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Japanese Corporate Management and CSR

Tags: CSR , Business Management , Values , Globalization , Corporation

Ushijima, Keiichi

January 14, 2016

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CSR: A Misunderstood Concept

More than a decade has passed since Japanese companies actively began implementing initiatives under the “corporate social responsibility” banner. But the meaning of this concept is still not well understood, and relatively few companies consider it to be a core element of corporate management. The number of people who equate CSR with corporate philanthropy or with regulatory compliance has decreased, but it still tends to be discussed as something distinct from management, business operations, and the bottom line.

According to the Tokyo Foundation’s CSR Corporate Survey, the environment is just about the only field in which businesses incorporate measures to address social issues into their own products and services. They may be aware of other issues, but these are given only passing attention. In most cases, CSR activities are used as a means of achieving other objectives, such as improvement of brand image and the development of human resources.

This is due to the failure to understand CSR as a management concept or to define the role and operations of the CSR department in concrete terms. The scope of CSR encompasses areas ranging from the environment, supply chains, human rights, and the BOP (base of the pyramid) business. Such operations have generally been managed by other, existing departments within the corporation—supply chains by the procurement department, environmental issues by the environmental department, human rights by the personnel department, and so forth—so the CSR department has tended to be left dealing mainly with tasks like contributions to society, for which no other department had responsibility, and enterprise risk management, which it used to carry out before it was renamed the CSR department. As a result, people inside the company have come to see CSR as referring only to activities handled by the CSR department, notably contributions to society and risk management.

In what follows I will discuss the essential nature of CSR management and the place of CSR in global corporate operations.

Supporting Long-Term Sustainability

People often say that CSR is the very essence of corporate management. This has been misinterpreted by some to mean that corporate activities are already contributing to society—thus embodying the concept of CSR—so there is no need for companies to do any more than what they are currently doing.

A company is not likely to go bankrupt even if it breaks the law, but it can easily be driven out of the market if it stops paying attention to people’s needs. To achieve sustainable corporate management, companies must keep evolving by adapting to changes in society. The concept of CSR goes beyond legal compliance and includes the element of sustainability. So, the role of the CSR department is not just to keep abreast of new laws and regulations but also to ensure that management adapts to society in areas transcending the regulatory framework and to give managers advice on long-term orientation as a way of achieving sustainability for both the company and society. In other words, the CSR department should be expected to conduct medium- to long-term management planning.

Local Conditions and Global Norms

The globalization of corporate operations has greatly broadened the range of issues that must be addressed by management. Approaches that are in line with public expectations or have proven to be effective in the domestic market may not be applicable when doing business in countries with different laws and commercial practices or with people espousing different values.

At many Japanese companies, however, decisions affecting global operations are being made at a head office in Japan, primarily by Japanese people born and raised in the country. Is it really possible to get a feel for the rest of the world from a boardroom window in Tokyo? Is reading Japanese newspapers and watching Japanese TV news enough to gain an understanding of how people outside the country think?

Many Japanese companies have entered the Myanmar market today, but back when the country’s military rulers were suppressing human rights, I was involved in a debate at one Japanese company on whether or not to launch a business there. At the time, many Western countries imposed economic sanctions on Myanmar, so doing business there was out of the question for companies in those countries. But because Japanese law did not prohibit trade and economic activities, many managers at the company argued that operating in Myanmar would be no problem. This was an attempt by a company with its head office in Japan to apply Japanese rules to a situation in another country that was the subject of great international concern. The very idea of trying to apply the rules and conventions of one country to all regions around the world is unrealistic.

At the same time, there are some Japanese companies that go so far in respecting local rules and conventions that they fail to insist on adherence to international norms. For example, when considering whether to participate in the United Nations Global Compact, some companies reportedly hesitate due to the compact’s principle of freedom of association. There are some countries, they argue, where the formation of labor unions is prohibited. But such reluctance to enforce the compact’s principles is often just a veil for their own fears that if local workers were to unionize, they may begin pressing for higher wages. In many cases, they were never enthusiastic about upholding the Global Compact, and their deference to local rules was simply an excuse not to join.

