1. Ethics of Leadership A comparison of Western and Japanese corporate ethics and governance

2. Table of Contents  Hypothesis  Ethics  Business Ethics  Western checks and balances  Amakudari  Prevalence  Theory  Practice  Implications  Comparison  Conclusion

3. Hypothesis  This presentation will seek to prove that the ethical frameworks under which Japan and The West respectively operate, create a fundamental difference between the two peoples that alters the institutions both formal and informal that govern the relationship between business and government. It will further prove that while a codified system based on the rule of law is necessary for the prevention of corruption in Western economies, it is unnecessary and perhaps even detrimental in the case of Japan where the values of Neo-Confucianism serve to define appropriate behaviour, promote stability and meritocratic promotion.  Specifically, while the practice of amakudari may not seem ethical, the results of its use lead to a more ethical and stable society as a whole.

4. What are ethics?  Most basically a system of moral principles that govern decision-making  Ethics are not universal  Where do ethics come from?  Parents?  Societal Expectations?  Law?  Religion?  Innate?

5. The Problem of “Business Ethics”  Is ethical behaviour simply maximizing shareholder return?  Does a company have an obligation to its employees?  Does a company have an obligation to the environment it operates in?  Here we see a marked deviation between Western and Japanese philosophy  Zaibatsu  Hara-kiri  Karoshi  Average work week

6. Western business ethics  Individual is paramount  Government is responsible for citizen welfare  Return for shareholders is primary  Unionization as a balance  Ethics as legislation (i.e. regulatory bodies, accreditation boards etc)  “corporate social responsibility” ?

7. Checks and balances on Western business  Unions  Anti-trust laws  Keiretsu would be illegal  DoJ and SEC  Strict donation and gift reporting guidelines  Conflict of interest regulations  Public and media demonization of nepotism and favoritism

8. Neo-Confucianism as business ethics in Japan  Collectivism paramount  Corporations largely responsible for social welfare  Strong nationalistic spirit – responsibility to overall social order  Public consciousness  Concern for public welfare  Sensitive to inequality  Meritocratic promotion

9. Amakudari  “the descent from heaven”

10. History and prevalence of modern amakudari  Path of bureaucrats retiring to private sector began in earnest after Meiji period  Became more widespread around the end of WWII with the revision of the National Mobilization Order  Seen as a solution to issues of lifetime employment and rules of seniority

11. Rigid Promotion Structure  10 years as minister’s secretariat  10 years as section chief  Age 48 – Specialist (middle management)  Age 52 – Assistant to the deputy director  Age 55 – Associate director  Age 57 – Division director  Vice minister – limited positions available  Leads to unique norm of retirement of entire cohort

14. Theory “the longer a bureaucrat survives in the ranking hierarchy of the ministry, the better are his/ her prospects for post-bureaucrat amakudari positions”  Promotion is based not solely upon nominal results, virtuous behaviour plays a role  Those who display most honour and devotion to principles of Neo- Confucianism are promoted  Expense billing example  Very small number of vice minister jobs available  Upon acceptance of amakudari position, official uses network of contacts to help corporation  Push factors  Pull factors  Creates close ties between business and government

15. Modern Issues Is this “institutionalized corruption”?  Modern amakudari has become almost synonymous with scandal in Japanese media  “Dango”  Embezzlement through price-padding  Preferential treatment to amakudari-hiring firms  Bid-rigging and corruption scandals have become more prevalent  Ex. Japan Highway Public Corporation, Narita Airport, Air Self-Defence Force etc. Is this ethical?

16. Is this corrupt?  Japan -15 th  United States – 17 th  Korea- 43rd  China – 100 th  Vietnam – 116 th  Corruption Perceptions Index – Transparency Global

17. Attempts to legislate  2007 bill produced by the LDP proposed the set-up of job centres for retiring public servants under the jurisdiction of the Cabinet secretariat  Would take the power away from the ministries and agencies to find amakudari employment for retirees in the hopes of eradicating “coerced amakudari”  Opposition claimed this only authorized amakudari, and though making it more obscure would make it no less prevalent  The National Civil Service Law prohibits the reemployment of the retired officials into the private companies until two years after their retirement, if they have worked for the national organizations closely related with those companies in the past five years  NPA exception

18. Is there a “best” system?  Put simply….no, they are incompatible  Why Western system wouldn’t work in Japan  Lack of government infrastructure for oversight, provision of welfare  No unions  Inconsistent with norms of lifelong employment and cohort retirement  Competition between business interests and individual interests not present  Why Japanese system would not work in the West  Lack of early retirement norm  Private business not primary supplier of public welfare  Bureaucracy not viewed as “heaven” and does not attract the “best and brightest”, but salaries more competitive  More competition based economy

19. Benefits of amakudari to Japanese system  Important to understand Japan is a welfare society as opposed to a welfare state  Government revenue is spent more on industrial development, in the form of bank loans, rather than on welfare.  This is consistent with zaibatsu, where companies care for all aspects of a workers life  Extend to the Neo-Confucian idea that companies work no solely for profit, but also for the national well-beings

20. Spending on social programs - % GDP

21. Benefits of amakudari  Form of deferred compensation for modest bureaucratic salaries  Leads to much closer ties between regulators and those they regulate  Maximization of scarce government resources  Maximizes corporations access to regulatory authorities  Monitoring hypothesis  Communication hypothesis  Japan highly “cliquey” society -

22. What can we say about our hypothesis?

23. End