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ETHICAL CHALLENGES FACING

JAPANESE BUSINESSES:
HISTORICAL AND CONTEMPORARY
OBSERVATIONS
Masato Kimura
Since the end of the cold war, globalization based on the
IT revolution and the increasing amount of cross-border trade
has fundamentally changed the operating conditions for
world businesses. In Japan, such change has promoted inno-
vation, but it has also stretched to the limit questions of prop-
er ethical conduct in the pursuit of profit. This article will
offer several examples of the ethical challenges facing Japan-
ese business, and recommend a new ethical framework in
light of the reforms proposed by and ethical values of Shibu-
sawa Eiichi in establishing modern Japanese capitalism in the
late nineteenth and early twentieth centuries.
Key words: business ethics, social responsibility, profit, global-
ization, corporate governance reform
Introduction
The purpose of this article is to clarify and implement a new
ethic for Japanese business in accordance with the Keidanren
Charter for Good Corporate Behavior.
1
The analysis offered will
consider, from a contemporary viewpoint, the vision and activi-
ASIAN PERSPECTIVE, Vol. 29, No. 1, 2005, pp. 135-155.
of the fundamental factors influencing national economic think-
ing when the nation is at a crucial decision point. The country
has benefited from business leadership during past national eco-
nomic transitions, when the risk of corruption to public morals
and the social order was high. An important example of such
thinking occurred during Japans modern transition to the Meiji
period, as illustrated by the famous edict of Shibusawa Eiichi,
Rongo to Soroban (The Analects and the Abacus), in which he
said that not only profit making but also ethics are to coexist
with business activities. Broad acceptance of such thinking by
Japanese businessmen helped to cultivate capitalism in the tran-
sition period of the late nineteenth century.
An additional reason for focusing on the ethics of Japanese
business relates to three recent phenomena: globalization, the
end of the cold war, and the IT revolution. After World War II,
Japanese businesses were successful at recreating the pre-war
capitalist system, leading to remarkably rapid economic growth.
One could argue that the ethics of Japanese business for much of
the last half of the twentieth century were concerned mainly
with culturally specific social norms, as illustrated by such prac-
tices as shushin-koyo (lifetime employment) and nenko joretsu
(seniority-based system). In other words, until very recently,
due to the fact that Japanese society had been mostly homoge-
neous, neither the necessity nor the importance of transparency
in the cultural aspects of business activity was highly valued.
Instead, a common understanding of many things was shared
and, furthermore, Nihon-go (Japanese language) acted as a barrier
that, in the process, safeguarded the information network.
By the end of the cold war, however, the circumstances
favoring Japanese businesses had changed fundamentally, as
the IT revolution helped to transform the cultural and physical
insularity that characterized the country. Corporations were
compelled to adjust their operating systems, to become more
transparent in how they were viewed by the public at large, and
in terms of reconsideration of the enduring merits of business
practices forged in an earlier era. At the same time, the influence
of the Japanese government in business activities was decreas-
ing. The government, which has had a tremendous effect on the
Japanese economy from the early Meiji era, an impact that came
to be known in the last half of the twentieth century as state-
Ethical Challenges Facing Japanese Businesses 137
ties of Shibusawa Eiichi, one of Japans great industrialists of
the late nineteenth and the early twentieth centuries.
2
As understood here, the concept of business ethics has two
dimensions. One may be described as behavior governing, the
other as proactive.
3
The former meaning underscores that ethi-
cal considerations check business activities and correct those
that may be at odds with customary social practices or the law.
The latter meaning provides guidelines for businessmen as they
create new business aimed at enriching not only their companies
but also their country and the world in the long run.
Why should we focus on the ethics of Japanese business at
the present time? From the historical point of view, Japan faced
major turning points in its modern history at two junctures: fol-
lowing the Meiji Restoration (1868) and, subsequently, the vari-
ous social and economic reforms implemented after the Second
World War. The country is once again at a crossroads where it
has become necessary to investigate and critique Japanese busi-
ness as well as to cultivate the entrepreneurship that will stimu-
late the Japanese economy in the near future. In both passive
and active dimensions, business ethics have previously been one
136 Masato Kimura
1. Keidanren (Japan Federation of Economic Organizations), Keidanren
Charter for Good Corporate Behavior, December 17, 1996, online at
www.keidanren.or.jp/english/policy/pol052.html.
2. See Shibusawa Masahide, Taiheiyo ni kakeru hashi (The Bridge over the
Pacific Ocean) (Tokyo: Yomiuri Shinbunsha, 1970) and Kimura Masato,
Shibusawa Eiichi (Tokyo: Chuo -Ko ronsha, 1991). For a contemporary
viewpoint, see Gil Latz, Shibusawa Eiichis Legacy: Nineteenth-century
Wisdom in Light of Twentieth-century Challenges, in Latz and Koide
Izumi eds., Challenges for Japan: Democracy, Finance, International Rela-
tions, Gender (Tokyo: International House of Japan, 2003), pp.vi-xi.
