Big Business Organization

Kazuo Noda

This paper aims to present the essentials of organization and top-management decision-making in Japanese big business. To do so for a foreign audience, it is first necessary to deal with certain misconceptions about Japanese management. Some foreign writers, interested in finding the unique "Japanese pattern of management," have tended to reify certain conceptions based on partial observations. The result has been understatement of the extent of change in Japanese enterprises and the extent to which they are similar to foreign enterprises.

In fact, Japanese enterprises, like enterprises in other advanced countries in the free-world economy, must give priority to economic rationality in order to realize profits. To remain competitive, Japanese management has continuously revised unprofitable practices and systems. The elimination of idiosyncratic practices and systems has been particularly marked in the large enterprises that must compete with foreign enterprises in both international and domestic markets. In the long run, Japanese enterprises have tended to respond to international market forces in ways not totally dissimilar to foreign firms.

Of course, some customs and structural features prevalent in Japanese organizations differ in certain ways from those in foreign countries, but "Japanese uniqueness" has been exaggerated because of the confusion between formal and informal practices. As a result of thousands of years of historical development in isolation from other countries, Japan has developed a society that is decidedly homogeneous in comparison with other countries, especially the United States. This homogeneity in race, language, culture, and life style facilitates establishment of informal ties among individuals. Especially in organizations where individuals work

together continuously for a long time, informal custom has far more power than the formal system in regulating the daily activities of the system's members. The formally established system that has no substantial function is a phenomenon found also in organizations in the United States, but the extent of difference between the formal and informal systems within the Japanese organization is particularly striking. Since both large enterprises and government bureaucracies in Japan are equipped with extensive formal systems, foreigners sometimes mistakenly assume that the "characteristic Japanese features" of these formal systems essentially explain the actual functioning of Japanese firms.

Defining Big Business

In present-day Japan, most enterprises, from very small-scale organizations to big businesses, are officially classified as corporations (kaisha hojin^[*] ). There are four types of corporations, but the overwhelming majority are kabushiki kaisha (joint-stock companies). Before World War II, many small- and medium-sized businesses in Japan did not adopt the joint-stock-company form. But with Japan's economic growth since World War II, the joint-stock company acquired obvious business advantages, and even small- and medium-sized enterprises gradually adopted this form of organization. Present-day Japanese enterprises referred to as "big businesses" are without exception joint-stock companies.

Despite wide use of the expression "big business," its definition is less clear than that of small- and medium-sized business (chusho^[*] kigyo^[*] ).^[1] However, it is not difficult to arrive at a working definition based on widely accepted practice. For example, a company that is listed in the first section of the Tokyo Stock Exchange can be considered a big business. There were 970,000 corporations in Japan as of the end of May 1973, but of these, only 820 (850 at the end of 1973) were listed in the first section of the Tokyo Stock Exchange. Since there are many corporations of comparable scale which are not listed, selection of all companies with capitalization over one billion yen (a criterion for being listed) reveals fewer than 1,500 corporations,^[2] or 0.07 percent of all companies.

This group of 1,500 Japanese corporations, however, has great importance. They control 60 percent of all capital, 36 percent of all business revenue, and their business revenue of eighty-eight trillion yen comes to about 6.2 times the government's general budget of 1973. But capitalization over one billion yen is more than a quantitative classification. For

[1] The definition in the Fundamental Law on Small and Medium Enterprises specifies the following limitation on scale of operations: (1) For mining, transportation, and other industries, (a) total capital base: less than ¥50,000,000, and (b) total number of employees: less than 300; (2) for commerce and service industries, (a) total capital base: less than ¥10,000,000, and (b) total number of employees: less than 50.

[2] This figure is as of the end of January 1972.

example, corporations with less than one billion yen are overwhelmingly family enterprises (dozoku^[*] kaisha ), whereas companies with over one billion yen capitalization are mainly nonfamily enterprises.^[3] In present-day Japan, a company, regardless of its format, generally outgrows the taint of an individual or family-centered undertaking when it exceeds about one billion yen capitalization. For the purposes of this article, we shall operationally define the big businesses under discussion as those that meet the following two criteria: (1) capitalization over one billion yen, and (2) nonfamily company structure, as reflected in stockholder ratios. Roughly 1,400 companies meet these two criteria—corresponding approximately to the number of companies listed in the first and second sections of the Tokyo Stock Exchange.

