Japan Inc to continue appointing foreign CEOs

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Japanese multinationals are expected to continue appointing foreign CEOs as part of corporate strategies to establish themselves in overseas markets and become global players, industry sources and analysts told mergermarket.

Foreign chief executives in Japan include Carlos Ghosn, president of Nissan Motor; Howard Stringer of Sony Corp; and Craig Naylor of Nippon Sheet Glass. Michael C. Woodford served as Olympus chief until days ago, when he was dismissed due to “cultural differences,” according to Olympus chairman Tsuyoshi Kikukawa.

The ousting of Woodford and the drama that ensued, however, is unlikely to have any effect on Japanese companies looking to appoint foreign CEOs as part of their growth strategy, a Japan-based analyst commented. “This is a one-off (situation) and should not affect plans to hire foreign executives as CEOs of major Japanese corporations,” he continued.

One of the main reasons for appointing foreign CEOs at Japan’s top-tier companies is to have them implement drastic restructuring measures in their overall operations, including mass employee layoffs, a Japan-based industry source said. “Japanese managers are reluctant (to lay off employees) – this is a country where ‘conformity’ and ‘harmony’ prevails, and Japanese must adhere to this unspoken code,” he explained. “This is where the foreign CEO steps in and handles matters,” the source added.

Indeed, since Stringer’s arrival at Sony in 2005, the company has laid off 16,000 full- and part-time employees and pushed the electronics conglomerate to move towards digital media, according to reports. Ghosn, meanwhile, joined Nissan in 1999, cutting 21,000 jobs and closing factories, but ultimately ended up saving the Japanese motor company from bankruptcy.

Woodford, during his 30-year career at Olympus, made a name for himself as a cost-cutter, restructuring the company’s US and European medical devices businesses. “If I’d been Japanese, then I wouldn’t be president,” he was quoted as saying to the Financial Times in July 2011. Woodford had commented that if he were Japanese, his management style would not be acceptable. “The Japanese have a saying…if you’re the nail that sticks out, you get hammered down,” he had said.

Nippon Sheet Glass had previously announced that it decided on appointing a foreign CEO because he could bring change to the company faster than a non-Japanese executive could, as reported.

Having a foreigner as CEO of a Japanese company is a trend that we should see more of going forward, the industry source said. Japanese companies need to learn about global business standards so it is natural for a foreign boss with expertise in business to be appointed at the helm, he continued. “This latest incident with Olympus has proven that there is still a long way to go, even for top-tier Japanese companies, in terms of corporate governance,” he added. “Investors do not care who is CEO as long as he or she improves the company’s performance. Operating profit margins at Japanese companies are often very low, so many view foreign CEOs as being one answer to this problem,” he continued.

A second Japan-based industry source agreed, and added that another driving factor is that Japanese companies realize they need to look outbound for growth. Many multinationals view it as a “good idea” to hire a non-Japanese at the helm to better integrate the company with outside markets, he explained. Even if Japanese companies acquire an overseas company with a large network, that effort may go to waste unless management is able to successfully integrate the two companies, the source said, adding that foreign executives have the image of being quicker and more aggressive in implementing change.

A Japan-based banker, however, noted the Olympus scandal could cause Japanese management to think twice about naming a foreigner as CEO. However, there are cases where foreign CEOs have implemented big, positive changes, he said, citing Carlos Ghosn’s turnaround of Nissan Motors. “Going forward, though, Japanese companies will continue to hire foreign CEOs or foreign board members since Japan is keen to build a global presence amid a grim domestic outlook,” the banker said.

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