3. This paper is a revised version of the 2000 International Seminar on
Japanese Studies presentation by Kimura Masato, Establishment of a
New Ethic for Japanese Business, as found in The International House
of Japan, ed., Challenges for Japan: Democracy, Business and Aging (Tokyo,
International House of Japan, Ryumonsha, Shibusawa Eiichi Memorial
Foundation, and Center for International Studies, University of Mis-
souri, St. Louis, 2001), pp. 127-47. See also John D. Costa, The Ethical
Imperative: Why Moral Leadership is Good Business (New York: Pergeus
Books, 1998). As for Japanese business ethics, see Thomas W. Dunfee
and Nagayasu Yukimasa, eds., Business Ethics: Japan and the Global Econ-
omy (Dortrecht: Kuwar Academic Publishers, 1993).
Shibusawa Eiichis Perspective on Japanese Business Ethics
At the present time, Japanese businesses are striving to
identify a new spirit of competitive engagement commensurate
with the global market economy. As many scholars have indi-
cated, the most remarkable characteristic of the current era of
globalization is intense competition within the global economic
market place. The political boundaries separating nation-states
now contain fewer obstacles to trade, and the cold-war ideology,
with its iron curtain, has disappeared as a barrier to free trade.
In their place looms the global market, where every company
comes face-to-face with global competition. Business leaders are
forced to fundamentally rethink their mission statements and
their business circumstances. There are important echoes in this
contemporary debate from a similar situation in the middle of
the nineteenth century, when Japan was confronted by Western
modernization and industrialization. After opening itself to the
world, Japan struggled to adjust the traditional norms of busi-
ness society, which had been fairly well managed by both the
merchant class and samurai (the ruling class) during the Edo
period. The countrys success at that time in learning to compete
with foreign merchants who had different rules of trade can be
attributed to several distinguished business leaders such as
Shibusawa Eiichi, who introduced Western banking concepts to
Japan, and Iwasaki Yataro, the founder of Mitsubishi Corporate
Group.
Shibusawa Eiichis views and activities in the context of the
history of modern Japanese business are instructive for the pre-
sent-day national debate about business ethics. A review of this
thinking helps explain and evaluate the contemporary ethical
issues facing the business community in Japan.
Shibusawa (1840-1931) is one of the remarkable figures in
the history of capitalism, having established in his lifetime
approximately five hundred companies. According to his phi-
losophy, each was to serve the national interest. As a risk-taking
venture capitalist, he exercised shrewd judgment and benefited
from a number of decisions he made in the stock market. Per-
haps most importantly, Shibusawas activities were based on a
broader philosophical intention to cultivate responsible capitalism.
He did not support laissez-faire capitalism, for example. He
Ethical Challenges Facing Japanese Businesses 139
guided capitalism, does not have the same degree of influence
today.
Moreover, because of the recent tide of deregulation in Japan,
there are many more opportunities for people to begin new busi-
nesses. In fact, we can observe an increase in the number of entre-
preneurs in many industrial fields such as mobile phone text mes-
saging and liquid crystal display production, pioneered by NTT
Docomo and KDDI. These businesses have attracted, since the
middle of the 1990s, a new breed of entrepreneurial thinking,
resulting in positive contributions to the Japanese economy. In
sum, whether we look at corporations, the main actors in the
Japanese business community, or at entrepreneurs, business is
now more independent of governmental guidance.
Parenthetically, it is also true that the business sector can be
expected to assume more responsibility for society amidst the
tremendous changes of the day.
Unfortunately, recent scandals implicating the Snow Brand
Milk Product Company and Mitsubishi Motors Corporation
illustrate a decline in the ethics of corporate behavior. Both com-
panies were manufacturing products that were known to be
flawed. Concurrently, we observe that new business ventures
are tempted to skirt the laws, regulations, and rules of Japanese
society. As a generalization, the altered business climate of the
last decade or so has been accompanied by a crisis in business
ethics, a crisis in which unethical and illegal practices cannot
easily be concealed as in the days before the IT revolution.
It is for these reasons that we should discuss, analyze, and
propose ethical standards for Japanese businesses in the twenty-
first century. The issue is timely given the ongoing debate in
Japan about the social responsibility of businesses and the ethi-
cal responsibilities of corporations in the event they are implicat-
ed in a scandal. However, the current debate has two failings:
first, the lack of historical context, and second, the presentation
of almost all such criticisms of business behavior in abstract
terms with few concrete and effective recommendations for
addressing unethical behavior by corporations. These two issues
will be addressed in the remaining sections of this article.