Board of Directors and Its Jomukai^[*] (Executive Committee)

The Three Legal Organs

Big business, even as defined above, is a broad term which includes hundreds of businesses of many different scales, industrial types, and historical backgrounds. Although it is difficult to generalize about top management organization and the decision-making process for such a diverse group, it is possible, with due caution, to draw some generalizations.

Among the organs defined by the Japanese Commercial Law, the board of directors (torishimariyakukai ) fulfills the role of top management in business organizations. This is an organ created after World War II (in 1950) when the Commercial Law was greatly revised. Under the old Commercial Law, each director held important legal power in various top management operations and as company representative to the outside. When the Commercial Law was revised, management powers were given to the board of directors, which was composed of all directors as regular members. The board of directors came to make decisions on items covering a broad sphere of top management.

The authority of company representative was delegated to the representative director (daihyo^[*] torishimariyaku ) chosen by the board of directors. Thus, the board of directors became the decision-maker on a broad range of items determined by company regulations, in addition to the following items designated for exclusive decision under the Commercial Law: (1) decision to convene the general meeting of stockholders; (2) nomination of representative directors; (3) nomination of and dismissal of management;

[3] A family company is so designated by the law if the three largest shareholders are related and control more than 50 percent of the total company stock. For computation purposes, the number of shares held by minor stockholders who are related must also be counted with those of the major family shareholders.

(4) decision on bond issuance; (5) discretion of turning over nonessential business to outside parties; (6) determination of matters relating to issuance of new stock; (7) approval of the transactions between directors and the company; (8) capital incorporation of the reserve fund; (9) stock split; (10) appointment of representatives in disputes between company and directors.

As defined under the Commercial Law, there are two organs—the general meeting of stockholders and the auditors—which are equal to or above the board of directors. With the revision of the Commercial Law in 1950, the authority of these organs was greatly reduced and in part transferred to the board of directors. In the sense, however, that the right to appoint the directors lies with the general meeting of stockholders, and in the sense that the auditors have the authority to check the business performance of the directors, these respective organs are beyond the jurisdiction of the board of directors. The authority of the three organs (the board of directors, general meeting of stockholders, and auditors) is fixed clearly and entirely by law, with a system of mutual restraints designed to realize profits while preserving the stockholders' rights as owners. However, at least in big businesses, not all organs function in accordance with legal specifications. To overstate the case, neither the general meeting of stockholders nor the auditors fulfill their formally stated functions. Actually, even the power of the board of directors has greatly declined. We shall look first at the actual functions of the board of directors as it in fact replaces the general meeting of stockholders and the auditors.

Separation of Ownership and Control

The general meeting of stockholders is by nature essential to the joint stockholders' company. That the function of the general meeting is undermined as increased scale of enterprise stimulates the "separation of ownership and control" was pointed out with regard to American big businesses fifty years ago. In Japan, the decline of the general meeting of stockholders, already evident prior to World War II, was not connected with the phenomenon of separation of ownership and control until after the war.

The cause lies in the fact that over half of Japan's prewar big businesses were subsidiaries of the so-called zaibatsu capital groups and were always controlled, financially and through personnel, by the head companies (honsha ), which were the stockholding companies. Since the majority of the non-zaibatsu big businesses were family companies or quasi-family companies, even if their stock was listed on the stock market, the number of shares actually traded on the market was in fact restricted. Thus the general meeting of stockholders was a mere formality for the main body of stockholders, and the essential decisions, including appointment and

dismissal of directors, could not help but be dominated by the will of the large stockholders who were the real owners.

In Japan, unlike America, the "separation between ownership and control" in big business did not result from the natural maturation of industrial society. Rather, it was a by-product of defeat in the Pacific War and the policies for economic and societal democratization imposed by the Occupation forces. The striking elimination of large stockholders and marked increase of individual small stockholders formed the background for the rapid separation of ownership and control and the virtual eclipse of the general meeting of stockholders.^[4]

Since auditors were created by the Commercial Law enacted in 1896, they have had little real function in most joint-stock companies. Japan's Commercial Law was strongly influenced by German law, but unlike the German case, broad authority was never given to the auditors. And unlike the situation in England, there was little concern over whether auditorial candidates possessed the experience and knowledge that would enable them to carry out basic auditorial tasks. When, as part of the revision of a series of laws at the end of the Pacific War, the Commercial Law was revised, even the putative legal authority of the auditors was reduced. From the viewpoint of top management, the auditors' functions were negligible. Their importance was further weakened by the provisions of the Certified Public Accountant Act and the Securities Exchange Act, which require all companies listed on the stock exchange (with the exception of financial institutions) to have an external audit performed by a certified public accountant, just as in America.

