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Wednesday, Jan. 18, 2012

Loyalty alone is not enough


LONDON — Japanese have been taught over the centuries that loyalty is the supreme virtue. Loyalty to Japan and to the emperor was inculcated into every child in prewar Japan. The emphasis now seems to be on loyalty to the company employing you, loyalty to your section in the company and loyalty to your immediate colleagues.

Such loyalties are not morally wrong or reprehensible, but under Western ethical codes, loyalty is only one quality that should dictate behavior. Honesty and fair dealing are surely even more important qualities required of anyone in public life or at work. The whistle-blower may be unpopular in his company and with his colleagues, but to punish or ostracise a whistle-blower is to treat honesty as if it were a vice.

Unfortunately it seems clear that in some Japanese companies the exposure of wrongdoing is regarded as an act of disloyalty that must be punished. The tendency in Japan seems to many foreign observers to be to close ranks and do everything possible to cover up wrongdoing or where that is impossible to smooth out the effects of dishonesty and fraud so that the company can quickly get back to "normal." In this case "normal" often seems to mean the continuation of dubious practices.

This may seem a harsh and unfair judgement of recent cases in Japanese companies where attempts have been made to cover up wrongdoing, but Japanese should recognize that this is the impression formed by foreign media. It is harming Japan's image and will deter foreign companies from investing in or cooperating with Japanese companies whose reputation is likely to be tarnished by such malfeasance.

Although this is not the only case of a Japanese company being exposed in wrong doing, the Olympus case has left a dark stain on Japan's reputation. Michael Woodford, who has given up the fight to be reinstated as president of the company, although he says he will sue for wrongful dismissal, used strong language in his condemnation of the way in which the company had used a plethora of tools in attempts to obscure the way in which the company's accounts had been manipulated to disguise its malpractices.

Woodford is reported as having said: "The failure of even a single Japanese institutional investor to voice concern about gross malfeasance at Olympus was utterly dispiriting." Foreign shareholders such as Baillie Gifford, a British fund manager who have lost significant sums as a result of the fall in Olympus' share price, have demanded answers from the company, but Nippon Life which is reported to own 5 percent of Olympus' shares is reported to have merely said that it will keep a close eye on the management reconstruction plan.

Olympus' main bank has also been shy of coming out strongly on the way in which Olympus apparently covered up losses. The impression left with foreign observers is one of a Japan closing ranks and colluding in a cover up. In the view of foreign observers nothing less than the total replacement of the board is needed and soon.

But Japanese complacency, or as one journalist has described it "the perma-shrug," seems to go much deeper. The Japanese government's first report into the Fukushima nuclear disaster released in December makes disturbing reading.

One English journal commenting on it notes that: "It spares neither the government nor Tokyo Electric Power (Tepco), the operator of the plant. It reveals at times an almost cartoon-like level of incompetence." It notes for instance that crucial data estimating the dispersion of radioactive matter were not given to the prime minister's office. As a result, evacuees were not given advice on where it was safe for them to go and some ran straight into a radioactive cloud. No one has apparently accepted responsibility for this and "fallen on his sword."

The collusion between bureaucrats and Tepco fostered complacency and coverup. Whistle-blowers did not have a chance in this climate. It is hardly surprising therefore that foreign governments are reluctant to pay much credence to Japanese assurances that "cold shutdown" of the Fukushima No. 1 nuclear power plant's crippled reactors was achieved in December.

This report will hardly do anything to convince Japanese public opinion to accept the reopening of the many nuclear reactors that have been closed down although not doing so will lead to significant power shortages until alternative sources of power are found and brought into use. Loyalty to the firm and the ministry has clearly acted against Japan's overall best interests.

Japan can no longer rest in the belief that its loyalty system gives it unique qualities that can be preserved unchanged as if it were one of the Galapagos Islands. Japan cannot stand alone. It must trade with the rest of the world and, if it is to survive and prosper, must compete with the industries and services of other countries in Asia and the rest of the world. This inevitably means greater openness toward foreign investment and a willingness to adapt Japanese ways to international standards.

One result of Japanese complacency and rejection of foreign ways of doing business has been the comparative Japanese failure to make adequate use of Japanese women in industry and services. With a declining and aging population Japan can no longer afford to stick to its traditional male chauvinist prejudices.

Fortunately there are a significant number of Japanese industrial and trading companies that are increasingly international in their operations. There are also many high tech Japanese firms that are still top in their fields. But if Japan is to succeed in avoiding or at least in postponing economic decline, it needs to take urgent steps to promote internationalization and combat complacency. Japanese need to be much more willing to study and work abroad.

Above all, corporate Japan needs to cease closing ranks when something nasty is discovered and instead pluck out the bad eggs. It should let whistle-blowers thrive!

Hugh Cortazzi served as Britain's ambassador to Japan from 1980-1984.


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