138 Masato Kimura
same principles that served as a foundation of samurai ethics in
the Edo era. Shibusawa argued that pursuit of fair business deal-
ings, according to the rules of such activity, were consistent with
the teaching of Confucianism. In this line of reasoning, he incor-
porated the imagery of the abacus (representing economic activ-
ities), observing that it was not at odds with the teaching of the
Analects of Confucius. In any system, if wealth was not proper,
it did not last long. In fact, a famous Scottish economist, Adam
Smith, expressed similar views in his book, An Inquiry to the
Nature and Causes of the Wealth of Nations, and Shibusawa was
aware of the parallel between his thinking and Smiths.
Beyond his remarkable and revolutionary reconsideration of
Confucianism, Shibusawa advocated competition and opposed
monopoly. When Iwasaki Yataro, the founder of the Mitsubishi
(Three Diamonds) Group, asked Shibusawa to cooperate with
the Yubin Kisen Mitsubishi Kaisha, in order to monopolize mer-
chant marine transportation, Shibusawa rejected the proposal.
Shibusawa held the principle that although he did not place per-
fect confidence in competition, it was imperative for the Japanese
business community to maintain circumstances in which each
corporation competed fairly.
Shibusawa made every effort to improve the social status of
business in Japanese society. His opinion was that the higher the
status of business, the stronger its power and, commensurately,
the stricter its ethics. Based on this principle, he resigned from
the finance ministry in 1873 along with his sponsor, Inoue
Kaoru, continuing to work as a private business leader until his
death in 1931. His goal was to establish Jitsugyo -kai (the business
world) as a power center whose goal was to change and improve
Japanese society equivalent to roles played by politicians and
the bureaucracy. In the Edo era, Japan had established a strict
class system and those involved in business were relegated to
the lowest class. Shibusawa understood intuitively that the for-
mer ruling samurai class underestimated the importance of
business activities, but his insight went deeper, for he was also
aware that most merchants, despite their interest in the trends of
the political economy, were not committed to involvement in
the policymaking process.
As Shibusawas business philosophy matured, he concluded
that it was critical that the public understand the structure and
Ethical Challenges Facing Japanese Businesses 141
urged a variety of constraints on capitalist forces and asked
business leaders to serve a broader public interest not only for
Japan, but also in support of world development.
4
From a contemporary point of view, Shibusawa Eiichis
thinking was based on three principles.
5
First, he advocated that
the people, businessmen in particular, can and should take initia-
tives in creating wealth for society by creating good conditions
for their economic activities in cooperation with the public sector.
Second, he attached importance to letting the public know about
the concepts and the mechanisms shaping private enterprise.
Third, he thought of Japan both as a part of international society
and in terms of its responsibilities to international society. In
addition, he advocated respect for ones fellow human beings as
a precondition for successful business activities.
6
Shibusawa was impressed by the relationship between the
monarch and business leaders when he was in Europe in 1867-
1868. He observed that business leaders were on an equal foot-
ing with both the monarch and government officials in dis-
cussing economic and financial problems. Based on these travel
experiences, Shibusawa endeavored to improve conditions for
the business community after his return to Japan. As a starting
point, he sought to change public attitudes, positing that busi-
ness activities were supported by Confucian principles, the
140 Masato Kimura
4. Shimada Masakazu, Eiichi Shibusawa, Industrialist, as Viewed Through
the Financial Documents of the Shibusawa Family, Bunkyo Womens
University Keiei Ronshu, vol. 7, No. 1 (1997), pp. 19-40. See also, Oshima
Kiyoshi, Kato Toshihiko, and Ouchi Tsutomu, Meiji shoki no kigyo ka
(Entrepreneurs at the Beginning of the Meiji Era) (Tokyo: University of
Tokyo Press, 1976), pp. 291-333.
5. Almost all of Shibusawas materials are included in Ryumonsha, ed.,
Shibusawa Eiichi denki shiryo (Shibusawa Eiichi Bibliography Collection)
(Tokyo: Shibusawa Eiichi denki shiryo kankokai, 68 vols. 1955-1971).
6. A restatement of his philosophy is adopted as the Mission Statement of
the Shibusawa Eiichi Memorial Foundation, as follows: Three ideas
stand out in the analysis of his life and thought: the need for Japanese
capitalism to be infused with moral principles; a definition of Japans
national interest that challenged the private, min, sector to collaborate
with government, kan, in pursuit of the common good; and clarification
of Japans international position in the complex regional and world com-
munities that emerged during his lifetime (1840 to 1931). See Mission
Statement online at www.shibusawa.or.jp/english/research/index.html.
information could manage many other demands facing modern
countries as well.
Shibusawa encouraged communication with foreign corre-
spondents in an attempt to contribute to the accuracy of the sto-
ries they transmitted about Japanese society and, through them,
to express his ideas concerning an appropriate role for Japan in
international society. His basic policy for public relations fol-
lowed three rules: simplicity, speed, and sinceritypresented
with humor. Ironically, his policy is the opposite of that prac-
ticed by most Japanese corporations today which, in general,
can be criticized as being faceless, unable to present clearly
their thoughts and vision, and resistant to engaging the public in
discussion about the issues of the day.
