Japan used to be known for the harmonious relations between government and business—so harmonious that the two sectors were often described as a single entity: Japan Inc.
A dramatic event at the Japan Society in New York on Wednesday made clear how over those days are. Deryck Maughan, a senior adviser to U.S. buyout firm KKR, rose from the audience to challenge Yasutoshi Nishimura, Japan’s deputy economy minister. Maughan, a former chief executive of Citigroup International, charged that Japan suffers from a “passive investment culture” in which big investors don’t demand better results from corporate managers. And he said that Japanese corporations oppose structural reform because “they are the beneficiaries of the status quo.” Losing ground outside Japan, he said, corporations are earning profits from “oligopoly structures” inside the country.
In an earlier era, hit with the same criticism, a top government official visiting the U.S. might have defended the country and its corporate national champions. Instead, Nishimura said, “I agree with you completely.” He went on to say that Japanese companies need to shuck off money-losing businesses and said shareholders “can be a driving force” in making the change happen. He noted that the government has decided to order companies to have at least one outsider on their boards of directors, or explain in writing why they don’t.
After the event, a Japanese journalist asked Nishimura about opposition to corporate governance changes in certain parts of Prime Minister Shinzo Abe’s Liberal Democratic Party and in the Keidanren, a powerful business group. Nishimura responded that Abe’s government would continue to push for changes. “I really sense that this is the first step,” he said.
Abe is trying to get Japan moving using the “three arrows” of monetary policy, fiscal policy, and growth-oriented reform. The third arrow has been the hardest to shoot precisely because of opposition from entrenched interests. “Thus far, the third arrow looks like a Nerf dart,” Bloomberg View columnist Willie Pesek wrote last week.
It’s a long, long way from Japan Inc.