Japanese CEOs and Leadership

Toyota Posts Big Loss, Signals More to Come – WSJ.com

I saw this article on Saturday and it reminded me to go ahead and blog about a few other articles I’ve seen about Japanese CEOs lately. The big news about Toyota is that they formally posted a loss for the financial year (this was anticipated a while back). Toyota is also anticipating losing MORE money this year. Overexpansion and other poor decisions are haunting Toyota, it can’t be all blamed on the global financial crisis. Toyota’s President said:

“We were lacking in the scope and speed of dealing with various problems and issues, and for that I am sorry,” Mr. Watanabe said, adding that the global economy won’t recover soon.

When do you ever hear a Western CEO say “sorry” or “we were lacking”?? I don’t recall hearing words like this from executives at AIG, Countrywide, Fannie Mae, etc. etc.

Note: After writing this, I discovered there’s a post on that same “sorry” comment with good comments at the Lean Six Sigma Academy blog.

In Japan, more CEOs share the pain of tough times – USATODAY.com

This USA Today article from April stood out to me because of the comparisons between American CEO excess and the austere leadership from Japan Airlines and their CEO taking less than $100k salary and eating in the regular employee cafeteria:

“I wanted to share the pain with my colleagues,” JAL President Haruka Nishimatsu, 61, says by e-mail. Nishimatsu had just imposed an early-retirement program that ended the careers of “many staff of my generation.”

It’s great that Nishimatsu feels some sense of responsiblity and collegiality instead of just viewing the employees as underlings. The USA Today piece continues with some fun alliteration:

Japanese-style executive modesty is looking good again for the first time in two decades, thanks to the avaricious antics of American CEOs who lived large as their firms hurtled toward oblivion.

“Avaricious antics” — good writing :-)

Japanese CEO pay never reached stratospheric heights. According to the consultancy Towers Perrin, CEOs of big Japanese companies earned an average $809,000 in 2003 — chump change compared with the $11.4 million raked in by their average U.S. counterpart. The figures, the latest comparison available for U.S. and Japanese executives, include base salary, annual bonuses and long-term incentive packages.

Now beyond the attitude, there is some debate about whether the low pay is actually good for companies… are Japanese companies not attracting the “best and the brightest” as the American mantra about the need for high pay says?

But other experts say there’s a reason the Japanese management model fell from favor after Japan entered a long economic slump at the beginning of the 1990s: Japanese compensation packages don’t give CEOs much incentive to look out for shareholders — the people who own the firm. No wonder Japanese firms are typically about half as profitable as U.S. firms, according to the Japanese government.

“I emphatically don’t think U.S. firms should adopt Japanese-style compensation plans,” says Brian Heywood, whose firm invests in Japanese companies. “In general, I do not believe that the current Japanese compensation system aligns management with shareholders effectively.”

But then again, Japanese CEOs aren’t taking crazy short-term risks that end up blowing up on them (unless you consider Toyota’s overexpansion….).

Moreover, argues management professor Gangaram Singh of San Diego State University, U.S. compensation packages, heavily weighted toward stock options, encouraged CEOs to focus on short-term gains in earnings and stock prices, rather than on the long-term health of their firms. “Greed and short-term orientation have gotten us into this situation,” he says. “Short-term goals can bring all types of deviant behavior.”

So we probably need some balance between the approaches? Anyway, check out the full piece (a long one by USA Today standards) and other examples and the comparison of American CEOs as “cowboys” and Japanese CEOs as “team players.”

Kyocera founder Kazuo Inamori criticizes U.S. CEO excesses

Later in April, USA Today also published an amazing interview with a Japanese CEO who loudly criticized the American/Western management excesses. His interview provides some insight into a more holistic Eastern way of thinking that might be helpful in understanding a bit of how Toyota leaders think.

We need to seek profits supported by sound ethics and a strong sense of morality. From the Eastern viewpoint, profits should be pursued for the good of society, and not only for one’s self. There is the principle of “enough is enough,” that one’s greed should be contained. There might be slight differences in how we interpret these concepts depending on our cultural or religious background, but I think the free-market economy will move in a better direction if people were to share such values.

