Like the Lord High Executioner in The Mikado, every crusty commentator has the Japanese on his little list. We all know the Japanese are derivative copycats, incapable of original discovery, who a century ago copied the patches on the boilers of steamships, and today still copy Western inventions in a sneakily profitable manner. We also know they are xenophobic, protectionist, unthinking robots with no sense of business ethics. And on our side, as the Noble Lord Pish Tush sang, ‘And I am right, And you are right, And all is right as right can be!’
Unfortunately, we also wallow in green-eyed jealousy. We know that the Japanese idea of a slump is a growth rate that would pass for a boom in the UK or the US; and that Tokyo is panicking over an unemployment rate about one third of that of any of its Western rivals, while Japanese products continue to elbow ours off the counters of the world.
Of course, there is some truth in the accusations often hurled against Japan, but those wonderful Congressmen who coddle American wheat farmers and sugar producers are hardly qualified to question the Japanese Diet’s rice protection. And those who sniff at Daiwa Bank’s problems in New York could compare this somewhat technical crime with the multi-trillion dollar Savings & Loans rip-off that US taxpayers will be paying for over many years to come.
Anglo-Saxon attitudes being what they are, it is hardly surprising that mere technical details like our low growth rates and endemic domestic stagflation don’t diminish our confidence in the superiority of the Anglo-American model.
But our confidence is hardly justified. For example, looking at Japanese investor relations is like looking ‘through a glass darkly.’ Japanese forms of joint stock ownership and corporate governance may appear similar to those the rest of us are used to because, superficially, the rules are the same. Western investment professionals tend to adopt a disdainful attitude, assuming that the Japanese model is either inferior or conceals some protectionist legerdemain. But, as is often the case with written constitutions, the social assumptions underlying it are more important than the text.
Ironically, some Western companies are now emulating Japanese industrial organisation – often as slavishly and pointlessly as in the anecdotal boiler patch example. They are only slowly beginning to realise that those methods come as part of a package that includes at least some of the appurtenances of Japanese corporate government and social norms. One of those is a mutual obligation between a company and its employees, not to be lightly cast aside for masochistic downsizing exercises aimed at gratifying the sadistic appetites of institutional investors transferring their no-pain no-gain strategies from health club to the trading floor.
One could speculate that Japan moved almost overnight from a feudal system, with complex interlocking relationships of mutual obligation and loyalty, into a modern industrial system. In Britain, those old obligations had broken down before industrialisation. The clansmen and the peasants were displaced to make way for land enclosures as callously as present generations of employees have been treated as fair game for plant closures.
There are other aspects of Japanese investor relations that annoy or perplex monocultural types who find it difficult to conceive of different ways of doing things. As veteran Japan IR watcher Kirk Patterson comments, ‘Japanese investors’ behaviour isn’t based on the fundamentals, as the West sees it. In fact, while the Western model is based on perceptions of fundamentals, the Japanese is based on perceptions of perceptions, on how other people see it.’ For example, Japanese investors are not interested in quarterly reports since, Patterson says, ‘To the extent that investors are picking stocks, they are interested in what they see as the future, rather than the recent history, of a company, and in macroeconomic changes. So P/E ratios seem to have little effect.’ Wisely, Anderson refuses to dismiss this out of hand.
Similarly, as Deborah Hayden of Gavin Anderson in Tokyo points out, market share is more important than share prices: ‘Shareholders don’t even make the top ten of what companies are about.’ This would be thought criminal in London or New York. But in Japan, notwithstanding Sony’s recent breaking of the mould, executive pay is generally not determined by share prices. Instead, big executives get perks that allow a good lifestyle on a relatively low salary – in return for quasi feudal loyalty to the company.
Another contentious practice is the web of cross shareholdings among different Japanese companies, sometimes accounting for up to 70 per cent of the equity, which adds a whole new structure of horizontal investor relations to the vertical ties of industrial relations.
Theoretically, one could argue that there is a shortfall of information in the system, and that the lack of pressure from investors reduces the information available to management. But in the end the Japanese system responds well to the real market – the consumers whose individual decisions together determine whether or not a company thrives.
Obviously one result of the mutual cultural incomprehension is that Japanese companies’ relations with foreign investors leave something to be desired; another, indirect, result may be the closing by many foreign brokers of their Tokyo offices. But looking at the ‘fundamentals’ of the Japanese economy compared with the American or British, who could seriously say that different means inferior?