Shibusawas warnings to Japanese business leaders and com-
panies during the 1910s and 1920s, in particular, were prophetic.
As a consequence of World War I, Japan became the strongest
country in East Asia in terms of military and economic power.
But as wealth accumulated, many Japanese companies and busi-
ness leaders were unable to maintain high moral principles. The
Ishii Sadahichi Incident, which occurred at the beginning of the
1920s, is a typical example. During the boom brought by World
War I, Ishii and his company made huge profits in the trade of
lumber and stocks. As a result, he became a millionaire. The goal
of his company, however, was not limited to legitimate profit
making, for he was also a so-called Senso Narikin (a war profi-
teer). The risks he took rebounded negatively after the bursting of
the bubble economy in the 1920s, leading his company to become
short of funds and, suddenly, bankrupt with a tremendous
amount of debt. Such business activities took little account of the
kind of company-specific stewardship principles that Shibusawa
advocated, and the negative repercussions rippled far and wide
in the eyes of the public at large.
Recent Trends in Japanese Business Ethics
Shibusawas business philosophy continues to be valid for the
Japanese business community today.
8
Unfortunately, although his
Ethical Challenges Facing Japanese Businesses 143
systems of new economic organizations, such as corporations,
stock markets, and financial institutions. These concepts he pro-
ceeded to introduce to Japan from Western industrialized coun-
tries. From the beginning of Japans modern era, in the mid-
nineteenth century, there were many government officials who
strongly opposed the reform of Japans economic organization,
as established in the Edo period. Nonetheless, in order to culti-
vate capitalism in Japan, Shibusawa reasoned that it was neces-
sary not only for businessmen, but also for all Japanese people,
including politicians, government officials, and academicians, to
understand such Western systems and their concepts, and to
take an interest in them. To this end, Shibusawa undertook
many initiatives that promoted greater public awareness. He not
only established the modern banking system in Japan along
with hundreds of companies in various other fields; he also
founded and managed hundreds of new business associations.
7
He became the first president of the present Tokyo Chamber of
Commerce, the Tokyo Bank Association, and the Tokyo Stock
Exchange. Through those business groups, corporations and
businessmen were able to exchange information and views, as
well as submit their proposals to public organs such as the cen-
tral government.
Shibusawa had a unique perspective on so-called global
thinking. When confronted with an issue intertwining Japan
and the world, he offered insight as a business leader about
what role Japan could play. From the beginning of the twentieth
century, for example, Shibusawa argued that Japanese business
leaders and companies should play a role aimed at improving
the relationships among the Western countries, encouraging the
development of Asian countries, in particular China, and set-
tling disputes in a peaceful way. Shibusawa was also aware of
the importance of Japans image in international society. He did
much not only to correct the misunderstandings confronting
Japan in foreign countries; he also strove to create positive
images of the nation. He cooperated with the establishment of
Japanese news agencies, such as Kokusai Tsushinsha (International
News Agency), because he knew that those who can manage
142 Masato Kimura
7. As for the number of companies that Shibusawa helped to establish, see
the index of Shibusawa Eiichi Denki Shiryo . 8. Latz, Shibusawa Eiichis Legacy, p. vii.
nizations that threaten the order and security of civil society.
In overseas operations, corporations will respect the cultures
and customs of the host society and will manage themselves in a
manner that contributes to local development.
Corporations top executives, recognizing that it is up to them to
make the spirit of the Charter a reality, will take the initiative
and set an example in assuring that all relevant parties are fully
aware of the Charter and of their responsibilities for bringing
corporate systems into line with it; and will cultivate sound cor-
porate ethics.
When the Charter is violated, corporations top executives will
resolve the problem, endeavoring to clarify its causes and pre-
vent its recurrence. They will disclose all relevant information to
the public, and will mete out stern punishment upon identifying
authority and responsibility, not excluding themselves.
Three issues are worthy of special attention with regard to
the Keidanren Charter: the relationship between good corporate
citizenship and civil society; the importance attached to the dis-
closure of corporate information; and recognition of and respect
for the cultures and customs of host countries.
10
The Keidanren
Charter also underscores that contemporary Japanese businesses
need to reconsider their role, beyond the question of liability
and product integrity. Unless this step is taken, the question of
charity is given short shrift and many Japanese business leaders
and businessmen will continue to think that the purpose of cor-
porations is primarily for the pursuit of profit.
Ethical Problems in Japanese Business Practices Today
Despite some recent signs of improving business ethics in
Ethical Challenges Facing Japanese Businesses 145
ideas have been widely accepted at a theoretical level, in reality
Japanese businesses have strayed from Shibusawas ideals. This is
especially true when considered in terms of the bubble economy
that occurred in the middle of the 1980s, which overemphasized
profit seeking. These indicators suggest that Japans business lead-
ership lost touch with Shibusawas vision and his concept of
Rongo to Soroban.
