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Opinion

How Japanese companies can shape 21st century capitalism

Redefining their social contribution will show the way

| Japan
Office and residential buildings in Tokyo: leadership is about looking to the horizon and making change, not reacting to it.   © Getty Images

Ben Fouracre is the Japan representative for the Berkeley Research Group. Jody Ono is adjunct professor at Hitotsubashi University Business School, and is an outside director at Mabuchi Motor.

There is a vast and unclaimed leadership territory in the global business landscape: defining corporate social contribution for a sustainable future that builds enduring social capital in communities served.

Corporate Japan is beyond qualified to plant its flag in this space if it moves fast enough. As we write, corporate Japan's top players are working to adopt global norms and standards for sustainable management of natural capital and human capital, alongside financial capital. Some are seen as doing so convincingly, as Nikkei Asia's 2020 corporate brand survey on ESG policies shows.

Meanwhile, demographic change, fear for the planet, socioeconomic inequities and more, all amplified by COVID-19, have sharpened global scrutiny of corporate behavior. As a likely complement, we see a deepening of global interest in stakeholder capitalism.

All of this makes now a good time for Japanese companies to rethink their role in a world seeking to recalibrate. As the vanguard of Japan's stakeholder model of capitalism, in which business is a trusted steward of social stability, they can redefine for companies anywhere what social contribution can mean. And seize the opportunity to assert themselves as leaders of high social and ethical standards in the global markets they need to secure for the long term.

Japanese companies have long been expected to make valued and sustained contributions to society. This purpose is held primary with profit in a supporting role. For decades, the nature of the contribution expected of Japanese companies was clear: innovate to help modernize daily life in Japan while providing gainful employment for heads of households, weaving the fabric of a more affluent society of shared values and norms.

Japan's companies delivered beautifully on this contract, earning high regard from their stakeholders, among which the national populace was central, thus building enduring social capital throughout their value chains.

Today, weekly lineups of business webinar topics, such as work-style reform, diversity, climate change risk, social impact investing, show what is capturing mindshare in Japan now. While companies may see the social change happening around them, many are struggling to keep pace. The challenge is that the 20th-century definition of social contribution will not suffice to meet the realities of 21st-century life, where the definition of stakeholders now crosses borders, business sectors and regulatory frameworks.

How can Japanese companies convert their proven track record of building domestic social capital into a global capability to lead in 21st-century capitalism? Put simply, Japanese companies will need to offer fresh problem-solving contributions and demonstrate why they are the ones to make them. Redefining social contribution will uncover business opportunities for Japanese companies. But it can also help them update old assumptions.

More Japanese companies should check for alignment of these assumptions with the social change at hand, challenging themselves to question norms and practices that don't travel well. Simple examples: are nomikai -- the after-work drinking parties -- problematic? Why has not the hanko -- the stamp used in lieu of a signature -- become a global practice?

For companies, a useful approach is to map out the mutually enhancing relationships among social sustainability, social contribution and social capital. Sustainability and ESG reporting frameworks are tools for doing so if viewed as more than a compliance duty.

Prior to any target-setting, have diverse groups within the company debate questions like: How do we define society and what is the value we offer to it, defined as such? What assumptions do we make about our stakeholders; are these outdated? What do our stakeholders, all of them, want us to be?

A crowd of people cross the scramble intersection near Tokyo's Shibuya Station: what do stakeholders want companies to be?   © Sipa/AP

From there, companies can conduct structured envisioning for social contribution that is aspirational, achievable and impactful beyond Japan. Vision then guides strategy. Ask: What is the precise and visible social contribution we want to make in the world, and why? Only then: How?

Relatedly, they should grant sustainability officers a convincing level of authority within the organization, and incentivize them to focus on social sustainability on par with the environment and governance. In the wider world, Japanese companies will need to make their case very explicitly to reinterpreted corporate constituencies.

In strategies to realize overseas opportunities, companies can press into service the positive perception of Japanese companies as stewards of the human dignity inherent in gainful work. They can espouse social sustainability as a way forward for capitalism, based on candid appraisals of their dependence and impact on individuals and society wherever they operate. Is their ambition to do no harm -- which for some companies might be the reasonable starting point -- or something more?

Moreover, Japanese companies can develop a more nuanced understanding of local perspectives outside Japan through richer engagement with communities. Today a full understanding means capturing issues and risks relating to human rights and human development. Companies can collaborate to develop benchmarks with peers, other industry players, government bodies, NPOs and NGOs, which they can view as stakeholders, even potential partners offering locally rooted, globally scoped expertise to help.

Finally, Japanese companies can invest in bold communications strategies to tell their stories of social contributions made under the flag of stakeholder capitalism. Content should focus on the innovation imperative, and be vetted in globally representative feedback groups.

Leadership is about looking to the horizon and making change, not reacting to it. And leadership is most readily accepted when it meets an observed need. By redefining corporate social contribution for global common cause, Japanese companies can offer leadership toward more inclusive capitalism worthy of its consequential role in the human story.

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