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Leaders from outside box could ignite Japan

by Jochen Legewie

On Nov. 30, Takeda Pharmaceutical Company shocked Japan Inc. by announcing that it plans to appoint Frenchman Christophe Weber as its next president by June 2014. Until then, Japanese companies with foreigners in the top spot had fallen into two categories: those that promote foreigners who have performed well in-house, and those owned by foreign capital or with a large foreign shareholder.

Head-hunting a foreigner from a competitor to head a major Japanese company is an absolute novelty. It is even more surprising as Takeda, founded in 1781, used to be a traditional family business with all company heads coming from the founding family until as recently as 2003.

So far, all in-house foreigners promoted to the top post have more or less failed. The list is short. It includes Howard Stringer (Sony), Michael C. Woodford (Olympus), Stuart Chambers and Craig Naylor (both Nippon Sheet Glass).

However, the track record of foreign CEOs lofted on high by foreign capital is a bit better and includes Henry Wallace and Mark Fields (Ford/Mazda), Albert Kirchmann (Mitsubishi Fuso), Brian Prince (Aozora Bank) and Luo Yiven (Laox). But only Carlos Ghosn is regarded as a real success for his impressive turnaround of Nissan Motor Co. The success Ford’s executives enjoyed at Mazda was fleeting, and Ford drastically reduced its stake in Mazda in 2010. Mitsubishi Fuso, Aozora Bank and Laox still have to prove sustainable long-term success. Interestingly, all of the foreign CEOs who failed came from either the U.S. or the U.K., i.e. from Anglo-Saxon backgrounds, while Ghosn leads the group of non-Anglo-saxon-background executives, often from continental Europe, who have a better track record.

It is no secret that foreign CEOs face huge hurdles in Japan. One is communication (both linguistic and cultural) and the other is understanding the management processes. The latter is directly related to the differences in expectations associated with CEOs groomed inside and outside of Japan. In the West, the CEO’s prime responsibility is profitability and creating returns for shareholders. In Japan, the different stakeholders — employees, customers and shareholders — have different priorities. The CEO himself has a special responsibility to the company as well, with job security often at the top of the list.

Japan’s companies and business leaders continue to emphasize the importance of the multistakeholder approach. But they also understand the reality of operating in a stagnating market amid rising competition for consumers overseas. It is here where we find their main reasons for elevating foreigners to the top.

The top four objectives are:

• Drastic restructuring, often including layoffs.

• Increasing profitability.

• Globalization operations and driving growth abroad.

• Integrating companies acquired overseas.

Internationally, Japan is clearly lagging behind most countries in its ratio of foreign CEOs. A study by Spencer Stuart shows that the U.K. is the most open economy, with 38 foreigners heading its 100 largest listed companies. Switzerland and Germany also rank high. The nationalities of the CEOs leading the 30 companies that make up Germany’s DAX index include the Netherlands and the U.S., but also India (Joshua Ain at Deutsche Bank).

But why Takeda? And why now? Is there a chance for Weber to successfully lead a traditional Japanese company? Actually, Weber might not only succeed, he might just turn Takeda into a blueprint for the rest of Japan Inc. to follow.

Back in 2003, Yasuchika Hasegawa became Takeda’s first president from outside the family. Since then, he has internationalized this solitary company in a more systematic way than probably any other CEO in Japan could have done. In 2009, he oversaw the establishment of the Takeda Global Advisory Board, pushing several foreign M&As that culminated in the €10 billion acquisition of Swiss Nycomed in 2011. More importantly, he has systematically internationalized and diversified Takeda’s management over the past four years.

Two of the six full-time board members are from the U.S. and Germany. Seven of the eleven corporate officers, including the new CFO, are also foreign nationals, including two women. Even one of the few Japanese, head of North Asia operations Haruhiko Hirate, joined the drug maker as an outsider in 2010.

With Weber starting off as COO in April before taking over in June, and Hasegawa staying on as CEO and chairman for at least another year, what we are witnessing is a very well-planned and prepared CEO change.

Weber brings practical real world experience — his last employer was U.K.-based GlaxoSmithKline. In that sense, Hasegawa might have been inspired by another less-known success story: Shiseido.

Back in 2006, Shiseido head-hunted German Carsten Fischer, from Proctor & Gamble. The cosmetics giant put him in charge of overseas business and recently made him its No. 2 — the only representative director besides CEO Shinzo Maeda.

Takeda’s switch to a foreign CEO seems in safe hands with Hasegawa’s active oversight. This will free Hasegawa to focus more on his role as chairman of the Japanese Association of Corporate Executives (Keizai Doyukai). Expect him to use that perch to push for other bitterly needed economic reforms.

A Takeda that flourishes under Weber might be the best way to convince other parts of Japan Inc., including the government, that accelerating reform and doing it systematically will pay dividends — whether for a single company or for Japan.

Dr. Jochen Legewie is managing director of German communications consultancy CNC Japan. Follow his blog at www.cncblogs.jp.