Honda's Ito has taken aim at the old ways.

Photographer: Yoshikazu Tsuno/AFP/Getty Images

Japan Inc. Gets Moving

a | A

Shigehisa Takada personifies all that's wrong with corporate Japan. The Takata chairman has adopted a familiar response to the deadly airbag scandal that's enveloped his 82-year-old company: duck and cover. As the costs of recalling tens of millions of airbags mount -- they're likely to reach $264 million in the year ending in March -- Takata has remained out of sight, leaving underlings and lawyers to face the news media and testify before the U.S. Congress.

Something extraordinary just took place within the clubby ranks of Japan Inc., however: Someone had the gumption to tell Takada the jig was up. Not just anyone, but Honda's respected Chief Executive Officer Takanobu Ito. In December, local press speculated that Honda, Takata's biggest customer, would provide a financial lifeline to the embattled airbag-maker. Ito now says Honda intends to do no such thing: "We have no interest" in keeping Takata afloat, he told reporters at the end of last week.

While that would sound unremarkable coming from a CEO in Detroit, Ito's tough message is revolutionary for Japan. It's a promising sign that the Japanese corporate sector may finally be modernizing from within. That should both cheer Prime Minister Shinzo Abe -- who has called upon Japanese companies to improve their governance -- and inspire him to give his stalled Abenomics reform program a serious reboot.

Abenomics

In recent years, Honda's Ito has mounted a one-man assault on Japan's traditional "keiretsu" system of close-knit business networks. From the 1960s through the 1990s, these interlinking interests, cemented by cross-shareholdings of stock, fueled Japan's dominance in sectors like autos. But they've left the country deeply uncompetitive. In 2012, Ito began dismantling Honda's relationships with high-cost and complacent domestic suppliers in favor of low-cost ones overseas.

Companies like Daihatsu have begun to follow suit. Last month, Reuters ran a fascinating story about how Japan's oldest carmaker had also decided to focus more on costs than on preserving backroom relationships. Even more intriguingly, former Daihatsu chairman Kosuke Shiramizu claimed that Akio Toyoda, Toyota's CEO, was "carefully aware of what we're doing." For giant Toyota to revamp its traditional supplier network in the interests of efficiency would mark a sea change in how Japanese manufacturers operate.

These aren't the only hints of change. Japanese companies are notoriously resistant to shareholder complaints, particularly from foreigners. Olympus shareholders, remember, were more aghast by the fact that whistleblower Michael Woodford had gone public with a $1.7 billion fraud scandal at the company in 2011 than the crime itself. Sony recently fended off pressure from activist investor Daniel Loeb to buy back stock and address what he claimed was an "illogical capital structure" that did nothing to increase shareholder value.

Loeb is back now, acquiring a stake in Fanuc, the world's largest maker of automation equipment, and pressing the company to deploy its $8.5 billion cash pile rather than sitting on it. While the company might deny acting under pressure, President Yoshiharu Inaba has announced plans to invest more than $1 billion in new plants and research-and-development facilities. Fanuc is Japan's 10th-biggest company by market capitalization; its actions send a powerful signal to peers.

Finally, even Japan's stuffy Keidanren business federation appears to be responding to Abe's calls to promote more women to top positions. Just last week, the Wall Street Journal ran a story headlined, "Leaders at Business Lobby Keidanren Remain All Male, All Over 60." Now the group has named its first woman -- Haruno Yoshida, president of BT Japan -- to its board. The move follows decisions by Daiwa Securities and Sumitomo Mitsui Bank also to appoint their first female board members, and by Lexus to name its first female engineer.

These are small steps, to be sure. But change in Japan is increasingly driven by bold action from outliers within the private sector. The success of Fast Retailing's Uniqlo stores around the world inspired Abe to prod other companies to grow their overseas markets (and begin using English more). Entrepreneurs like Hiroshi Mikitani of e-commerce giant Rakuten are backing startup companies and lobbying the government to do the same. SoftBank's Masayoshi Son used a $200 million investment to shame Tokyo into focusing more on renewable energy, with some success.

As Japan's docile media shies away from speaking truth to power, corporate chieftains can -- and should -- play a greater role in setting Abe's priorities. So far the government's reform program has had limited success, as evidenced by the disappointing 2.2 percent annualized growth rate in the fourth quarter. If Abe is looking for inspiration, it's all around him.

This column does not necessarily reflect the opinion of Bloomberg View's editorial board or Bloomberg LP, its owners and investors.

To contact the author on this story:
Willie Pesek at wpesek@bloomberg.net

To contact the editor on this story:
Nisid Hajari at nhajari@bloomberg.net