The strangest thing is accompanying Japan’s humiliating quality-control crisis: complete silence from on high.
When Olympus tarnished the national brand with a $1.7 billion accounting scandal in 2011, Tokyo shrugged. When Takata’s deadly air bags prompted U.S. congressional hearings, Nagatacho looked the other way.
Toshiba’s creative bookkeeping? Nothing to see here. Sharp hiding contingent liabilities in merger talks? No worries. Kobe Steel faking stats? The Olympics are coming! Same when Mitsubishi Materials and Toyo Tire & Rubber got busted. Nissan and Subaru with unauthorized inspectors? Eight years of data manipulation by Toray? Hey, every nation has a bad apple or two.
Sensing a pattern? At the very least, it’s time for Japan bulls to drop the talking point that Prime Minister Shinzo Abe has successfully strengthened corporate governance.
Sure, Abe’s focus on return on investment and his weak-yen policy are driving the Nikkei 225 to 26-year highs. What he’s clearly not doing is dragging Japan Inc. into the 21st century. This quality-control reckoning is showing a microcosm of why Abenomics isn’t enough to bring corporate Japan to heel.
In return for devaluing the yen and pumping up corporate profits, Abe’s gotten negligible reciprocity. Rather than using $2.3 trillion of cash on balance sheets to fatten paychecks or invest in new businesses, executives are buying back shares or passing cash to the pet charities of top management.
The bigger problem, though, is how 100-year-old thinking is colliding with a fast-changing global economy already viewing China as the core of Asia.
I recently spent a few days in Hangzhou, the Chinese city in which Jack Ma created Alibaba. In meetings there with government officials, entrepreneurs and foreign investors, I heard lots of talk about Chinese innovation, how mainland fintech (financial technologies) will change the world, how President Xi Jinping’s vision for 2025, 2050 and beyond is remaking the global financial system and the Donald Trump factor. What I did not hear mentioned was Abe’s Japan.
China is angling to dominate the Asia region it will encounter 10 years from now. Abenomics is focused more on the conditions that prevailed 30 years ago. It seeks to re-create what Japan once was, not where things are heading three decades from now. Neither monetary easing, no matter how forceful, nor Tokyo 2020 will get us there.
Rather than rise to the China threat, all too many household Japan Inc. names cut corners and/or engaged in creative accounting. Instead of rekindling Japan’s innovative mojo, raising productivity and increasing transparency, all too many executives resorted to manipulating data. It’s quite the irony: In its efforts to keep up with China, Japan is becoming too China-like for comfort.
Oddly, Abe’s government hasn’t seemed to notice the rot eating away at Japan’s economic foundations. His five-year-old structural reform push lacks teeth. It’s also experiencing pushback from an old guard resisting wholesale changes in management structures. Many corporate icons are dragging their feet, for example, on adding more genuine outside directors as opposed to friendly executives.
What should Tokyo do? Start talking early and often about corporate malfeasance and responsibility. Abe, Finance Minister Taro Aso and Hiroshige Seko, minister of trade and industry, must chastise those damaging the national brand. Seko recently calling the scandal at Mitsubishi Materials “a grave matter” and a “betrayal of trust in Japanese manufacturing” is too little, too late and too obvious to have any impact. Abe should do speeches and interviews to name and shame executives making a mockery of his “open for business” claims.
Abe should set up a corporate responsibility board independent of the bureaucracy with the power to punish and recommend the suspension or delisting of offending companies. Japan’s bow, apologize and move on model only serves to perpetuate the status quo. So does the continued power of bureaucrats. Tokyo should reshuffle civil servants into different ministries every few years to reduce chances for fiefdom building that stymies change. Amakudari, the corrupting practice of bureaucrats lining up retirement gigs in industries they oversee, must go.
Keidanren, meanwhile, should wake up and smell the Chinese century. It’s time Japan’s main business federation started tossing out or suspending members. Why put out lengthy and obvious “Charter of Corporate Behavior” guidelines when no one’s reading? The latest, on Nov. 8, serves up lofty talk of a futuristic “Society 5.0,” while glossing over the fossilized mindsets in its ranks hogging the global headlines.
Why not take resources Keidanren lavishes on conferences and public relations and create a corporate responsibility rating system? Japan desperately needs peer review rankings based on specific metrics for transparency, enlightened restructuring, meritocratic principles and responsiveness to shareholders.
The steady parade of quality scandals is nothing less than existential threat to the Japan brand. It would be great if Abe’s team noticed and acted accordingly.
Based in Tokyo, William Pesek is the author of “Japanization: What the World Can Learn from Japan’s Lost Decades.”