The Keidanren Charter
After the bubble economy burst in the early 1990s, big corpo-
rations were found guilty of many improprieties. The Japanese
public and other observers from around the world were critical of
the repeated unethical practices of Japanese corporations. In
response to widespread criticism regarding the state of business
practices, the Keidanren (Japan Federation of Economic Organiza-
tions) renovated its Charter in 1996, calling for corporations to
engage in the pursuit of profit through fair competition. Its revised
Charter for Good Corporate Behavior clarifies ten principles:
9
Corporations will develop and provide socially useful goods
and services, giving full consideration to safety.
Corporations will engage in fair, transparent, and free competi-
tion. They will maintain healthy and sound relations with poli-
tics and government.
Corporations will communicate not only with shareholders but
also with society as a whole, actively and fairly disclosing corpo-
rate information.
Corporations recognize that coping with environmental prob-
lems is essential to corporate existence and activities and will
take a voluntary and resolute approach in dealing with the
tasks.
Corporations, as good citizens, will actively undertake philan-
thropic activities.
Corporations will strive to make it possible for employees to
lead relaxed and enriched lives, guaranteeing a safe and com-
fortable work environment and respecting employees dignity
and individuality.
Corporations will stand firm against antisocial forces and orga-
144 Masato Kimura
9. The principles can be found online at www.keidanren.or.jp/english/
policy/pol052.html.
10. It is important to note that the Charter is influenced by the Principles of
Business Activities, published in 1994 by the Caux Round Table, orga-
nized by the INSEAD business school in France. Its members are com-
posed of business leaders of multinational corporations and politicians
from North America, Europe, and Japan. Although both the Keidanren
Charter and the Caux Principles include many problematic details, its
basic principles about business ethics are comprehensive and reasonable.
When we read both sets, we can see how they reflect many ideas in com-
mon with Shibusawas. The question before us is how to put the princi-
ples into practice, given the business realities that are now emerging.
Mitsubishi Fuso Truck & Bus Corp., the former truck division of
Mitsubishi Motors that was spun off last year (in 2003), admitted
there was a defect and recalled about 200,000 trucks12 years
after the first reported accident.
11
Although the company knew
the cause of the problem, they failed to act to resolve it. The
resulting unethical and illegal activity might have been the
cause of dozens of accidents, including one in which a 29-year-
old woman was killed by a tire that flew off a truck.
12
Why are
facts concealed in such cases? There are several reasons, but I
think the most important one is the troubled information sphere
in Japan.
13
The general structure of the Japanese information sphere
consists of three actors: transmitters, receivers, and mediators.
People often say that it is very difficult to obtain information in
Japan. This is correct, in a sense, but in fact we can access large
amounts of information. To put the matter more accurately, the
problem confronting the information sphere is not a lack of
information, but a failure to assume responsibility for the provi-
sion of information. Receiversthat is, those in search of infor-
mationhave few concrete and effective routes to access what
should be known, for example, when an accident or a scandal
occurs. Transmitters, like the central government or corpora-
tions, do not think that they should disclose information with-
out very careful management; their view is that people do not
need to have detailed information about politics, economics, and
administrative matters. This Japanese attitude is described as
shirashimubekarazu, yorashimubeshi (do not inform the public of
the facts about the policymaking process; let the people be depen-
dent on the authority). Therefore, those with access to informa-
tion do not have clear and concrete standards with which to dis-
close the information that they possess. This is the case despite
the well-established fact that disclosure of corporate information
Ethical Challenges Facing Japanese Businesses 147
Japan, for example, the number of Japanese corporations that
attach importance to the environment is increasing, these issues
represent the crux of the problems facing Japan: a poor under-
standing of the concept of civil society and corporate citizenship;
delays in disclosure of information; and lack of commitment to
the dignity and value of human beings.
Having raised concerns about the behavior of business man-
agers, we must also acknowledge that a number of modern
Japanese corporate practices have merit. By attaching more
importance to stable employment than to their companys stock
price, Japanese companies have engendered a high degree of loy-
alty in their employees. While this sense of responsibility to the
company-as-community is laudable, it is also the case that con-
cepts of civil society and corporate citizenship articulated in the
Keidanren Charter are not well reflected in such thinking. In Japan,
almost all people have the impression that with the exception of
business and their individual income, governmental authorities
can and should exercise broad control of society. This can be
described as the so-called okami-ishiki thinking, that is, to be
overly respectful of government attitudes. In general, the word
public seems to be equal to government, which includes both
the national and local governments, a focus that begs another cen-
tral question: What responsibility does business have for the
broader public good, either in partnership with government or, at
times, as an interest group urging government leadership that
benefits the national interest? An additional and complicating fac-
tor is that despite many serious economic problems in Japan at
the present time, the average working person is relatively satis-
fied with his living standard, resulting in an ambivalent attitude
about taking steps to reform social problems. It is in this sense
that the concept of civil society has not yet developed fully in
Japan.
