Resolute Japan: A Leadership Model for the Longer Term
October 8, 2024215 views0 comments
In an excerpt from their new book ‘Resolute Japan: The Leaders Forging a Corporate Resurgence,’ authors Jusuke J. J. Ikegami, Harbir Singh, and Michael Useem explain what “long term” means to many Japanese firms.
Intrigued by a comeback among Japanese firms, Waseda University’s Jusuke J. J. Ikegami and the Wharton School’s Harbir Singh and Michael Useem interviewed more than 100 CEOs and top executives of Japan’s largest and most influential companies to understand what has led to this success. In the process, they discovered a new leadership model that also holds promise for leaders around the world.
In their new book Resolute Japan: The Leaders Forging a Corporate Resurgence, they write, “Japan’s resolute leaders, we have found, have a longer-term focus on enterprise agendas than in the West, combined with a nearer-term discipline in their execution. At the same time, they are riveted on a host of beneficiaries, not just the institutional investors that have so dominated the United States. They are doubling down on fresh talent and nimbleness in deployment. They are remixing their portfolios to better advantage. And they are more ambidextrous, simultaneously serving diverse constituencies and varied agendas: shareholders and stakeholders, short-term gains and long-run goals, and stability and agility.”
In this excerpt from the book, we learn more about what “long-term” means to many Japanese firms.
Few executives and directors in the West, or anywhere for that matter, are naturally drawn to distant gains over immediate results — the future is always hazy, and the gains delayed — but in witnessing this penchant among Japanese companies, one is reminded that a disciplined frugality now can generate outsized returns later on.
We witnessed this mindset in Hideki Kobori, chief executive of Asahi Kasei Corporation, a maker of chemicals and materials across many national markets. When he became chief executive in 2016, he stressed that the company should grow its sales in ten high-potential arenas, and his timeframe for achieving this target was not one or five years ahead but ten. The share of the company’s income from the growth areas must double from 35% to 70% by 2030. Kobori explained why long-term for him was indeed very long: “My mission is to convey to people that Asahi Kasei is a company with a hundred years of history. My mission is to build up a solid base for the next hundred years so that we can continue to prosper and contribute to society. That’s why I accepted the position of president.”
We found that same focus on the horizon, even if costly now, at Cainz Company, a retailer of home products ranging from construction materials and small appliances to pet supplies and gardening goods. It sells through more than 200 stores staffed by more than 13,000 employees. Though a family-held enterprise, Cainz turned to outsider Masayuki Takaya as president in 2019. On arrival, he did not hold his fire, baldly insisting on contracting the firm’s revenue and profit streams during his first year. He bluntly explained to both the founding family and the frontlines that pouring money into staff development now would “jump” earnings later.
Long-serving executives warned CEO Takaya that he would be forced out. But Takaya countered that “I don’t know how many years I will be in this position, but the long-term sustainability of the company depends on how many people with management skills I can develop,” and that would take the next five years. And he thus sought to start “as soon as possible!” He focused on promising managers two layers down who aspired to move up. “I am conscious of giving such positions to the next generation of personnel as much as possible,” he explained, “giving them authority and training them” in strategic and innovative thinking for the “long term.”
Yet getting to that long term requires near-term discipline if the operation is to hit those distant benchmarks. Thus, execution now becomes vital even if there is little to show for it now. Consider Takaaki Nishii, chief executive of Ajinomoto Co., a multinational maker of food and biotechnology products — frozen foods and seasonings among its staples — with more than 34,000 employees in 2023. In order to achieve faraway objectives, CEO Nishii identified challenges in the leadership of executives, including himself, through employee engagement surveys. He insisted that the company not become too dependent on prevailing technologies, since they came with the risk that a boon could morph into an albatross. “If we are too particular about our own technology,” he warned, “it will be a disaster,” since the number of competitors had sharply increased with the advent of digital platforms.
If distant benchmarks were to be achieved, the Ajinomoto CEO accordingly sought management readiness for “high-speed change” in the present. “I think that management here is extremely important” for driving those changes for the long term, he advised, and for that he concluded that repeatedly articulating the company’s longer-term “purpose” would be vital. “Our vision,” he said, “is to be a company that solves food and health issues,” making products that are both tasty and nutritious. Nishii instituted annual engagement surveys running to a hundred items in order to help foster the firm’s long-term mindset. Too few employees — just 55%, according to his present surveys — believed that they were directly contributing to the firm’s enduring purpose, and Nishii targeted a benchmark of 80%. Taken together, he intended for several initiatives to accelerate his firm’s flywheel, circularly reinforcing his firm’s customer value, brand aura, and market capitalization.
Technological innovations such as solid-state batteries and full electrification were expected by 2035, and for that reason, “I think we need to keep our eyes on at least that far ahead or we will make a wrong decision.” Without that, warned the Ajinomoto CEO, the company would be “chasing our dreams a little more than earnings.”
Leading for the long term comes in many guises, sometimes without even referencing the time factor, but nonetheless managing for it, as can be seen at Chugai Pharmaceutical Company. Founded in 1925 and with a workforce of more than 7,000 in 2023, Chugai had become Japan’s largest pharmaceutical firm by market cap in 2023, standing at ¥896 billion, surpassing that of Takeda Pharmaceutical Co. and Daiichi Sankyo Co. The bigger competitors traced their lineage back a century in the case of Sankyo (1899), and two centuries in the case of Takeda (1781), but in fewer decades Chugai had managed to break into their league.
In the view of Chugai honorary chair Osamu Nagayama, his company’s acceleration into the top tier came as the company looked far ahead to see where the industry would be moving. In an extremely rare event in Japanese industry, Chugai reached out in 2002 to the Swiss healthcare giant, F. Hoffmann-La Roche, to arrange for a majority stake in Chugai during a time of prosperity. They agreed that Chugai would keep its name, remain listed, and maintain its independence. This allowed Chugai to not only take advantage of synergies with Roche in both sales and development, but also to promote its business through its own autonomous decisions. In the wake of the decoding, new classes of drugs based on large molecules were in the offing, but their development, to the chair’s lament, were sure to “cost us a fortune.” Bringing Roche into its ownership without day-to-day control, the chair explained, would “enable both companies to survive and grow and develop a strong business for a long period of time.” Going for the long term with Roche, Nagayama reflected, was the most important single decision he had made in his lengthy career, including his service as a director for both Sony and Toshiba.
Yoshinobu Tsutsui, chairman of Nippon Life Insurance Company, summed up well the precept that thinking long is long: “Nippon Life has provided people with peace of mind for the past 130 years. Our vision and strategy for the future will also need to be long-term. I believe that the 30 years or so of super long-term bonds is a period that the company should be aware of as long-term. Our management is to incorporate that 30-year vision into a 10-year strategy, and to operate it while going back and forth with day-to-day activities on the frontlines. However, when thinking 10 to 30 years future, information about the future is important, but it is also necessary to examine past history. Having one’s own view of history broadens one’s perspective. Top leaders should recognize the importance of having a historical perspective and going back and forth between the past, present, and future when considering long-term strategies for the future.”