PACIFIC BASIN ECONOMIC COUNCIL
MAIN PAGE | EVENTS & PROGRAMS | 2001 | IGM | SPEECHES | HAJIME SASAKI

Additional Info: Policy Statements Speeches Photos Speakers & Noted Participants Featured Biographies Registration Media Information Conference Statement Regional Vitality in the 21st Century April 6-10, 2001 — Tokyo, Japan Mr. Hajime Sasaki Chairman of the Board NEC Corporation I am very grateful to have an opportunity to speak to you today. I would like to talk about Japan's approach to corporate realignment with an emphasis on the steps taken by NEC. 1. Learning from U.S. and European management Style in the 1990s (Slide 1) The Japanese economy posted rapid growth during the postwar period under an economic system aimed at catching up with western countries. This goal was achieved, but in the late 1980's was followed by a recession resulting from yen appreciation, the emergence and collapse of the speculative "bubble" economy, and a chaotic political situation. As such, the 1990's have been called the "lost decade." This was a result of the government's failure to implement sound policies and the inability of companies to appropriately deal with the turmoil which they were experiencing for the first time. Consequently, initiatives for the disposal of bad loans and for the reform of management structure were postponed. Meanwhile, the U.S. economy was reinvigorated in the 1990s through an aggressive promotion of management aimed at "maximizing shareholders' value." As the expansion and improvement of IT and money markets quickened the globalization of the economy, this principle required managers to act with speed and accountability. As a result, outstanding businesses have readily been able to raise funds from international markets, thereby leading to the significant growth of Internet business and IT ventures. Although it cannot be denied that the U.S. economy is suffering from an Internet bubble as a result of pinning too much hope on the Internet, there is no doubt that advances in the IT revolution have created new businesses and improved labor productivity. Lately, European companies have tended to adopt "shareholders' value" as a major criterion for management decision-making. Along with this change in attitude, the birth of the single euro capital market is giving rise to more competition, making it possible to implement major corporate realignment through huge fund raising. Meanwhile, a European approach remains which seeks more than only shareholder value. Specifically, at the end of last year it was agreed that a "EU Company Law" would be enacted with the intention of coordinating such laws in each country. This law, which is modeled on Germany's joint decision law, aims to promote the participation of workers in management. Today, many Japanese companies are making a transition to management which sets as one of its objectives the "maximization of shareholder value" through the reinforcement of corporate governance. Needless to say, American-style management also has issues that must be addressed, such as the pursuit of capital gains by short-term, result-oriented management and the outflow of technology due to an increase in job changes. As such, it is essential to incorporate the good points of American-style management while at the same time improving Japan's system. Judging from the way Japanese companies have coped with corporate realignment in the past following the oil crisis and environmental problems, it can be said that they are good at adapting to changes in business conditions once they set clear goals. 2. Reorganization aimed at the maximization of corporate value Let me now talk about how Japanese companies are actually undertaking business realignment by examining the case of NEC. Recently, sweeping corporate realignment has been carried out in Japan's info-communications sector as well through the breakup and merger of businesses. In particular, foreign-owned companies are aggressively entering Japan's telecommunications sector. Furthermore, from the standpoint of concentration in core businesses, the sale of non-core businesses is also growing. (Slide 2) Amid these circumstances, in April last year NEC, too, started a new framework, with the in-house company system acting as the pillar. This new framework aims at reinforcing global competitiveness and at achieving speedy management. The objective of NEC's management structural reform is to "maximize corporate value" through "the concentration and selection of businesses," and through the reinforcement of corporate governance by establishing an executive officer system and a management advisory committee. We take the view that "corporate value" comprises the three pillars of "shareholders" "employees" and "customers." At present, we are clearly placing greater importance on the "maximization of shareholder value"-something we tended to pay less attention to in the past. (Slide 3) At NEC, we are undertaking four major reforms aimed at "maximizing corporate value". First, we declared a shift of company-wide resources into the realm of Internet. (Slide 4) Furthermore, we introduced an in-house company system--as we thought it necessary to establish a business execution framework with a competitive advantage. From the standpoint of Internet business, we established three companies, divided by market. This move aims at seeking speed and self-accountability. Specifically, we are concentrating resources and