For over 400 years, Japanese companies have lived by the business philosophy “Sanpo Yoshi,” three-way satisfaction, which means that business transactions must be good for the seller, the buyer and society. Based on this philosophy, Japanese companies have achieved long-term sustainable relationships with their stakeholders to thrive in business. This stakeholder capitalism rooted in Japanese business also relates to the increasing importance of environmental social and governance (ESG) factors, a growing global trend. However, Japanese companies lag behind others in their evaluation of management of ESG issues, as shown in FTSE ESG ratings in 2018 which placed Japanese companies lowest among Europe, the United States, Canada and Australia – particularly the S; why is this and how can it be improved?
The scope of “society” in the traditional Japanese context is often limited to their direct surroundings, such as the customers, communities and environments directly affected by the business. For example, most food and beverage manufacturers make effort in preserving the biodiversity of the communities from which they source their ingredients, material makers are investing in recycling and waste reduction, and almost all companies will have a “green” initiative to reduce and offset their carbon footprint, often working with multiple stakeholders. In fact, the E score in ESG ratings for Japanese companies is in par with other major developed economies and even relatively high within Asia. For the S in ESG, however, the limited view of “society” for which Japanese businesses see themselves responsible has meant that most companies have not gone beyond D&I initiatives within the workforce, focusing primarily on their own employees.
In this context, broad social movements in Japan are often pushed or accelerated through government initiatives. A case of paternity leave represents this situation. In Japan, the rate of the employees taking paternity leave has been as low as 7%, much due to the corporate culture based on rigid norms of gender roles in childcare. In June, a law was enacted to give fathers more flexibility in taking parental leave after childbirth and to break this culture. Despite wide social outcry, particularly as it comes from outside of their direct workforce, Japanese companies that fail to see this as part of their societal responsibility have been slow to respond and have relied on government to take the lead.
However, we have started to see some Japanese companies think beyond their immediate “society” to address their role in building a healthy and sustainable social ecosystem. As our colleague Kanako Noto wrote in a March 2021, some companies took a stand on gender equality and responded to sexist remarks made by Yoshiro Mori, former chief of the Tokyo Organising Committee of the Olympic and Paralympic Game (TOCOG). In April this year, nineteen top corporate executives launched an advocacy campaign calling for flexibility in allowing couples to have separate married surnames, with an aim to gain support from 1,000 corporate executives to take to the Prime Minister. The move represents a wide-spread desire in Japanese society, shown in various national polls that say between 60 – 70% of Japanese people are in favor of such change, especially from the standpoint of women’s career advancement and diversity. While the top court, in June, backed the civil code requiring married couple to adopt the same surname, the move by business is putting pressure on politicians for the ruling Liberal Democratic Party (LDP), traditionally a supporter of the same-surname rule to implement the dual-surname system.
Stakeholder capitalism streams in the veins of Japanese companies. However, as economies and societies become more global and connected, and societal issues shared a global scale, Japanese companies must also expand on their view of “society” for which have responsibility in shaping. This will require a broader view of stakeholders, and the capacity to listen to and understanding their expectations, especially as Japanese companies may be making decisions at a physical, and emotional, distance from global stakeholders. There are many societal issues across the globe; not all of them will be relevant to the company nor will the company be expected, or able, to make a meaningful contribution. Careful assessment of where stakeholder expectations and the company’s values, and skillset, meet, will be essential in have such meaningful impact. Whereas Japanese companies have thrived by building sustainable relationships with “society” as their direct surroundings, it is time to expand such perspective of “society” to match the expansion of their business, bringing their S of ESG to the global level.