Beyond these issues, there are numerous delays in the disclo-
sure of information. The recent disgraceful affairs afflicting the
Snow Brand Milk Company (Yukijirushi Nyu gyo ), Sogo , Mit-
subishi Motors Corporation, and the Mitsubishi Fuso Truck and
Bus Corporation are examples of concern. A common feature in
each case is the delay in the disclosure of information. Mitsubishi
Fusos case is illustrative, demonstrating the ethical dilemma
facing Japanese companies. According to the New York Times,
146 Masato Kimura
11. New York Times, May 7, 2004.
12. Ibid.
13. Masato Kimura and Masayuki Tadokoro, Gaikokujin tokuhain (Foreign
Correspondents in Tokyo) (Tokyo: NHK Shuppan, 1998), pp. 145-98.
For a recent example of the troubled information sphere in Japan, see
Andrew Morse, Truth of Consequences in Japan: Seibu Railway
Delisting Sends a Clear Message About Murky Reporting, Asian Wall
Street Journal, January 18, 2005.
Overcoming Present-day Obstacles
How should we overcome the obstacles enumerated in the
preceding section, so clearly spelled out by the Keidanrens revised
Charter for Good Corporate Behavior? I would like to suggest
three steps: encouraging deregulation; making clear rules for
information disclosure; and promoting the international exchange
of talented people.
Deregulation
Deregulation of the economy leads to consequences that are
positive and negative. The positive side of deregulation is that it
encourages Japanese companies to take advantage of information
technology and recreate more efficient and customer-oriented
businesses. Deregulation stimulates new business activities and
encourages the kinds of entrepreneurship that tackles risky but
potentially lucrative opportunities. Furthermore the so-called
okami-ishiki attitude (to be overly respectful of government atti-
tudes) can be broadly challenged under deregulation. Under
deregulation, the power of the Japanese government to control
the business community will be mitigated and, consequently, a
company will have to be more managerially self-reliant. Many
positive results can be anticipated as the deregulatory process
reduces the power of bureaucrats who have long had such a
strong influence on business activities in postwar Japan.
Though government intervention is not welcomed by busi-
ness in general, the government still has a major role to play in
establishing a suitable foundation on which corporations will
compete with each other fairly. This calls attention to the negative
consequence of deregulation. Deregulation can contribute to situ-
ations in which there is little regulation of adverse business activi-
ty, which in turn can lead to a decline in ethical thinking. In order
to win in intense competition, companies are apt to break busi-
ness rules and to violate laws. We are obliged to recognize that
government intervention continues to be necessary in the new
economy, as shown by the recent Microsoft trial in the United
States,
14
even as we admit that one risk of strict governmental
Ethical Challenges Facing Japanese Businesses 149
has numerous benefits for corporations. In particular, there is
widespread agreement that information disclosure allows cor-
porations to acquire greater credibility in the normal course of
business as well as the ability to manage a crisis situation more
effectively, in the event one occurs.
Moreover, there is a need today to think more deeply about
the basic purpose of a company: What should a company be,
and for whom does a company engage in business? It is, of
course, a timeless, fundamental question, and one that cannot be
answered by simple generalizations. Yet it is such questions that
come to the fore when a company crisis occurs. Since Internet
facilities became popular in the late 1990s, many scandals engulf-
ing Japanese companies have been rapidly exposed through
Internet facilities because the employers could not control Inter-
net services.
One can also observe a lack of commitment to the dignity
and respect for all human beings in Japanese corporations.
Rather than anticipate and manage such issues, Japanese busi-
nesses have been evading them, concentrating instead on busi-
ness activities only, reluctant to be concerned with the value of
human beings from an ethical point of view. One of the reasons
for this problem, it can be argued, is the absence of diversity in
Japanese business society, that is, its poor integration of women
and foreign employees. Many women work in Japanese compa-
nies but few can participate in the high level decision-making
process. Rather, the elite business world in Japan is overwhelm-
ingly male. Japans largely homogeneous society makes it quite
difficult to realize that that society is built on a base of diversified
individuals who have different valuespolitical, economic, social,
and ethical. And although Japanese businessmen surely have
their own personalities and opinions, one can observe that they
all too easily accept company dictates on work-related rules and
norms (shafu). Indeed, the difficulty of openly criticizing compa-
ny policy is one example where serious questions can be raised
about freedom of speech in Japan. One of the positive dimen-
sions of globalization is that this phenomenon exposes more
Japanese business leaders to the fact that many corporations
abroad succeed in creating new business opportunities by mak-
ing the best use of diversified human resources.