For these reasons, the auditor—as compared with other joint-stock company executives—has long been considered both by those within and outside the company as a mere title with responsibilities much lighter than those of the director.

Naturally, the decline in authority and function of the auditors and the general meeting of stockholders influenced both directly and indirectly the authority and function of the board of directors. The point is quite clear if we consider the following concrete questions: Who in fact nominates the directors if they are not actually nominated by the general meeting of stockholders? Who in fact checks the directors' business performance and methods if they are not actually checked by the auditors?

As the scale of an enterprise increases, the number of stockholders generally increases, and the relative share of each stockholder is decreased by various factors (such as higher dividends, mushokofu^[*] ,^[5] and the climb in

[4] A government organ called the Holding Company Liquidation Commission confiscated in one sweep the extensive stock that the old zaibatsu had held in "child companies" and made it widely available to the general public. According to the stock distribution research of the Tokyo Stock Exchange in the first half of 1950, the proportion of stock held by individuals was an overwhelming 60 percent.

[5] Mushokofu^[*] is the preferential distribution of stock to shareholders at a price considerablylower than the face value or current price. Companies listed in the stock exchange practice mushokofu^[*] when issuing new stock.

stock value resulting from company growth). With these changes, the majority of the stockholders tend to lose interest in the management of the company as long as their investment desire is satisfied by such means as increase in share value, increased shareholdings, and dividends. Stockholders even fail to exercise their one major right—the nomination of members of the board of directors. Even if one segment of the stockholders endeavors to take an active role, under normal circumstances there is no effective means for rousing the interest of the other stockholders and gaining their timely participation.

Under the provisions of the Commercial Law, the appointment and dismissal of the directors and of the auditors must be determined formally by a decision of the general meeting of stockholders, but we must inquire how this actually works. In fact, it is made possible by a consensus among the members of the board of directors. This is because, except in special cases, the right to convene the general meeting of stockholders lies in the board of directors, and the formulation of the agenda is also a function of the board of directors. The agenda includes such important items as continuance and retirement of present auditors and directors as well as nomination of new auditors and directors. Since it is inconceivable that the general meeting of stockholders will reject the nominations from the board of directors, the de facto right to appoint and dismiss directors and auditors is in the directors' hands.

Jomukai^[*]

The next question is how the board of directors makes such basic decisions. The Commercial Law fixes the decision-making method of the board of directors as a majority vote of directors present, but in fact such voting virtually never occurs. This is self-evident if we analyze the structure of directorships in postwar Japanese enterprises.

In large American enterprises, external directors constitute a substantial proportion of all directors, but in postwar Japan, there are very few enterprises with outside directors. The most notable characteristic of the Japanese directorship structure is that most directors hold regular working positions within the company. Senior executives such as vice-presidents (fuku shacho^[*] ), executive directors (senmu ), managing directors (jomu^[*] ) are, without exception, directors. Recently, it has become common even for division level executives, such as chiefs of major factories and branch offices, and the heads of major functional departments like marketing, manufacturing, accounting, and personnel to also be named as directors. These officials are, in fact, appointed and dismissed by the company president, the highest official within the company hierarchy. Generally,

the company president is a representative director, appointed by the board of directors.

In most big businesses, the members of the board of directors do not interact as full equals because they have different statuses within the company hierarchy. Moreover, they become directors only after they first achieve their positions within the company hierarchy. Appointment by the company president to an essential position within the company hierarchy is tantamount to appointment to a directorship, and there is no reason to expect that these junior and senior directors will have the same informal power as the representative directors who recommended them in the first place. In Japan, unlike America and Western Europe, the traditional seniority-oriented value system is still strong, and an employee is acutely conscious of his rank. Thus, the board of directors as a voting body is virtually nonexistent, and we can safely say that its decisions are not made by majority rule.

Rather than majority-rule decision-making, the most widespread form of decision-making in Japan is "complete consensus." The most common form of traditional decision-making in Japan, complete consensus decision-making is characteristic of groups in which the members all share basic interests and in which they work together daily for a long period. Since the board of directors of a Japanese big business provides a typical example of such a group, it is natural that complete consensus decision-making should be the rule, except in situations where, for some reason, circumstances produce a grave confrontation among directors. In such cases, the functions of the general meeting of stockholders are often restored.

