Q&A: Japanese CEO crisis response in a global context

Nicholas Benes, head of The Board Director Training Institute of Japan, a government-certified nonprofit, offers a perspective on differences between Japan and the US, and what it takes for real improvements to happen in an organisation post-crisis.

Why are Japanese CEOs often so quick to resign when their company is faced with a scandal, malfeasance, or impropriety?

The Japanese public and media tend to focus on whether the company is apologetic and contrite enough about the incident to convince them that it will do whatever is necessary to recover trust from the public. Shame is an extremely strong driver in Japan, and if you lose the public’s trust you basically cannot do business any more. So people assume that if the organisation is deeply repentant and fully shamed, it will do its very best to prevent such incidents from occurring again. Society wants to see immediate, frequent public apologies and explanations, and actions that symbolise a break from the past. The easiest symbolic act to come up with before you have all the facts, is for the top executive to resign and take all the blame, in a sort of cathartic public ritual.

Once the most senior person has taken the blame, others in the company can hope that the pressure to do a full inquest and force other resignations will rapidly decline. That is what usually happens, because most people here accept that in consensus-based Japanese companies ‘guilt’ is a very complex thing and if you are not careful, far too many people may be implicated than would be considered reasonable. If you were following orders or practices that were common in many units, and you have few other perceived job choices in a non-mobile job market, how ‘blameworthy’ are you? The public has sympathy for such people because they can easily imagine themselves being in the same boat someday.

Is this the right course of action from a brand/reputation perspective, or would it sometimes be better for the CEO to remain and be seen to work to fix things?

From a brand/reputation perspective, here in Japan this is usually seen as the only feasible course of action. But there are exceptions, for instance where the degree of malfeasance (as opposed to unintended slipups) has not been proven and the company may later be vindicated, or where there is a particularly strong-willed leader with an ego at stake.

Since the CEO’s resignation is arguably just a ritual that occurs irrespective of his or her actual involvement or guilt, internally he or she is often viewed as being ‘unlucky’ to have been in the wrong seat at the wrong time. Musical chairs, as it were. I think the more interesting questions are: (a) will the company mount a truly thorough investigation using independent lawyers and a committee? Most do; but also (b) will the result of that investigation be that more heads roll that were actually blameworthy, and how many were there?

Historically it has not usually been many, but this is slowly changing. So far, if corporations were to fire large numbers of people for following orders, there would be a breakdown of morale, and in the future, orders might not be followed. But I think the trend towards performance-based evaluations will make companies realise that some number of terminations will be needed in order to reduce future legal risk and show that a full cleansing has occurred. The public will come to demand this.     


How does the approach in Japan differ from that in the US?

I am perhaps over-generalising, but outside Japan, personal greed or ambition by specific persons in an organization that is more top-down and driven by hefty short-term compensation incentives is more often the primary cause of malfeasance. In contrast, the more common example in Japan is simply a corporate-wide custom gone awry, incremental bad decisions that compounded and groupthink could not stop, or a misdirected desire to do a cover-up in order to save face “for the company”. Lying and criminality may occur, but the motivation for it is often different. As has been said, “American managers lie for themselves, but Japanese managers lie for the company”. 

At any rate, since the US public believes that specific CEOs and senior managers must have ordered things for them to happen, it requires the company to make a full investigation, find the bad guys, and fire them…and then sue them for damages or criminality, if warranted. Just having the top guy willingly step down even though he himself gave no orders and was not directly involved, usually does not cut it in the US.  The public generally believes that only full transparency and punishment—leading to a message that “that future offenders will be also be hunted down”—can ensure that you get rid of the miscreants, so that the incident is unlikely to happen again.  

Did last year’s issues warrant the CEO’s resignation, and what will need to happen now for any improvements to be fully implemented?

The issues that emerged last year certainly did warrant the CEO’s resignation, in Japanese eyes. And in a leading company, for the CEO to step down is a big deal and sends a message that the company believes its brand image is coming close to suffering very serious damage. So it is a start. But to change working practices that have become a part of corporate culture over many decades is a very daunting task. Leadership has to realise the immensity of the challenge at the outset. It may have to tell people in the company to stop being proud of certain practices that they grew up with and have become part of their identity and sense of self-worth as an employee of that company—and sometimes, are the very reasons clients hire them.

Obviously this is very hard. You will be fighting deeply-rooted habits every step of the way, and what happens when the pressure is off? To actually change corporate culture and mindsets in this sort of situation requires five to ten years of unrelenting internal discussion and introspection, practice changes, rule changes, different HR evaluation methods, anonymous surveys, lateral hires from other companies, new board members, and that sort of thing. It is a never-ending battle and senior executives have to be committed and rewarded—or not—based on the results. This year my organization jointly undertook a large anonymous survey to help certain Japanese companies identify the weak ethical aspects, and units, in their organizations. This will be the wave of the future here.