CHAPTER 7

The Break from Culture

A new era had emerged—one in which Takihyo’s fiscal strength came into question. The 1970s demonstrated the susceptibility of all companies—no matter how high the quality of the product, the management, or the institution—to macroeconomic stress. The demand for dresses that had previously flown off the shelves evaporated. Once-profitable subdivisions fell from well into the black to deep into the red. For the first time since my appointment as the chief executive, Takihyo held rather than distributed warehouses of inventory. We were bleeding; we needed relief. Many feared that the Nixon shocks and the oil and energy crises would bury Takihyo.

Because textile-and-garment manufacturing and wholesaling comprised the bulk of Takihyo’s revenue stream, we held a lot of inventory. In healthy markets, demand within distribution channels dictates the flow of goods: some to regional chain stores like Uny and Jusco, and others to regional wholesalers. In normal markets, goods are in constant flow; however, the slump in consumer demand during the early 1970s forecasted a different—and difficult—road ahead.

The upside to manufacturing and wholesaling is the elimination of the middleman. We create and distribute, so there are no agent or licensing fees for sales. Instead of introducing a third party, we would reap the benefits of higher profit margins by utilizing in-house wholesaling after production; instead of one area in which we could profit, there were now two. In other words, if a textile manufacturer can make 15 cents on every dollar and a wholesaler can make the same margin of profit, the one who can do the job of both manufacturer and wholesaler winds up not with 30 cents on the dollar, but a little more.

The downside, however, is just as significant. Typically, Takihyo manufactures in accordance with demand. Manufacturing and wholesaling entails doing both in tandem and requires that planning be done farther in advance than would be required when doing either one or the other of the processes alone. Therefore, combining the two creates a higher gain with more risk because change slows with each added element.

Unfortunately, there was no way we could have predicted the oil crises of the 1970s or Nixon’s politics. The first crisis occurred after a season of textiles and garments had neared completion. With hundreds of distribution channels and nearly as many brands, stopping the manufacturing process was not an option. We had nowhere to place inventory when our primary distribution channels dried up.

Speculation1 dictates how and what Takihyo manufactures. Before the slump in demand, we made textiles, then garments, months in advance. When the first oil crisis hit, we kept a season’s worth of clothing that normally went to hundreds of stores. Then the political and economic crises left us naked. No one would consider taking inventory off our hands, because no one wanted the risk of carrying any extra—they worried about inventory and wages eating up capital. The nation stopped in its tracks, and that paralysis shook Takihyo; we were left with approximately $40 million of extra inventory.

The way I dealt with this problem had a lot to do with the context of Japanese business culture in which I was working. Hierarchic structure rules the work environment in Japan. Although the highest executives have the most power, they tend to offer middle-level management most of the opportunity “to make or break” themselves within the company. Upper management takes the brunt for subordinates’ mistakes, but the companies’ officers tend to make general, sweeping suggestions rather than giving absolute directives. This way of thinking allows up-and-coming managers the room to develop within the corporate structure.

However, there’s a catch. As middle managers may make all the calls, there is a system to which traditional Japanese management adheres called ringi or ringisho.2 In most circumstances, ringisho is nothing more than a mere formality: a system in which employees submit suggestions to management in the form of a circular letter that touches colleagues’ desks until it reaches superiors. These letters or notes are passed every day and require stamps with the kanji3 of colleagues’ surnames to approve all the different ideas. If a friend wants to propose a suggestion, favoritism can play a role in supporting the idea. Regardless of whether the suggestion pertains to trivial or substantive matters, the notes or letters reach the managing directors’ desks for approval or rejection. In the case of rejection, executives offer the employee constructive criticism so that they can modify the letter or note to remove their suggestion before it is implemented. Although many cultures discourage the practice of employees’ criticizing superiors, it’s welcomed in Japan.

