely of long-term employees have been the norm. Recent reforms, notably the introduction of the concept of the “Committee System” in 2002 has attempted to combat this, but the overwhelming majority of Japanese companies still favour the older structure.

Japan's view of western structures and corporate norms has changed dramatically in the last 10 years or so. While there is still a broad acceptance of the traditional norms, this has become an almost fatalistic acceptance that acknowledges the weaknesses of the traditional approach and sees western business-people as potential saviours of failing companies. There is an implicit recognition that Japanese executives are hamstrung by the social and cultural expectations that are placed on them. Westerners are looked on as being able to ignore those expectations and, as a result, operate more efficiently.

This sort of generalisation has exceptions of course, but it has led to some curious outcomes. Carlos Ghosn, the Brazilian-Lebanese CEO of Nissan since 2001, has been subject to a sort of hero-worship following his turnaround of Nissan. A year after he took over the ailing car-maker, the company was back in profit. By 2005, net debt had been reduced to zero. He did this by cutting staff, closing unprofitable plants and selling off non-core businesses. The result has been extraordinary. Ghosn was vilified during those first twelve months, but since then has been lauded as a business hero. He was the subject of a best-selling manga titled "The True Story of Carlos Ghosn", he has been the subject of books and documentaries and perhaps most impressively of all, he has had a bento (lunchbox) named after him - the "Carlos Ghosn Bento"!

In their usual fashion, the Japanese have accepted western approaches and then adapted them until they are uniquely Japanese. Yes, Japanese companies will restructure as western companies would, yes, they will retrench staff as western companies would. But they will often bring a westerner in to do it!