148 Masato Kimura
14. United States v. Microsoft was a widely publicized antitrust trial in
designed to encourage rewards for disclosure of information. If
corporations demonstrate proper behavior, that is, timely infor-
mation disclosure commensurate with the Keidanren Charter,
subsequent application of penalties may be enforced with mea-
sured leniency on a case-by-case basis. But, in the opposite case,
the penalty should be increased heavily. For a conspicuous neg-
ative example, the 2000 case of Snow Brand Milk Product Co.
(Yukijirushi Nyu gyo ) comes to mind. This company, a leading
dairy manufacturer, temporarily halted production only when
more than 11,000 people were sickened by company milk taint-
ed with staphylococcus. According to public sources, Snow
Brand employees ignored company safety manuals and failed to
conduct regular examinations for bacteria,
16
because of the pri-
ority attached to profit and the decline in employees morals.
International Exchange
Thirdly, I would like to reinforce the necessity of interna-
tional exchange of talented people, not only to realize the impor-
tant goal of making the Japanese workplace more diverse, but
also to sustain high ethical standards. Through working with
foreigners in the same workplace, such exchange will make
Japanese businesses realize, over time, the need for diversity,
dignity, and respect for human beings. Today it is very difficult
for foreigners to work in Japanese corporations for an extended
period of time or to participate in their decision-making process.
Why are Japanese companies resistant to the employment of for-
eigners? It seems to me the reason is twofold: lack of experience
with foreign employees; and an unconscious fear of foreigners
by those Japanese employed in domestic companies. In the short
run, as many have observed, it is true that time and effort will
have to be expended because of differing cultural norms and
language skills. But this is not the main problem, in my view.
Rather, the fundamental issue is that most Japanese think it is
neither necessary nor valuable to consider the management
ideas of foreign employees.
There are many benefits accompanying the recruitment of
foreigners as regular staff. One is the English language, the lingua
Ethical Challenges Facing Japanese Businesses 151
intervention is a dampening of entrepreneurial activity. In Japan,
regulations for the new economy must be developed only after
careful consideration. As new regulations are set up, they will
require a good deal of administrative guidance from competent
authorities. However, I think that if Japanese corporations take
the initiative to make rules that constrain negative behavior on
their own, acceptance by the Japanese business community will
be more likely and more rapid.
Information Disclosure
As discussed earlier, Japan is far behind in the disclosure of
information. Delay in information disclosure is a symptom of the
erosion of business ethics. As Dunfee and Nagayasu have noted,
business ethics in Japan all too often are seen as applying to the
inner circle but not to outsiders. Managers tend to view the
inner circles as operation bases supported by cooperative behav-
ior while the outer bases (circles) are seen as battlegrounds of
intense competition.
15
Although few businessmen in Japan
understand its importance even now, the disclosure of informa-
tion has an important role in sustaining business values. With
regard to disclosure, I think five factors must be considered
important: decreasing cross-shareholding, making new rules or
laws evaluating rewards for disclosure of information, changing
attitudes of the media and the consumer toward corporations,
sharing information with the international community, and mak-
ing clear and concrete rules for disclosure.
I would like to comment in particular about new rules
150 Masato Kimura
which the U.S. Department of Justice (DOJ), joined by twenty U.S.
states, alleged that Microsoft abused monopoly power in its handling of
operating system sales and web browser sales. The DOJ and states filed
the antitrust case against Microsoft on May 18, 1998. The issue central
to the case was whether Microsoft was allowed to bundle its flagship
Internet Explorer web browser software with its Microsoft Windows
operating system. The DOJ, now under the administration of President
George W. Bush, announced on September 6, 2001 that it was no longer
seeking to break up Microsoft and would instead seek a lesser antitrust
penalty. On November 1, 2002, Judge Kollar-Kotelly released a judg-
ment essentially accepting the proposed DOJ settlement.
15. Dunfee et al., Business Ethics, p. 9. 16. Japan Times, July 9, 2000.
Those approaches include, to begin with, the importance of
building on the ideas found in the Keidanren Charter for Good
Corporate Behavior. Beyond these behavioral ideals, it is also
necessary to introduce a new conceptualization of business ethics
that considers the importance of deregulation, the disclosure of
information, and the need for international personnel exchange
for Japanese businesses. As one analyzes the current state of
business ethics in Japan, the problem to be faced is not that of
finding a common ethical standard in theory, but of finding a
common ethical standard in practice. The challenge that results
from the identification and implementation of a practical set of
ethical standards is predictable since, for the first time in modern
Japanese history, businesses are interacting with global society as
one of the main actors. Despite a number of concerns voiced
domestically, the rewards that will accrue to Japan, indeed to the
world, will be many as higher ethical standards are identified
and embraced.
Finally, in the near future, it is possible to predict that not only
corporations but also nonprofit sector organizations (NPOs) will
play a major role to check and maintain business ethics. For exam-
ple, the Council on Economic Priorities is an NPO that has pub-
lished original ethical standards for working conditions in the
United States.