functions required for business execution in each company. Our aims are to expedite decision-making, to establish a system where both authority and responsibility can be borne, to understand customer needs accurately, and to realize the synergy of each business through the utmost display of strength by each company. (Slide 5) The third reform is the reinforcement of corporate governance. Japan's current company law system of checking top management by shareholders is not functioning satisfactorily in the Japanese style of management. For this reason, in order to make corporate management more transparent and sound, NEC is making efforts to reinforce the function of the board of directors by increasing the number of outside directors. At the same time, we are strengthening accountability to stakeholders who participate in corporate management by establishing a management advisory committee and a compensation committee. (Return to Slide 3) The fourth point is the steady implementation of business realignment. Although this involves pain for companies, the key issue is "employment." Reorganization involving only layoffs and the dropping of certain enterprises does not match Japanese culture and society. As such, when considering the sale of business, NEC seeks a partner who can give the highest possible rating, not only in terms of the value of the financial assets held by the business considered for sale but also in terms of the value of intangible assets such as technical strengths and human resources. In other words, Japanese companies are, in many respects, aiming to achieve corporate realignment that enables realization of a win-win relationship. (Slide 6) Now, as a specific example of NEC's business realignment, I will discuss the strategic partnership forged between Ando Electric, an NEC Group company, and Yokogawa Electric in January this year. This is a case where the business strategies of NEC, Ando Electric and Yokogawa Electric matched perfectly. NEC was considering undertaking group reorganization while Yokogawa Electric was aiming at strengthening its electronic testing equipments business and Ando Electric wanted to forge an alliance to reinforce its business foundation. In this partnership, NEC sold most of its shares in Ando Electric to Yokogawa Electric. As such, it can be said that Yokogawa Electric highly rates Ando Electric's intangible assets. In this sense, the business realignment was timely. Furthermore, following the announcement of this partnership, the price of Yokogawa Electric shares rose, attesting to the market's high rating of the alliance. In the business realignment involving the transfer of employees, in some cases the terms of treatment of the transferred employees and the ensuring of employment for a certain period may be set as conditions. This is done with a view to minimizing the impact on employees. An examination of such cases may reveal that Japanese companies are slow in instituting reform and that this in turn causes a delay in structural reforms. However, from the additional perspective of Japan's social demands, some aspects of corporate management and business realignment are not feasible if things are done just for the sake of speed. 3. Japanese management style based on "Wisdom" "Courage" "Generosity" I would like to restate the elements that make companies grow. Needless to say, management that takes the maximization of shareholder value into consideration is vital. Other than that, many Japanese corporate managers feel that efforts to deal with "employees" and "customers" should not be neglected. "Employees" make up one of the main components of a company while "customers" are a major factor in terms of market rating. Employees are the source of corporate vitality, and they are the ones who carry out activities that maximize "shareholder value." I therefore feel it is also important for companies to establish an environment where each employee can display his or her intellectual assets and abilities to the utmost. (Slide 7) An examination of Japan's manufacturing sector, I think, shows that initiatives in the mobile communications business, such as i-mode, and in digital consumer electronics are superior even from a global perspective. Moreover, Japanese companies have the knowledge and wisdom to develop and popularize high-quality products. One of the key words in thinking about Japanese-style management is the "wisdom" that is being shown in such fields. "Wisdom" is required for the adoption of a new management style and for technical innovation. Another crucial element is the attitude to tackle issues on a timely basis and the "Courage" to fearlessly carry out reform. In addition, companies will be called on to show "Generosity" toward others by attaching importance to the network of society, people and other companies, rather than to seek only victory amid global competition. In closing, it should be mentioned that with the start of the 21st Century, companies are required to deal with many constraints, such as global environmental problems. Under these conditions, it is important to devise business strategies that effectively use tangible and intangible assets in incorporating the positive aspects of western-style management. I hope that the pursuit of a Japanese style of management which aims at maximizing corporate value (shareholders, employees and customers) will lead to a suitable new style of management for the 21st Century.