When we speak of complete consensus it does not necessarily mean that a decision was arrived at after thorough debate and formulation by the entire body of members. There are cases in which, pulled along by the ideas of one or a small number of members with great initiative, the remainder of the members express consent. There are also cases in which, after a variety of differing opinions are expressed, the final decision-maker proposes a single plan that all members agree to follow. In short, it is the ultimate show of complete consensus which is essential. Complete consensus decision-making has some shortcomings in comparison with majority rule decision-making, but on the whole it has one decisive advantage for the Japanese.

The advantage is that, when a decision results in failure, responsibility for that failure is not borne by one individual alone; and conversely, when a decision results in success, the glory for that success also does not go to one individual alone. This principle may at first glance seem odd to foreigners, whose value systems and customs differ from those of the Japanese. But for Japanese, it serves more than the simple purpose of emotional satisfaction; it is a practical necessity. From the Japanese point of view, majority rule decision-making often destroys the solidarity of the

group. By obscuring its original significance under the Commercial Law and transforming itself into a "cabinet board" for the company president, who is himself a representative director, the board of directors can, as a rule, avoid the type of decision-making that would mar group solidarity. In this sense, it is a most rational system.

Decision-making by consensus is sometimes mistakenly taken to mean that no individual assumes responsibility for a decision or that responsibility is divided among all members. In fact, the final complete consensus is entirely separate from the question of attributing responsibility for success or failure. Even in cases when a decision is made by all members, if the result is a serious failure, the representative director—the company president—either alone or with a small group of senior directors, sometimes takes responsibility for the failure. In other cases, a junior director who has had no actual influence in a final decision may be forced to "commit harakiri" (resign). Of course, it is quite common for responsibility to be shouldered by the persons actually responsible for advancing a given decision. "Responsibility assumption" by Japanese is a complicated subject, but it is sufficient for present purposes to note that decision-making by consensus and responsibility assumption, which leads to praise or blame, are governed by entirely different principles.

A critical condition in complete consensus decision-making is the number of members who comprise a group. When the recovery of the Japanese economy began in the beginning of the 1950s, the number of directors never exceeded ten, even in fairly large-scale enterprises. But after Japan's economic growth began in earnest about 1955, the number of directors in all big businesses suddenly increased, and today a sizable number of companies have twenty to thirty directors. The increase was designed to strengthen top management within each enterprise to ensure that they could cope effectively with the rapid changes in business environment brought about by economic growth. The nucleus of this effort to cope was the establishment of a company organ composed of only senior directors. The name of this organ varies from company to company, but the term jomukai^[*] (executive committee of managing directors) is used most frequently.

In addition to the company president (who is usually the chairman), members of the executive committee number five to ten at most and include those holding the positions of company vice-president, executive director, and managing director. Adequate daily communication is easily possible among a group of this size, and on that foundation, it is possible to put into practice the principle of consensus decision-making when it comes to items of serious consequence. When the executive committee system was first introduced, companies were generally in the process of establishing or expanding their general staff department (nomenclature again varies by company, but it is generally called the presidential office [shachoshitsu^[*] ] or planning department [kikakushitsu ]). Enlisting the aid of this new depart-

ment, the executive committee is actually able to carry out much greater top-management functions than previously. With the spread of the executive committee system, functions of the full board of directors, which under the Commercial Law was supposed to be the highest decision-making organ, greatly atrophied.

The Rise of Professional Managers

The Purge of Prewar Executives

In analyzing the top management of Japanese big business after the war, we must have a thorough understanding of the completely new breed of leaders who were born from the social and economic fabric during the period of Occupation and the revision of the Commercial Law. For approximately seven years after the Pacific War ended in August 1945, Japan was under military occupation. "Demilitarization" and "democratization" were two pressing objectives of the first Occupation reforms carried out by MacArthur's General Headquarters. The latter objective—democratization—was considered a necessary prerequisite for preservation of the former objective—demilitarization. In hopes of democratization, the Occupation forces took firm leadership of the Japanese government and carried out major legal and structural reforms. The democratization measures had a variety of effects on the economic activities of big business, but zaibatsu dissolution is the single measure most essentially related to our subject here.