Inamori gave a great answer when asked about high CEO pay:

Sounds like you are a critic of high CEO compensation. Doesn’t their pay reflect free-market forces?

A: A lot of Americans use that rationale. But there are only a handful of exceptional athletes who attract tens of thousands of fans, thus creating enormous revenue for the team. A star player who possesses that rare talent should receive an appropriately higher salary. It is the same for an actor who stars in a blockbuster film. It is different for the CEO of a company. Profits are created by the hard work and collaboration of the workers and other levels of management. For the top echelon to receive such high compensation, as if they alone were responsible for the profits, is unreasonable. We should possess the consideration and humility to provide all employees who work for the company with an appropriate share of the gains. That is lacking in today’s capitalism or free-market economy, and its absence is responsible for the growing disparity, discrimination and injustice in society.

Which type of boss (better to say “leader”) would you rather work for? Inamori or someone like Jack Welch or Bob Nardelli?

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Mark Graban's passion is creating a better, safer, more cost effective healthcare system for patients and better workplaces for all. Mark is a consultant, author, and speaker in the "Lean healthcare" methodology. He is author of the Shingo Award-winning books Lean Hospitals and Healthcare Kaizen, as well as The Executive Guide to Healthcare Kaizen. His most recent project is an eBook titled Practicing Lean that benefits the Louise H. Batz Patient Safety Foundation, where Mark is a board member. Mark is also the VP of Improvement & Innovation Services for the technology company KaiNexus.

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6 Comments on "Japanese CEOs and Leadership"

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  1. Panu Kinnari says:

    Some nice JIT bashing in this blog posts comments as well.

    Last comment by Gary as of now:
    FINALLY! What’s the OZ song? The wicked witch, the wicked witch is dead! Japanizing ourselves by subscribing to warehousing practices developed by a country bursting at the seams with no space finally is shown up to be the sham it is. JIT is pure bull. Having no inventory is idiotic, and so is the US tax policy on warehousing. America has plenty of space to warehouse stuff and should not be penalized. This ship one nut 3 times a week is not only inefficient from a fuel usage perspective, it is just stupid. Send a box of 100 or 1000 and be done with it.

  2. Mike says:

    Ego! The care and feeding of giant egos, combined with greed and lack of humility. Those are the main reasons the U.S. has become second-rate. Wantabe’s demeanor is reflective of a different culture. Focus on process and profits usually follow. When mistakes are made, the Japanese admit to it, reflect on it, learn from it and continuously improve.

  3. Mark Graban says:

    Panu-

    Thanks for sharing that… what’s idiotic is not understanding an idea and implementing it blindly as Gary was saying. Is the problem JIT or is the problem the people Gary is working with?

    Of course shipping one nut three times a week probably doesn’t make sense.

    I don’t drive to the suburban Wal-Mart store 20 minutes away to buy a can of coke each time. Zero inventory of diet coke in my house WOULD be idiotic, but you know what… I think before I implement something.

    It’s sad to see people make mistakes and then disparage the concept or the tool.

    Same thing happens with Six Sigma, 5S, etc. It’s a common and basic human failing to not looking the mirror… to not say, what else, “sorry.”

  4. Anonymous says:

    Thanks for a great post – Almost daily the UK government and UK industry announces another ‘quick fix’ for the credit crunch. These fixes are about as much use as using a band-aid for open heart surgery. If only the government and industry would look to the root causes they may encounter what Gangaram Singh describes as ‘greed and short-term orientation’ along the way. A lot of stimulating stuff in here. Thanks

    Tom

  5. Anonymous says:

    I apprecate your comments comparing Japanese to American companies. I take nothing away from the Japanese companies when I say; can you find one American company that also sets a good example. Tell me all American companies are not patterned after the auto industry. Occasionally it would be good to hear that “the auto industry only needs to look at _________ down the street to see real character, vision and planning.”

    Thanks,
    Debbie

  6. Mark Graban says:

    Debbie – great point.

    It’s never as simplistic as “all Japanese companies are good” and “all American companies are managed badly.”

    I try not to portray it that way…

    Who would you nominate for character, vision, and planning? There are a lot of companies like that here in the U.S. and around the world, I’d agree.

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