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Business

Toshiba exposes roots of Japan Inc.'s chronic indecisiveness

It's not about the people -- it's about the personnel system

TOKYO -- Toshiba's recent decision to sell its memory unit to an American-Japanese-South Korean consortium raises a question: What took so long?

Surely, a number of factors kept the process in limbo for months: the wide range of stakeholders; fears of Toshiba technology falling into the hands of foreign rivals; and banks' concerns about their loans to the conglomerate. Ultimately, though, the final say on the preferred buyer lay with Toshiba's board and, to be precise, President Satoshi Tsunakawa.

Through no fault of his own, it was a decision Tsunakawa was ill-equipped to make.

The president is a total stranger to the memory business. Before he assumed the post of senior executive vice president in September 2015, he had never set foot in Toshiba Memory's Yokkaichi chip plant.

Toshiba's semiconductor fabrication facility in Yokkaichi, Japan.

Likewise, Tsunakawa is new to the nuclear power business -- the very business that put Toshiba in its current predicament. Again, he visited a nuclear power plant for the first time after becoming vice president two years ago. 

Massive losses at U.S. nuclear subsidiary Westinghouse Electric, Westinghouse's subsequent bankruptcy filing, and the desperation sale of Toshiba Memory have forced Tsunakawa to take a crash course in two unfamiliar fields. Making big decisions about these businesses was bound to be terrifying -- and this may partly explain the slow resolution. 

This is not about questioning Tsunakawa's credentials for leading the electronics maker. The problem lies in a personnel system -- all too common in corporate Japan -- that divides employees and locks them in specific sections of an organization for years, with little movement or interaction between units.

After joining Toshiba in 1979, Tsunakawa spent 36 years proving himself in the medical device business. Laziness was not the reason he never visited the chip plant: Semiconductors simply had nothing to do with his job.

There are striking parallels in the story of Kozo Takahashi, a former president of Sharp. An engineer by trade, he spent 26 years helping to turn the copier business into a cash cow. But once he became president, his lack of experience in the core liquid crystal display business became apparent.

As with Tsunakawa, Takahashi's struggles with the volatile LCD market were rooted in Japan Inc.'s "pure culturing" of employees. Typically, your first specialty will be your last -- unless, that is, you reach the top. 

Potential solutions

How, then, should companies get around the problem of relying on bosses who are not experts in critical fields?

Poaching outside talent is rarely an option for Japan's traditional corporate giants. Almost always, these companies pick top executives from their own ranks. One exception is when a company accepts foreign capital, as in the case of Nissan Motor, which welcomed Carlos Ghosn as president. Another is when a company goes bust: Japan Airlines turned to Kazuo Inamori, chairman emeritus of electronics company Kyocera.

There are no easy answers. But companies can start by destroying rigid personnel structures and giving promising employees the opportunity to shuffle between different units, gaining diverse experience. 

General Electric CEO John Flannery (Courtesy of GE)

Successful conglomerates in the U.S., such as General Electric and 3M, rotate employees around their sprawling organizations. This helps them nurture future executives.

Another option, for conglomerates like Toshiba, is to spin off various units and become specialized companies. Hitachi, for instance, significantly reduced its semiconductor and domestic appliance operations to focus on infrastructure, such as power generation and railways. One strategy may not fit all aspects of the infrastructure business, but there is a lot of overlap.

The reorganization has freed Hitachi's top executives from responsibility for everything from tiny chips to gigantic nuclear power plants. The Toshiba Memory sale may well turn out to be a watershed moment for Japanese personnel management.

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