These two cases may appear to be polar opposites, but they are essentially the same because both involve attempts to apply a particular country’s rules and values universally, without examining the true nature of differences and contradictions.

The key here is the company’s own values. Since the same issue can appear to have many aspects depending on the angle from which it is viewed, outward differences themselves are not so important; what is essential is developing a set of values on which management decisions are based and that are shared throughout the organization. Contradictions are bound to arise in a global enterprise. Rather than seeking to eliminate them, companies should focus on creating the values and philosophies that guide their actions and statements and form the basis of their corporate culture. These are the things for which companies should seek to win society’s support in order to achieve sustainable management.

Business Leaders for a Borderless Age

Various issues that the international community faces are discussed today in a borderless context—an approach called multi-stakeholder dialogue. And the business leaders of tomorrow will need to be capable of performing ably in such borderless arenas.

Until recently, the resolution of problems in areas like the environment and human rights was regarded as the domain of politics. But now we see government-affiliated organizations and initiatives seeking to get companies involved, such as through the UN Global Compact and the European Commission’s CSR strategy. At the same time, citizens’ groups, nongovernmental organizations, and others involved in addressing global social issues are pressuring companies to go beyond their legal requirements and address these issues proactively. These moves are helping to promote awareness of social responsibility in the business sector. Some companies today are larger than cities or even countries in the scale of their budgets and workforces. It is only natural to expect such giant corporations to shoulder their share of responsibilities for these issues.

While there is already active cooperation between industry and academia in research and development, joint efforts to address social issues are also on the rise. Furthermore, a growing number of investment funds are focusing on companies that undertake socially responsible management. In these ways, social issues are now being treated cross-sectorally by governments, civic groups, scholars, investors, and businesses.

Another aspect of the borderless age is the speed with which information travels around the world. Environmental issues have long been considered borderless, as water and air move without regard to political demarcations. Now, advances in information and communications technology have made information borderless as well. News of events occurring in faraway lands can be reported worldwide by the next morning, and such events can potentially affect global brands and reputations, even if the scope of direct damage and impact is limited. When a number of global companies became the targets of consumer boycotts in China during the lunar New Year holidays, for example, the news was reported first not in China but in the European press. Although the problem took place in China, the rapid spread of information made it necessary for the companies to explain the situation in Europe as well. This shows that dealing with problems only domestically may not address the problem completely. When a protest against a company occurs, it is important for businesses not just to conduct public communication activities in the country where it occurred but to share the information and coordinate its response with offices around the world based on an assessment of the likely global impact.

Economic activities, information, and corporate operations are already borderless, unrestricted by political dividing lines. In the face of globalization, companies need to view themselves as being more than just the incorporated entities of a single country and to take on responsibilities as citizens of a global community. Executives will need to manage their companies on the basis of values and ethics that transcend differences. A true leader in a globalized, borderless world is someone who has an objective view of their company’s and management’s responsibilities and is capable of achieving unity while respecting diversity.

True Global Management

Sometimes people in major corporations have the illusion that they can dictate what goes on around the world from the company’s head office in Japan. As long as this mindset continues, the company will never become a truly global enterprise. It is presumptuous to think that the world should follow the standards used in Japan by the Japanese people—even at a company with its headquarters here. The truth of the matter is that the rest of the world thinks of Japan as an economic Galapagos—an isolated market with standards that apply only locally.

So what does a truly global company look like? First of all, it would amalgamate the best business models from around the world and apply them in the most advantageous ways. It would hire the best talent for each area from the world and build a team featuring the best, most advantageous mix. Globally competitive products and services are those that have succeeded in the world’s toughest markets under the harshest conditions. The key to an effective global strategy is to optimally combine the world’s best approaches to maximize value.

