A thought on Toyota’s current troubles

When I began to study the Japanese economy and stock market twenty-five years ago, a brokerage friend of around my age described his generation as having one foot in the samurai era and one foot in the modern world.  His father had bequeathed to him forty cypress trees to use to build a traditional home.  He thought the equivalent gift for his children would be an American college education, which he thought would give them over their Japan-educated peers.

True, that was a long time ago.  And, yes, twenty-and thirty-somethings reject large parts of the traditional Japanese culture.  But, on the other hand, there’s even a kind of nostalgia today in Japan for what might have been, had the black ships of Commodore Perry not arrived in Uraga harbor in 1853, triggering the demise of the Tokugawa shogunate and the restoration of imperial rule as part of a rush to incorporate advanced Western technology into the domestic economy.  In addition, managers in their fifties and sixties still do have a partial anchor in the traditional culture.

There are two important consequences of this cultural tie:

1.  much traditional Japanese discourse serves to communicate that the speaker understands his place in the social order.  Unlike the US, where the lightly regarded social butterfly can secretly be Zorro or Batman, in Japan the senior manager is exactly what his position proclaims him to be–older, wiser, more powerful, a sound decision maker.  The senior does not expect his views will be contradicted by a lower-level employee.  The junior will have a lot of psychological difficulty in conveying such dissonant information;  the senior will have trouble making it sink in that the junior might be right.

This inflexibility is not only an ailment of the pre-WWII zaibatsu conglomerates, like Mitsubishi or Mitsui.  High-level Sony executives, it seems to me, destroyed their first-class video game software business sometime between the PS1 and PS2 generations because the mostly North American game developers weren’t deferential enough.  Sounds crazy, but the two sides were too culturally different.

2.  “Stamp your feet loudly and walk through a wall of iron,” is a famous tenet from a samurai training manual.  It means that a warrior with a pure heart and the right martial spirit can overcome any obstacle, no matter that the laws of physics may say otherwise.  (Another way of putting it might be that any action, no matter how apparently foolish, is a better choice than no action at all.)  tradition invites the manager to think that he can will a part that doesn’t quite come up to specifications to perform as well as if it did.

I’ve seen numerous Japanese firms over the years that I regard as having competent, hard-working, honest managements put out flawed products.  #2 is the best explanation I can come up with for why.  Of course, it doesn’t hurt if information only flows easily in one direction, either.

Of course, Japan is not alone in having management foibles.  For example, where but in the US would a spiritual descendent of P T Barnum be able to Powerpoint his way to become CEO of a huge industrial conglomerate or a major commercial or investment bank, without having much idea of how the operations actually work?  Here such a person might put a cap on his career by becoming Secretary of the Treasury, as well.

Investment implication: Yes, there is one.  In Japan, go for counterculture companies, run by younger people–women, if possible.

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