At the close of World War II, the total paid-up capital of ten zaibatsu conglomerates amounted to 35.2 percent of the total paid-up capital of all joint-stock companies in Japan. Since twelve hundred companies were listed by the General Headquarters as subsidiaries^[6] to the zaibatsu for the purposes of zaibatsu dissolution, it is safe to conclude that before World War II a large proportion of big businesses in Japan were members of zaibatsu groups.

To varying degrees, all main subsidiary companies of the zaibatsu were systematically placed in a pyramid-shaped control structure, and at the apex was the holding company, a family company. The finances and leading personnel of the major subsidiaries were completely under the direction of the head company. This pattern of control was eliminated in one swift strike by zaibatsu dissolution and other democratization measures. Most dramatic was the large-scale purge of top-level executives from zaibatsu holding companies and major subsidiaries, for it instantly transformed the top management of big business.

Immediately after World War II, the government established the

[6] A subsidiary was defined as a company in which more than 10 percent of the stock was zaibatsu -held.

Holding Company Liquidation Commission under the direction of General Headquarters. It collected large amounts of zaibatsu stock from the zaibatsu 's leading families, its holding companies, and the subsidiary companies. As a result of this collection and collection of the stock in outside companies held by nationalized companies, which was taken as payment in kind by the Ministry of Finance (shortly after the property tax was initiated in October 1946), the government controlled an estimated one-third to one-half of the paid-up capital in all Japanese companies. By these measures the government swept away the control network which the zaibatsu holding company had maintained over its subsidiaries.

The zaibatsu dissolution policy was one link in the series of Occupation policies for democratizing the Japanese economic and social systems, but that democratization extended beyond just the zaibatsu and their subsidiaries. Non-zaibatsu big businesses that had contributed in any way to the war effort were dissolved or restructured by the Japanese government according to the design of the Occupation. Among these were government monopolies, national corporations and banks created for colonial management, and private companies created by mergers under the government's powerful wartime administrative guidance.

Like the policy toward zaibatsu , the general democratization policies extended not only to enterprises but also to the individuals responsible for company management. Specifically, the General Headquarters issued directives to the Japanese government, which, through the "Ban from Socially Influential Offices," prohibited large stockholders and upper-echelon executives in 2,500 major wartime companies and banks from holding socially influential offices. The Commercial Law revision prohibited making stock ownership in any form a qualification for appointment within companies. At the same time that the legal powers of the general meeting of stockholders were reduced, those of the directors were increased. Within a few years after World War II, the policy of thorough democratization, including zaibatsu dissolution, had forced most top executives in the financial and industrial world to retire. As a result, although big businesses were allowed to continue in some form, most of their directors were replaced and their capital ties with the head companies were severed.

Santo^[*] Juyaku^[*] (Third-Rate Directors)

A certain number of the new postwar directors had served as directors even prior to the removal of the senior directors in the purge, but the vast majority had served as such middle-level managers as bucho (division chief) or kacho (section chief) during the war and became directors to replace those removed from office. During this large-scale replacement, the newly born directors were commonly nicknamed santo^[*] juyaku^[*] (third-rate directors). There were, of course, some new directors unequal to the tasks

demanded by their new positions, and before long they were in turn replaced. But most of the new directors stood up under the heavy responsibility of their positions and, under these difficult circumstances, succeeded in rebuilding their enterprises. Most were in fact not "third-rate directors" lacking in ability and managerial skills, but rather the most promising young middle-level management. The majority of this new leadership class entered the company as "salarymen" and were promoted because of their knowledge, experience, and managerial ability in business administration. In this respect, they are comparable to professional managers in the U.S. industrial world.

Given the shock of defeat and the uncertain future of big business in Japan, it took not only ability but also considerable self-confidence and decisiveness for these new directors to suddenly assume heavy managerial responsibilities. Whatever else may be said about them, most were extraordinarily able.

In one sense, the massive postwar purge of Japan's business leadership was an opportunity to permit fresh young directors to develop their enterprises along bold new lines. Most of these new leaders continued to hold top spots in large enterprises and to lead their companies even after the general relaxation in Occupation policy.