Second, it would incorporate global perspectives in its management decisions. As I noted above, one must look beyond Japan’s domestic rules and standards to reach decisions that are globally sound, effectively incorporating viewpoints and values that are different from one’s own. Japan’s management system tends to be very hierarchical, so before information reaches the top it goes through many different “filters,” with arbitrary interpretations often being added at each stage. Japanese companies also have largely homogeneous human resources—employees who have received the same kind of education and who are reluctant to stir up a controversy or express unorthodox opinions. It is unrealistic to expect sound global management decisions in such a workplace; at the very least, there must be global diversity within the top management team, perspectives from around the world should be reflected in the decision-making process, and a framework needs to be created to incorporate different viewpoints in corporate management.

The sharing of ideals and management philosophies is a prerequisite for tapping the world’s strongest business models and for creating a framework that incorporates global, often divergent perspectives in the company’s management. Corporate ideals are a company’s raison d’être, and in many cases they represent the values that a company seeks to contribute to society. They explain what the company is working for and why it is carrying out its business. Unless the ideals (the “whys”) are shared, the employees working for the company in other countries will do as they please, instead of integrating their strengths toward a shared goal—thus weakening the company’s impact on society. When employees understand the company’s ideals, they will start thinking of ways to achieve them; the actions that emerge from such thinking naturally help the company achieve its goals, and it frees top executives to delegate authority to those on the front lines. The sharing of ideals is thus integral to the company’s success.

Putting Ideals into Practice

To reiterate, carrying out global management in the face of many contradictions requires the sharing of the values and philosophies that provide the basis for the company’s decisions. The sharing of management ideals may seem like a matter of course, but it is important that they be embodied in action, not merely recited like a mantra.

In the face of business realities, corporate ideals often take a back seat to the desire for profits through the identification of new, lucrative markets. While many employees at major Japanese corporations probably know their company’s ideals by heart, if asked whether their own actions align with those ideals and whether their workplace environment is conducive to putting those ideals into practice, the number confidently saying yes to both questions would no doubt be much smaller. Japanese employees with a full grasp of the company’s ideals are more likely than their foreign counterparts to place the ideals up on a pedestal for display without making an effort to put them into practice. They will not think deeply about things that are taken as a matter of course—or rather, they will neglect to think about them because they see no need to do so. Organizations that have grown large are often pervaded by a “don’t rock the boat” mentality, with employees assuming that problems will be taken care of by somebody else.

The results of the Tokyo Foundation’s CSR Corporate Survey reveal that companies are providing products and services that address environmental issues, thanks to institutional support and sizable markets. However, initiatives for other social issues are limited. What sort of results would we have been seen if the survey was taken when Japan was still a developing country? I think we would have found management to be more oriented toward addressing key issues confronting society and companies conducting their operations with a greater sense of mission. Japan has become affluent in material terms, but if we look overseas there are many countries that are still striving for growth while coping with a range of social problems. Are Japanese companies bringing the same sense of mission to operations in those countries that they displayed when Japan was a developing country? Perhaps the focus needs to be shifted from the identification of profitable markets to the creation of such markets.

A Frontrunner in Sustainable Management

In 2020, Tokyo will host the Olympic Games. The previous Tokyo Olympics in 1964 resulted in a dramatic transformation of people’s lives, as new expressways were built, the bullet train service was launched, and color television sets found their way into more living rooms. What will the upcoming Olympics bring for Japan?

Japan faces many difficult challenges as a country with frequent earthquakes and other natural disasters; it is also beset by a low birthrate and an aging population. At the same time, it is a frontrunner in sustainable management, with among the world’s highest number of companies that are over a century old. Japan reportedly has more than 4,000 such companies, far greater than second-place Germany with 2,000 and third-place Britain with 500. It is a mature country that, despite its many challenges, can offer valuable hints for sustainable management and lead the way in resolving global issues. By shifting its focus from goods to services, Japan should seek to apply its management ideals to addressing global challenges, placing a priority on building long-term trust over reaping short-term profits and helping to resolve social and environmental issues in an effort to create a better society for all.

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