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Tuesday, July 18, 2000

Personal relationships are everything


By RYAN NAKASHIMA
Staff writer
STAKEHOLDING: The Japanese Bottom Line, by Robert J. Ballon and Keikichi Honda. Tokyo: The Japan Times, 2000, 240 pp., 38 tables, 6 figures. 3,000 yen (cloth).

One year, an acquaintance recalls, her family started getting an unusually large number of "oseibo" (yearend presents) and "ochuugen" (midyear gifts).

The soaps, detergents, oils, cakes, jellies, cookies, beer and juices the family would receive no longer fit snugly under the upright piano in the living area -- instead, the mass of items overflowed above the piano and onto adjacent cabinets and shelves.

It wasn't because the family had suddenly become popular in the community, her mother later explained. Her father had just changed jobs. Working within a subsidiary of Toyota, part of his new responsibilities included telling subcontractors their services were no longer needed. The gifts were from the remaining subcontractors, who were hoping that personal contact would prevent them from losing a large customer, if not prevent them from going out of business altogether.

It's an example of how much importance Japanese businesspeople put on personal relations, rather than the black and white letters of a contract, and the type of thing Robert J. Ballon and Keikichi Honda attempt to explain in "Stakeholding: The Japanese Bottom Line."

"Stakeholder relationships remain highly personal and require constant nurturing by face-to-face contacts; their subjectivity is indeed difficult to manage," they write.

However, Ballon, a Sophia University emeritus professor, and Honda, chairman of Sun Microsystems Japan, don't use such clear examples in their book. Instead, they divide the book into different sections that fit their theory of stakeholding, each stakeholder getting its own section.

And while informative, the sections and tables used to illustrate each of the stakeholders end up reading a bit like a bird book without the pictures. Citizens are dissected and analyzed, as are public officials, as are partners and competitors.

Still, there are solid sections worth reading and that do shed light for the uninitiated reader on the complex system that binds the Japanese business world together.

Take the financing of a typical Japanese enterprise described in the chapter "Financial Stakes." They say that a typical large corporation has about 70 percent of its shares held by other companies who act as stable shareholders, neither buying nor selling them. Those companies generally have some kind of contractual relationship with the company, such as being a supplier or a major client.

"In the network of stakeholders, for listed and other large companies, shareholders as such played a much restricted role. They were not to be 'paid off' by dividends that they could reinvest elsewhere; they were integrated into the network through capital gains."

The authors rightly point out that this cross-shareholding eliminates the need for transparency in bookkeeping as most of the shareholders don't need to know the financial health of a company to determine whether to buy or sell the company's stock. They simply know they are going to hold it.

Thus, the push for mutual growth and good relations within a company's small circle of shareholders, rather than general public disclosure, is built into the system.

For smaller companies, the authors write, much commerce relies on trade credit in the form of promissory notes, another example of the need for trust and long-term relationships.

The use of these notes is prevalent among suppliers, clients, even the main bank charged with providing financing, as the notes can also be used as collateral on loans.

Because of their widespread use, there is a strong motivation built into the system to keep all the players financially healthy, for, the authors write, "a dreaded consequence is the domino effect resulting from the failure of one participant in the circuit, a common feature of insolvency among small enterprises."

Banks, by holding shares, collecting on loans and often being the key holder of employees' salary deposits, have a strong stake in the financial health of both large and small companies.

When a firm falls on financial hard times, banks are expected to take a lead role in restructuring a company, replacing management and finding new stable shareholders. "Throughout, the bank is careful to maintain trade credit, which means including the trading companies in the reorganization process."

The authors also try to make sense of the trade industry associations. At one level a grouping of companies that hold each other's shares, then a grouping of groupings finally amassing into the all-powerful "Keidanren," or Federation of Economic Organizations, such huge bodies actually help the government implement its policies by getting cooperation from its member companies, the authors point out.

I had a hard time understanding their explanation of how partners and competitors alike work together to develop new technologies, especially since they themselves note that "the flip side of active cooperation at the level of generic technologies is then intense competition at the commercialization level." I couldn't help thinking that the value of developing and owning a unique technological development would be too good to share, no matter how many tins of jelly or juice showed up on a company's doorstep come yearend.

In the end, the production of profits must be the overriding goal of these companies. While the influence of different stakeholders must be important, it is hard to accept that stakeholding itself is the "Japanese Bottom Line," as the title of this book suggests.

Of course, another tin of cookies never hurt anyone.



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