The case study that Professor Shigeru Asaba uses to introduce its MBA programme is the governance failures at Toshiba, which almost brought down one of the most famous industrial names in Japan.
“It raises a whole series of questions from who is at fault and what the failure was to the fundamental issue of whom a company should be managed for,” says Prof Asaba, dean of Waseda Business School, Tokyo.
Toshiba, once a poster child of Japan’s efforts to police corporate behaviour, suffered a $1.3bn accounting scandal in 2015 and later overhauled its board.
In 2017 its governance came under scrutiny again as the company’s survival was threatened by a $6.3bn writedown of its nuclear business. The incident raised questions over whether Toshiba had adequate oversight of Westinghouse, its US subsidiary that had filed for Chapter 11 bankruptcy protection and was ultimately sold.
The Toshiba debacle, along with corporate crises at Olympus, Nissan and Lixil, has catapulted governance to the top of the agenda for Japanese business schools, which are training a new generation of managers that will run companies with a global outlook.
The traditional Japan Inc structures, a network of invisible allegiances that offer mutual support in times of trouble, are unravelling in the age of globalisation. This includes the breakdown of keiretsu — ties that bonded companies with their suppliers and customers through a network of cross-held share stakes.
The mutual support offered by these bonds underpinned Japan’s postwar economic growth. Companies, however, can no longer rely on a shrinking home market and are less inclined to spend precious capital saving domestic allies when growth is outside Japan.
The breakdown of traditional ties has been accelerated by prime minister Shinzo Abe’s push for better governance. This makes it harder for companies to win shareholder support for the financially inexplicable moves that once characterised domestic bailouts.
In addition, cash-rich Japanese companies that have made outbound acquisitions face the task of running their new businesses efficiently and ensuring corporate governance is in place.
At the heart of the Japanese debate is the question of whether leaders need to shift focus.
Traditionally, governance has supported the longer-term interests of employees, customers and suppliers. As Japanese businesses look overseas, though, some question if more emphasis should be placed on shareholder interests.
Critics of the trend to adopt US-style shareholder capitalism point to a change in stance even among American chief executives. In August, The Business Roundtable, one of the US’s largest business groups, abandoned its adherence to shareholder primacy and acknowledged the need to consider the environment and workers’ wellbeing alongside short-term pursuit of profits.
“What our programme focuses on is explaining the changes behind Japan’s push for governance,” says Yoshinori Fujikawa, MBA programme director at Hitotsubashi University Business School, Tokyo. “Understanding the context is important.”
To illustrate the divide between the two approaches, Mr Fujikawa cites US activist Daniel Loeb’s campaign against Sony.
In 2013 Mr Loeb urged the Japanese group to spin off part of its entertainment business and unlock its value through an initial public offering. Sony rejected the demand but it did address some shareholder concerns: it improved the disclosure of its entertainment business to investors and overhauled its management team in Hollywood. In doing so it went further than other Japanese companies.
This year Sony came under fresh pressure from Third Point, Mr Loeb’s hedge fund, which demanded that the group sell its image sensor business to allow more focus on entertainment. The Japanese group again rebuffed his proposal, arguing that the business was vital to its long-term growth strategy
At Hitotsubashi University’s Graduate School of International Corporate Strategy, Tokyo, where 80 per cent of students are from overseas, the Sony case study can often lead to heated discussions on how the group should have responded to Mr Loeb.
“The more Japanese companies are successful in becoming global, the more challenge they face from shareholder capitalism,” Mr Fujikawa says. “The clash in opinion is a good learning experience.”
Business schools have tried to address students’ interest by incorporating governance more broadly in lectures.
Waseda Business School reports that 15 of 33 courses cover corporate governance in some way. Other popular lectures are those that look at the environment, sustainability and social ethics.
Interest in corporate governance also reflects a change in the make-up of students at business schools.
Professor Takuro Yoda, dean of Keio Business School, says that historically 80 to 90 per cent of its students were young managers sent by employers who were expected to return to their companies and stay until retirement.
“Now half our students are considering starting their own businesses,” Prof Yoda says. “For those who want to run their own companies, they feel strongly that governance is basic knowledge that needs to be acquired at an early phase.”
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