facts about japan

China And Japan Keep CEO Leadership In The Family

In the 1980s and ’90s Japan was a growth center for many executive search firms, including Korn Ferry, Heidrick & Struggles, Spencer Stuart, Egon Zhender and Russell Reynolds, yet headhunting executives searched exclusively for the likes of IBM, Proctor & Gamble and Louis Vuitton–all multinationals, not Japanese corporations.

Nearly three decades later, with China surpassing the Japanese economy, the executive search partners’ global annual meetings revolve around the struggling U.S. and European economies, multinational search upswings in China and India and long discussions on how to “fix” the Japan operation.

In the early 1980s IBM was the catalyst for the tremendous wave of foreign investment in Japan when it moved its Asia-Pacific headquarters to then-new upscale ARK Hills Mori office tower (simultaneously, the “opening” of the Japanese stock exchange sparked a rush by Goldman Sachs, Morgan Stanley and other investment banking firms into Japan–and more business for head-hunters); quietly and symbolically during the last few years the IBM APAC operations have relocated to Shanghai.  Contrary to expectations of the 2000s decade, no new influx of multinationals descended onto Japanese shores and many Silicon Valley start-ups bypassed Japan for China–adding to the gloom for global recruiters.

Would active engagement with foreign search firms during the last two decades by Japanese corporations have led to a different economic picture in 2010?  That is, if a Sanyo or JAL or Renown turned to partnering with a Korn Ferry or Spencer Stuart back in the 1990s, would each firm–the first absorbed as a Panasonic subsidiary, the second forced into bankruptcy and nationalized by the Japanese government and the third acquired for its global brands by an upstart Chinese firm–still be independent and highly successful with new, dynamic leadership?

To speculate, for example, would an innovative Chinese-American CEO at Sanyo go “all in” for solar panels and electronic tablets (with Board Directors representing all major markets with strong linkages to channel partners), and abandoned the money-losing handset division years ago?  Or would a British CEO from a no-frills budget airline transform JAL into a efficient business carrier with lucrative international routes, and spun-off a domestic airline–with government investment–with service to airports in rural Hokkaido and Tohoku, both regions with little passenger traffic, but essential for election votes?

Everything is crystal-clear in hindsight, but during both the sensational Japanese “Bubble Years” and today in the “no end in sight” Japanese recession, many Japanese firms were not pressured to change to the Western corporate governance framework: that is, a CEO monitored by an experienced, disciplined Board of Directors in a “checks and balances,” “transparent” ecosystem.  Also, the CEO performs in accordance with upholding shareholder rights, and (ideally!) executes strategy to increase stock value.  However, Japanese companies with stock cross-holdings (stocks are mostly owned by other affiliated “Keiretsu” Japanese companies and friendly banks, not by Main Street investors like in the U.S.) can ignore such objectives, and they cling stubbornly to promote executives from within, based both on seniority and consensus by internal management factions.  For leading Japanese corporations, a foreign global recruiting firm is the last place to ask for advice for a CEO search or to “partner” with to develop the best Board of Directors background profile.

In their stellar times, the success of Japanese firms led by brilliant Founder/Family Member/CEOs–like Akio Morita (Sony), Shoichiro Toyoda (Toyota), Kazuo Inamori (Kyocera) or Konosuke Matsushita (Panasonic)–was undisputed.  From the 1960s to ’80s, Japan exported cars, electronics, ships and toys globally: no foreigner then would have even ventured to mention a CEO search for Toyota, which made best-selling cars for consumers in Kansas City, Bristol, Singapore and Johannesburg.  In many ways, success bred righteousness, and Japanese CEO succession was not seen as a house of cards until the popping of the “Bubble Economy” in the late 1980s (and the retirement of many post-war Founder-CEOs).

Two major Japanese firms have appointed non-Japanese CEOs: Nissan (Carlos Ghosn) and Sony (Howard Stringer), so precedents do exist, and it is interesting to note that two high-flying Japanese firms–Rakuten and Uniqlo–though both under Japanese CEOs have made English as official corporate language, so language is no longer the monolithic obstacle.

Although both would not admit it, China and Japan are alike in keeping leadership within the company “family,” and not allowing foreigners into top roles.  It is less about investigating the right leader who can best launch new products and increase revenues than ceding control to an outsider (although with future New York Stock Exchange listings, transparency will become a key word for CEOs of Chinese firms).  That Vodafone, a top U.K.-headquartered global mobile carrier, during the past decade had an Englishman, Indian-American and now an Italian at the CEO helm would be unthinkable at a Japanese or Chinese corporation.  Few leading Chinese firms have leadership succession planning nor do they have boards with real power to review a CEO’s judgment and planning, and even fewer would ever think of sharing company secrets and plans with an foreign recruiting firm, even Mandarin-speaking consultants with an Ivy League M.B.A.

A Chinese CEO who, for example, leads laptop plants throughout southern China, would view younger search consultants as dilettantes who have never endured harsh quarterly profit and loss reviews.  Global search firms should hire experienced regional and global operations leaders who have a wide range of personal “real-life” case studies, since Chinese executives value global experience, not a “Chinese” business background (what foreign “experts” have insights about consumers in Harbin or Hainan?).  Moreover, with Internet tools like Linkedin, candidates post background information on themselves and thereby render search firms’ detailed databases (their “crown jewels”) redundant.  In fact, in the future for search firm consultants it is increasingly what you know not who you know (like launching new products, branding, Internet, SNS–in short, cutting-edge business operations).

Like the extraordinary growth of Japanese firms during the “Bubble Years,” it is hard to challenge current Chinese business success.  Although Chinese executives may take lessons from Japanese high wages and lack of venture capital, they may not see any negative linkage between Japanese CEO or Board succession search and anemic economic growth, since they may empathize with the fact that Japan maintained a closed (shall we say “nationalistic”) business style.  Still yet to be foreseen is the level of leadership scandal that leads to a Chinese company meltdown or the impact of a “Black Swan” downturn that would be the catalyst for a Chinese firm’s frantic phone call to the Beijing Korn Ferry office.  Until then, global executive search firms will continue to lobby the Huaweis, Canons, Angang Steels, Toshibas and BYDs for the elusive Golden Age in Asia.

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