Presentation to the Asia Pacific Technology Network at Chatham House London in 2006.

1. Anglo
Turning
Saxon?
Pernille Rudlin
Rudlin Consulting/Japan Intercultural
Consulting

2. Agenda
 Anglo Saxon or Japanese stakeholder?
 Carrots and sticks in both systems
 Recent scandals and the need for further
controls
 Have Japanese companies changed?
 The supply side – has the Japanese worker
changed?
 Entrepreneurship

4. A false dichotomy?
 Anglo Saxon
 Companies should be run to maximise returns
to shareholders
 Japanese stakeholder model
 Companies should be run to benefit the
community of employees
 Companies should also benefit society

5. The pitfalls in both models
 Anglo Saxon
 Agency problem
 Japanese stakeholder model
 Free rider problem

6. Carrots and sticks
 Anglo Saxon
 Carrot – remuneration tied to share price
 Stick – the sack
 Japanese stakeholder model
 Carrot – status within the group
 Stick – shame within the group

7. Distortions and recent failures
 Anglo Saxon (or Anglo American)
 Greed leading to accounting fraud – Enron,
Worldcom, Global Crossing
 Japanese stakeholder model
 Fear of shame leading to cover-ups – Long
Term Credit Bank of Japan, Mitsubishi
Motors,Kanebo

8. Corrections
 Anglo Saxon (or Anglo American)
 Corporate governance
 Sarbanes Oxley
 Japanese stakeholder model
 Move to shareholder model?

9. Corrections so far
 Stakeholder solutions to a stakeholder
problem
 Companies restructuring themselves to make
P&L centres clearer, focus on cash flow,
reducing debt
 Laws supporting this:
 Accounting ‘Big Bang’ 1999 -
 Holding company law
 Limited introduction of performanced based
pay, mainly to cut pay roll costs

10. Corrections so far
 Other stakeholders – ‘keiretsu’
 Reduced cross shareholdings (18.4% of value
of all shares traded in 1987, 7.6% in 2003)
 Bank borrowings reduced from 1/3 of total
assets in early 1980s to 1/5 total assets
 But ‘main bank’ concept still persists (96% of
Nikkei 500 corporations surveyed in 2003 said
they had a ‘main bank’
 Hostile M&A still not happening – acquisitions
still perceived as aid to a failing company

11. Corrections so far
 Other stakeholders – the state
 Amakudari
 Industrial policy
 Asia

12. Successful stakeholder companies
 Toyota
 Lifetime employment “for Toyota an immense
plus”
 Canon
 “Lifetime employment…conforms to Japanese
culture and is our core competence to help
survive global competition” Fujio Mitarai 2002
 ‘Family-owned’ Murata, Omron, Kyocera

13. The supply side – Japanese workers
 850,000 NEETs
 4m freeters
 5m part timers 1985, 12m 2000 = 21% of
workforce, now nearly 1/3 of workforce
 1986 Worker Dispatching Law
 Job-hopping
 Rising income inequality
 Entrepreneurs?

14. Entrepreneurs
 May 1 2006, new commercial code
(Shouhou) enabling limited liability, ¥1 capital
 Previously:
 Substantial capital required
 Kabushiki Kaisha needed 3 directors
 High personal risk to directors as bank
borrowing required personal guarantee, using
own money

15. Entrepreneurship in a group oriented
society
 Outsiders so cannot be controlled through
company-based group status and shame, so
have to find other controls?
 Society-based group shaming, for anyone
seen to act against benefit of society
 Roppongi Hills Tribe - Livedoor, Murakami
Fund
 Softbank , Rakuten – still OK!
 Corporate venturing

17. Conclusion
 Japanese stakeholder model still alive and
kicking
 But ‘lost decade’ actually a time of significant
adjustments to the model
 Younger generation show some signs of
entrepreneurship, individualist career
development but group orientation still strong
influence
 As economy recovers, revert to old ways?