The company is the most important element to employees and managers because it provides everything from health care to one’s daily bread. Someone from the Western world would likely ask, “Why would a subordinate criticize an executive? Wouldn’t that get him a one-way ticket to unemployment?” The answer is simply, “no.” There are many assumptions that Westerners make when doing business in the Far East—especially executives who move there to manage people—and subordinate disenfranchisement is one of them. The reason for this is that employees have very strong job security in Japan. In many companies, especially in the 1970s, employees do not fear getting fired; however, they do care more about the company as a whole than about their direct superiors.4

Unlike in the United States, there are very few formal labor unions in Japan, and those that do exist remain within specific industries such as electronics or steel and iron manufacturing. On the other hand, most Japanese companies have an employee base that functions as a union within the company. This model puts the company’s health in the hands of employees. The company carries a reciprocal relationship of responsibility with its workers. Because the organization’s future dictates the prospects of the employee’s own future, Japanese employees do not try to run the company’s well dry by asking for raises or payments in advance. Indeed, it benefits Japanese employees to keep the company’s best interest at heart—because these organizations offer lifetime positions. If the company grows and does well, employees will see opportunity for upward mobility. If, on the other hand, a firm shrinks or goes bankrupt, the employee has no economic lifeline, no support, and definitely no guarantees.

In United States, however, American unions rule American industries; unions are plentiful and involved in nearly every industry. Regardless of how well or poorly a company that employs union workers performs, union leaders are only directly responsible to union members. Although this structure hurts businesses that have to work with the unions—and occasionally troubles nonunion workers—the American system offers benefits and hourly wages far greater than what normally would be offered for a comparable job in private industry. Also, it pretty much guarantees employment. From a macroeconomic perspective, higher union fees and related payroll expenses bring more consumers to the marketplace; however, from an entrepreneurial perspective, American unions increase start-up costs and delays while limiting the company’s growth and capital cushions with these same expenses.

In terms of loyalty, the Japanese company structure puts the organization before the superior. Therefore, the corporate institution caters to and provides for the individual. This mentality liberates the employee from the fear of speaking out that is so prevalent in the West. In an American company, employees may fear their boss’s rejection of an idea. People’s motives are often hard to understand; a superior may consider the employee to be too self-serving and decide as a result that he or she doesn’t merit employment. Because the Japanese company’s best interest is in line with the employee’s—and because the employee does not fear rejection in the same way—opinions on operation can spread like wildfire.

From another light, Japanese traditional corporate culture holds every member of the organization accountable. Everyone has a duty to chip in when handling issues ranging from client relations and product placement to marketing, merchandising, and advertising. The consequences of this kind of thinking extend far beyond this particular application. For example, when employees go on strike this mentality extends to subversive behaviors. The striking employees do not stop working. Instead, they wear armbands while working to display dissatisfaction with the company.

This example illustrates the culture’s emphasis on humility and honor rather than proactive disengagement and picketing. The employee does no damage to the company itself, but instead attempts to inflict harm on the company’s public image. However, if the company cannot meet the employee’s expectations, the employee has two options: resign or concede. In many cases, the employees will concede and carry on a respectful relationship with superiors and subordinates. In other words, the Japanese company manifests a communitarian environment with a collective and self-critical approach to responsibility.

I discuss these elements of Japanese culture to illustrate how different everyday life is in Japan vis-à-vis life in Europe or America. The cultural undercurrents can inform how managers decide—whether for good or bad. At times, a manager has to look past culture to find solutions. Yet doing so can cause upheaval, especially at large and traditional companies like Takihyo. The circumstances of the times forced me to disregard those cultural undercurrents to shield Takihyo as well as I could from inevitable losses during the oil crises and Nixon shocks. This allowed me to distinguish between a nation’s corporate culture and its corporate climate—a topic I will discuss in the following chapter.

1 Here I use the term speculation as Benjamin Graham uses it in The Intelligent Investor, edited by Jason Zweig (New York: Harper Collins, 2003). According to Graham, a speculative position is one made by using a lesser calculus, which makes it riskier than an investment that retains value or grows in value slowly and steadily.

2 .

3 Kanji are Chinese characters that have been assimilated into the Japanese written language. The stamps used are called “Hanko.”

4 Although these attitudes are slowly changing today, in more traditional companies employees’ sense of responsibility and allegiance to the company still hold true.