From globalisation to a new corporate culture

Page 23 

Carlos Ghosn, Nissan boss ©Reuters

Non-nationals are starting to make an impact in top Japanese firms. But will other firms take notice? Changes in education would help.

On 30 November 2013 Yasuchika Hasegawa, chief executive officer (CEO) of the Takeda Pharmaceutical Company, the largest drug company in Japan, announced at a press conference that he would be appointing Christophe Weber, a 47-year-old French national, as his successor. The news captured Japanese headlines. Why did he choose a foreigner to run Takeda, one of the oldest companies in the country, founded 232 years ago? In subsequent meetings with journalists, he explained the thinking behind his decision.

Takeda has generally been very profitable, but while the company is old, it has never been too conservative to experiment with new ideas. Mr Hasegawa’s predecessor, Kunio Takeda, a member of the founding family, had taken initiatives by expanding the firm beyond Japan’s borders. He had spent years in the US where he learned another way of doing business. He sold off non-core activities, such as food and fertilisers, and concentrated resources on the drug business. He granted promotions based on performance rather than seniority, and made research departments more market-oriented.

Mr Hasegawa became CEO in 2003, and was soon known for his taste for mergers and acquisitions (M&A). He acquired five US and European drug companies, and spent ¥2 trillion ($19.7 billion) on M&A. As a result of this relentless global expansion, in 2012, Takeda Pharmaceutical’s overseas sales accounted for more than 50% of its total sales of ¥1.6 trillion ($15 billion). It boasted more than 30,000 employees, three-quarters of whom were foreigners.

Mr Hasegawa looked within the company for a successor, but realised that there was no Japanese employee capable of doing the job. He explained that the M&A, particularly the acquisition of Nycomed of Switzerland in 2011, presented new management challenges. In his view, Takeda’s corporate culture was too inward-looking. Since 2011, he has been recruiting foreigners at senior management level in the belief that it would be a mistake for a global company not to choose the best candidate from
the global talent pool.

The growing importance of the emerging markets in Asia was another consideration. Quite simply, Mr Weber, a highly qualified vice president of GlaxoSmithKlien in charge of the Asia and Pacific region, fitted the bill. Will Mr Weber rise to the challenge? If experience is anything to go by, then being a foreigner may work to his advantage.

Take Carlos Ghosn, for instance, who came to Japan in 1999 from Renault of France to rescue the financially troubled Nissan. After 14 years, not only is he still the CEO of Nissan/Renault, but he is viewed as one of the most successful business leaders in the world. Without him, Nissan could not have made such a spectacular comeback. His style of leadership, including his strategic focus, global sourcing, motivation of workers, and promotion of women and foreigners to management levels, has worked.
As a foreigner, he did what Japanese managers could not do. For example, he closed unprofitable businesses and established a clear focus on cars. He broke longstanding relationships with suppliers, streamlined the supply chain and increased volume per supplier, thereby cutting purchasing prices.

He quickly fired managers who failed to meet their targets. To insiders, Mr Ghosn’s handling of Nissan’s problems seemed brutal, particularly given Japan’s relatively low labour mobility. But in retrospect, he did what was needed to save the company.

Not every foreigner has been able to repeat what Mr Ghosn did. Some have ended up being caretakers rather than dynamic agents of change. Others have come up against stiff resistance. Consider the case of Sir Howard Stringer, a Briton who served as the CEO of Sony from 2005 to 2012.Though an expert in the movie and broadcasting business, Sir Howard was unable to ease the technology giant away from its core business of manufacturing, or monozukuri, and the firm still struggles today, despite the underlying strength of the global technology sector. At Olympus, the world’s largest manufacturer of endoscopes, Michael Woodford, another Briton, uncovered losses that had been hidden for two decades, but unable to win support from bankers and workers to sort them out, he was forced to resign.

Mr Weber should not have such problems at Takeda, but challenges loom nonetheless. The patents of several of Takeda’s bestselling drugs have expired and those of others will expire soon, with no obvious new drugs in place to fill the vacuum. Buying a company which has strong research capabilities is clearly one option. Taking steps to expand business in growing markets in Asia and Latin America would also help. After all, in global terms Takeda ranks only 15th by sales, far below Pfizer, Roche and Novartis, which are all pursuing growth through M&A.

Will Mr Weber’s appointment help Japan’s corporate culture to become more open towards foreigners? Many Japanese corporate executives believe Takeda moved too fast in seeking global growth, and that a Japanese CEO would take the time to see whether the first M&A went well before embarking on the next one. For most Japanese companies, whether for reasons of language or pure culture, having a foreigner at the top of the management hierarchy would be unimaginable for now.

Toshiyuki Shiga, chief operating officer at Nissan, made an interesting observation recently. According to Mr Shiga, as more foreigners come to work at Nissan, Japanese workers tend to sink to the bottom of the talent pool, and appear unable to participate in management meetings, partly because English is the working language. As a result, they are overlooked for promotion. But for Mr Shiga, the trick is to embrace change, not resist it. “Managers who perform well only in Japan are like animals on the Galapagos Islands. They are valuable in Japan but useless abroad,” Mr Shiga said. It was a clear message to young students: evolve and adapt, or risk extinction, or at best, isolation, like the wonderful animals of the remote Galapagos Islands.

Clearly, it is incumbent upon Japanese firms to educate and train their employees if they are to do business on a global scale. There are signs that this is becoming increasingly feasible. Working experience abroad is becoming more highly valued, while expats are returning to Japan to form pools of global talent from which future leaders will emerge.

But to give more impetus to this trend, Japanese companies must change their human resource strategies. Deep changes would be needed in the educational system, where obedient and diligent pupils are preferred to independent and creative ones. In companies, honest messenger-type workers should no longer be graded higher than those who take initiative. And yes, like Takeda, more foreign talent may well be needed. While most firms publicly say that seniority-based promotion no longer exists, and that they are open to recruiting outside talent, mobility is still limited. Conservatism
still persists at top levels of management in particular. For example, Keidanren, a federation of large Japanese corporations, remains opposed to making the independence of board members a legal obligation, though this is an internationally established norm which applies in other industrialised countries. Female workers are still very rare in management, too. This will have to change.

Though Takeda Pharmaceutical followed the advice of outside board members and a headhunting firm found its new CEO, it remains highly unlikely that other Japanese companies will change their customs quickly, even if Takeda excels on the business front. Nevertheless, Takeda’s decision to appoint Mr Weber as its new CEO may at least help chip away at barriers to change that exist in Japanese corporate culture, and above all, prepare future generations for the challenges ahead.

* Risaburo Nezu is a former director at the OECD and currently chairs the OECD’s Steel Committee.

References

Nezu, Risaburo (2002), “Japan: In search of a winning formula”, in OECD Observer No 234, October, Paris.

Nezu, Risaburo (2000), “Carlos Ghosn: Cost controller or keiretsu killer?” in OECD Observer No 220, April, Paris.

See also www.oecd.org/japan

©OECD Observer No 298, Q1 2014




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