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Japan needs to get off Galapagos

Published: 09 Dec. 2013, 20:50

As the world takes stock of why Shinzo Abe’s drive to revitalize Japan is flailing one year on, companies are an easy culprit. Japan Inc. just isn’t raising wages or spending the way Abenomics envisioned. But in other ways some corporate executives are proving to be gutsier than a prime minister who talks of change but has delivered little thus far. Softbank’s Masayoshi Son is expanding abroad with a bold acquisition of U.S. wireless provider Sprint. Rakuten’s Hiroshi Mikitani has taken on the fossilized ideas of Japan’s biggest business lobby and the nuclear industry. Fast Retailing’s Tadashi Yanai is plotting world domination for clothing brand Uniqlo. Honda’s Takanobu Ito has made English the company’s official language.

While all of the above moves might sound obvious to Harvard MBAs, they are out of the norm for Japan Inc. and should be championed and facilitated by Abe’s administration. Add Takeda, a Japanese drugmaker that’s more than two centuries old, to the list, as it moves toward naming its first-ever non-Japanese chief executive. The company has hired 20-year GlaxoSmithKline veteran Christophe Weber as chief operating officer with an eye toward having him succeed CEO Yasuchika Hasegawa and, hopefully, pulling off a “Ghosn.”

The reference, of course, is to fellow French passport holder and Nissan chief Carlos Ghosn, the CEO Japanese call “Le Cost Killer.” When he took over the faltering automaker in June 2000 and began cutting jobs and downsizing everything in sight, Ghosn was derided as an evil foreigner running roughshod over the Japanese way. Three years later, Nissan’s turnaround assured, Ghosn had attained rock-star status in both business and culture. His battle to resurrect a corporate zombie even inspired a manga comic book series.

Drugmaker Takeda’s problems are a microcosm of Japan Inc.’s: an economy in the doldrums, an aging population, rampant price competition from abroad (in Takeda’s case, cheap generic drugs, too) and a corporate culture protective of its clubby ways. The hope is that Weber will shake up the corporate culture, cut costs and reach abroad to find growing markets.

Insularity is a long-standing problem in Japan, often referred to as the “Galapagos syndrome.” Products are highly evolved but don’t survive well beyond the water’s edge. Non-Japanese CEOs - only two currently run Nikkei 225 companies - themselves can seem like the business equivalent of the endemic species that Charles Darwin found on the remote islands off Ecuador’s coast.

To his credit, Abe recognized this early on and talked about compelling companies to welcome at least one outside director and a female board member, too. But intense pressure from Japan’s powerful business lobby, Nippon Keidanren, has made Abe water down pledges to make companies more vibrant and responsive to shareholders. Perhaps Abe senses it’s counterproductive to cross the CEOs he needs to raise salaries if Abenomics is to have a fighting chance.

One reason a Ghosn-like hire might work for Takeda is the wild-card dynamic it tosses into a company almost as old as America. Weber is an outsider to Takeda, making it easier to close businesses, fire workers and ignore the seniority-based promotion system that restricts the size of a company’s talent pool and, by extension, its profits. Competing in global markets means pulling together an A-team, not a bunch of clock punchers next in line for a corner office.

Of course, success will depend as much on Weber as Takeda’s board. Japan’s more recent experiments with gaijin CEOs went awry. Welsh-born Howard Stringer, for instance, got the top job at Sony in 2005 amid great fanfare. He fired thousands of workers but failed to fix Sony’s notorious “silos problem” - several divisions jealous of each other’s resources, looking in different directions, barely talking to one another, and sapping the company’s once fabled innovative spirit. Last year, Stringer stepped down after four straight annual losses.

Michael Woodford’s experience made for even worse headlines. In April 2011, Olympus President Tsuyoshi Kikukawa thought he’d found the ideal corporate lackey in Woodford, a Briton. He would offer the illusion of outside, international thinking, but be a pushover in the boardroom. Hardly. Woodford discovered the camera maker was an Enronesque mess that had spent 13 years hiding loses that snowballed to at least $1.7 billion. Rather than reward him for trying to right the company, the Olympus board fired Woodford for “cultural insensitivity.”

To succeed Takeda must embrace change in a survival-of-the-fittest world that’s quickly evolving beyond Japan Inc. If Abe’s exhortations can’t do it, perhaps the private sector can show stuck-in-time vested interests how to escape Galapagos.

*The author is a Bloomberg View columnist.

By William Pesek