Japan Economy

Scandals soil Japan’s corporate giants

PUBLISHED : Sunday, 22 November, 2015, 12:00pm
UPDATED : Sunday, 22 November, 2015, 12:00pm

All too often in recent months, the headlines on the business pages of Japan’s newspapers have been of the unwelcome kind, with the previously good reputations of such household names as Toshiba, Mizuho Bank and Olympus suddenly in the spotlight for all the wrong reasons.

It’s falsified construction data for schools and hospitals on one day, components for tens of millions of vehicles that are potentially life-threatening and deliberately manipulated profit reports the next. The headlines hint that fraud, a failure to act and good old-fashioned lying are endemic at Japanese companies that might previously have been considered upstanding members of this nation’s corporate community.

Scandal, mismanagement and financial shenanigans are a fact of business life in any nation, of course, but Japan seems to have suffered more than its fair share in the last couple of years.

The question is why so many companies here have been caught up in crises that were, in every case, avoidable had the appropriate checks been in place or if the correct countermeasures had been taken swiftly.

“To my mind, Japan’s corporations are today paying the price for the lost 20 years that started when the bubble burst back in the early 1990s,” said Makoto Watanabe, a lecturer in communications and media at Hokkaido Bunkyo University.

“The situation they are reaping now is the result of a combination of drastic cost-cutting with the retirement of the ‘baby-boomer’ generation of workers and a failure by companies to replace them with equally skilled employees,” Watanabe told The South China Morning Post.

The baby-boomers were the men and women who effectively rebuilt Japan after the devastating losses of World War II, culminating in companies such as Sony, Toyota, Panasonic Canon and countless others having their names in lights in Times Square and Piccadilly Circus. The foundations of the nation’s economic miracle of the 1970s and 1980s were built on the skills, knowledge and the “can-do” attitude of these workers, Watanabe believes.

Now, however, they are taking their well-earned retirement and their companies have lost a vital resource.

“We don’t have nearly enough workers with the skills that are needed to replace those who are retiring, while companies have also failed to invest heavily enough in training the new generations,” he said.

A falling birthrate and a shrinking pool of capable workers is only going to exacerbate the problem in the years to come, although companies and the government does appear to have woken up to the danger, Watanabe believes.

“Many companies are now asking their older staff to delay their retirement or to work part-time in the company,” he said. “Their jobs now are mentor the younger workers and to pass on their knowledge so that mistakes do not happen.”

Arguably a bigger problem, and one that goes all the way up to the boardroom, is a corporate culture in which employees and management alike try very hard to avoid direct conflict.

“They will have countless meetings and discussion sessions because they want to be seen to be open to new ideas and ways of doing business, but a traditional Japanese company will reach very few decisions,” Watanabe said.

“Equally, when results are bad, they will try to conceal the problem rather than the doing things the American or European way, which is to open a situation up - even if it is bad - and then discuss the options and try to seek a solution.”

Toshiba is the perfect example of that sort of thinking, with CEO Hisao Tanaka stating that the crisis presently gnawing away at the company is “the most damaging event for our brand in the company’s 140-year history.”

On July 21, Tanaka announced that he would resign over an accounting scandal that saw profits being inflated by Y224.8 billion (HK$14.12 billion) over seven years.

A panel of three lawyers concluded in a report released on November 9 that five former executives should be held responsible for negligence and pay damages.

The company has filed a suit with the Tokyo District Court demanding Y300 million from the three former presidents and two chief financial officers on the grounds that they failed to impose proper checks on the firm’s accounting practices.

Repeated revisions to past earnings reports “revealed a major flaw in corporate governance at Toshiba,” the report said, adding that the internal culture at the company did not allow subordinates to go against their superiors’ decisions, while management imposed performance targets that were impossible to achieve.

It is, Watanabe believes, the perfect example of the very Japanese saying, “the nail that sticks out gets hammered down.”

“People at Toshiba were worried that if they did speak out they would be punished in some way, transferred to a subsidiary in a remote part of the country, overlooked for pay raises or promotions or in some other way made into a target,” he said.

Toshiba’s problems rumble on, with the panel declaring “it will be difficult” for the company to fully recover the public’s trust. The markets agree, with the company reporting a group operating loss of Y90.49 billion for the first half of the fiscal year, the first time it has ever recorded a group operating loss for the April-to-September period.

Other analysts do not believe Japanese firms are inappropriately more frequently; they argue that corporations are just being caught more often.

“When you look at cases such as Toshiba and Olympus, it seems to me that companies here are going through a painful transition from a post-war Japanese style of governance to a more globally orientated way of doing business,” believes Jun Okumura, a visiting scholar at the Meiji Institute for Global Affairs.

“And I also believe there was in the past tacit acceptance of that way of doing business in the past and even some encouragement for companies to kick their problems down the road,” he said. “In retrospect, that was a clear mistake.”

But he also believes it would be wrong to tar all Japanese companies with the same brush as those that are presently caught up in crises.

“I don’t see patterns emerging in which entire industry sectors are being caught out, which would indicate there are real structural faults that are in need of overhauls, such as we saw in the finance industry when the bubble burst,” he said.

“For every Toshiba, you have a Panasonic, and Hitachi, for every Olympus, there is a Canon or a Ricoh.

“And clearly this is not just a Japanese problem,” he emphasised. “Just look at Enron back in 2001 and all that is going on at Volkswagen today.

Robert Dujarric, director of the Institute of Contemporary Asian Studies at the Japan campus of Temple University, agrees.

“I don’t think there is an increase in cases; I do think there is an increase in cases being reported,” he said. “Many of these companies have interests overseas now and the foreign press is more investigative so it is inevitable that added scrutiny is going to turn up more problems.

“Comparatively, I would say that companies here are no worse or better than firms in Europe or America.

“But clearly these cases do serve as a wake-up call,” he said.