19
In Japan, the Economic Research Center of Reitaku
University has published the Ethics Compliance Standard.
20
According to a questionnaire sent out by the Asahi Shinbun
in 2000, among one hundred business leaders of modern Japan,
Shibusawa is the third most popular business leader, together
with Konosuke Matsushita and Soichiro Honda.
21
In analyzing the
results of this poll, the question was raised, if Shibusawa Eiichi
were alive today, what might he say about current Japanese
business? The Asahi answered that Shibusawa might say Japanese
businessmen should be cognizant of the role of financial institu-
tions and should pursue profit making with due attention to
Ethical Challenges Facing Japanese Businesses 153
franca of the global business community. Foreign employees help
to improve the use of English inside Japanese corporations. Since
most Japanese people understand the necessity of English com-
munication in todays world, there is a latent opportunity to be
addressed as English speakers are integrated into the work place.
A second opportunity is the fact that Japans population is aging
rapidly and its working population is decreasing. As Japans
work force ages and the birthrate declines, a chronic shortage of
skilled workers is imminent.
17
According to the Nikkei Weekly,
the number of registered foreigners in Japan at the end of 1999,
while representing only 1.2% of the countrys total population,
had grown to 1,556,113, or 2.95% more than the previous year.
18
Aging trends reinforce Japans need to be more open to foreign
labor. In order to sustain reasonable growth, Japanese corpora-
tions need to employ more foreign workers in addition to making
full use of female workers and older people who want to work.
To be sure, this proposal is controversial under conditions
that include periods of high rates of unemployment. On the
other hand, major benefits will accrue to Japanese corporations
that accept the diverse ways of thinking represented by differing
languages, genders, and religions. Such diversity will produce a
positive tension in the Japanese business community and it will
enlighten thinking concerned with business ethics. Diversity
will force Japanese corporations to change their tacit under-
standing and tendency, at times, to embrace collusion. In place
of such behavior, business will be challenged to make ethical
values clear to the larger community.
Conclusion
This article has argued for a new ethic for Japanese business
and reviewed a variety of approaches available to overcome
resistance to such thinking by the Japanese business community.
152 Masato Kimura
17. For further discussion on foreign workers in the contemporary Japan, see
Catherine Lu, Toshihiro Menju, and Melissa Williams, Japan and the
Other: Reconceiving Japanese Citizenship in the Era of Globalization, in
this volume.
18. Nikkei Weekly, June 26, 2000.
19. More detail on the Council on Economic Priorities can be found online
at its website, www.cepnyc.org.
20. Economic Research Center, Reitaku University, provides downloadable
documents on Ethics Compliance Standard for Japanese businesses. It can
be found online at www.ie.reitaku-u.ac.jp/~davis/html/ecs-eng-doc.
html.
21. Asahi Shimbun, August 28, 2000.
Norton, 2000.
Latz, Gil. Shibusawa Eiichis Legacy: Nineteenth-century Wis-
dom in Light of Twentieth Century Challenges, in
International House of Japan, Challenges for Japan-Democra-
cy, Business, and Aging. Tokyo: Shibusawa Eiichi Memori-
al Foundation, 2001.
Mitsuhashi, T., ed. Japans Green Comeback: Future Visions of the
Men Who Made Japan. Selangor Darul Ehsan: Pelanduk
Publications, 2000.
Oshima, Kiyoshi, Kato Toshihiko, and Ouchi Tsutomu. Meiji shoki
no kigyoka (Entrepreneurs in the Beginning of the Meiji
Era). Tokyo: University of Tokyo Press, 1976.
Ryumonsha, ed. Shibusawa Eiichi denki shiryo (Shibusawa Eiichi
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Shibusawa, Masahide. Taiheiyo ni kakeru hashi (The Bridge over
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Ethical Challenges Facing Japanese Businesses 155
ethics, based on the Analects of Confucius.
22
I would like to add
to this observation. After all, if concrete practices are to be effec-
tive through the establishment of a new ethic for Japanese busi-
ness, they will depend ultimately on the human qualities of busi-
ness leaders. Thus, we must improve not only business ethics
but, ultimately, the educational system that transmits ethical val-
ues to these future leaders. In this regard, one can recall another
fitting Shibusawa pronouncement, sekai-jin to shite no kokuminsei
(we should strive to be generous and open-mindedcosmopoli-
tanin our national character).
23
With this statement, Shibu-
sawa observed that Japanese people should always be intellectu-
ally curious, in particular with regard to the study and under-
standing of different values and thoughts found in the world at
large. Such admonitions continue to represent a major challenge
for Japanese society and Japanese businesses in the twenty-first
century.
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23. Takahashi Shigeharu, ed., Shibusawa Eiichi jijoden (Autobiography of
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