Around 1950, although purge orders had been lifted one after another, very few former top-level executives were returned to their original posts. We can delineate two major reasons for this phenomenon. The first was that since companies had by then developed a sizable corps of capable professional managers, there was little leeway to reinstate former executives. However, even if former executives wished to be reinstated, the new top-level executives did not wish to circumscribe their own authority by returning the former executives to powerful positions within the organization. A second reason was that, in the period of four or five years after the war, large changes in business climate made prewar management experience and know-how obsolete, especially since the prewar managers had little experience or inclination to cope with new unfavorable conditions like the vicious postwar inflation and frequent labor-management struggles. Thus, despite the depurging, former managers themselves had no desire to return to active service.

In this way, the majority of the big businesses that led Japan's postwar economic recovery and growth placed a new generation of professional managers in the top positions. They contributed greatly to the revival of the Japanese economy, which was accomplished in a short period. The unexpected rapidity of Japan's later growth was inseparable from the growth of big business, and the success of both reinforced the influence and authority of this new generation of managers, both within and outside their enterprises.

Typical Japanese Features of Top Management in "Revised" Big Business Since World War II

To eager entrepreneurs, the remarkable recovery and growth of the postwar Japanese economy seemed to supply unlimited business opportunities; it did, in fact, produce a considerable number of growth enterprises. But for at least ten years after the war—the recovery period—virtually no small enterprises grew rapidly enough to approach the scale of the big businesses. Even Sony and Honda, outstanding postwar growth enterprises, were listed on the Tokyo Stock Exchange only in 1958 and 1957 respectively. For that reason, until Japan's postwar economic growth began to accelerate around 1955, Japanese big businesses were virtually all continuations of prewar big businesses. Since the capital structure and executive personnel of such businesses had been completely swept away by the Occupation's democratization measures, it might be more accurate to call them "revised" prewar big businesses. The six points discussed below summarize the characteristics of the top-management organization and decision-making system in these big businesses.

1. With the collapse of the power of large stockholders and the return of company control to individual company directors, there was also a great change from the prewar and wartime power structure in Japanese society. The new company directors reflected the more diversified power structure created in the process of Japanese economic recovery and growth. It was a situation similar to the one in a country that is newly independent after a long period of colonial control, where leaders suddenly become aware that they are in a complicated economic and political system.

2. Because the board of directors became more powerful and represented more diverse interests, each director had to assume a role as an interest group regulator, who balanced a number of influences. As the company's controlling group, the board of directors required the teamwork of personnel with diverse specialties, experiences, abilities, and attributes to deal with various interests and cope with crises. This team was easier to create and maintain because most directors were colleagues holding important positions within the company itself. But some directors lacked the capacity for fulfilling the new responsibilities of aggregating interests and working together as part of a team.

3. Since the large majority of the directors in big businesses had advanced all at once from middle-management to top-management positions when their superiors were suddenly forced to retire en masse, they were generally younger and possessed more than average managerial ability compared with the former big business leaders. Prewar directors of big business, as typified by the banto^[*] (head clerks) of the zaibatsu , had had to

display managerial abilities in representing the interests of the few large stockholders who were in reality the owners of the enterprise. Rewarded with money and advancement, even those head clerks who had originally been mere salarymen gradually came to resemble the owners in outlook. After the war the prototype of the manager in Japanese big business changed from the head clerk to what can be called the professional manager of the postwar era.

4. Despite the provisions of the Commercial Law, decision-making in the board of directors was rarely done on a majority-rule basis. Generally, the board of directors followed the traditional Japanese decision-making procedure of "complete consensus" because, despite the drawbacks associated with this decision-making procedure, it had the advantage of preserving solidarity among team members. Further, it provided a principle for assigning responsibility for the effects of decisions separately from the decision-making system.

5. We might ask whether it was necessary for the board of directors to devote excessive time to laborious consultation in order to achieve complete consensus. This was not and is not the case, because of the parallel and continuing existence of the following practices, which are peculiar features of Japanese organizational decision-making.

a. Ringi. Ringi is a procedure for conducting administrative operations that has been in wide practice from before World War II in large Japanese organizations. In particular, in implementing some plan for which the cooperation of a number of divisions is necessary, or whose results will influence many divisions, a ringi is produced in almost every case. After being created by the responsible division personnel (a kiansha , or plan initiator, generally a section chief), the ringi is approved by each division and climbs the ranks hierarchically from the plan initiators through every position of the upper-occupational structure: division chief, managing director, vice-president, and finally the president.

At this point, since the ringi has already received the approval of every appropriate party, if the president affixes his seal, the ringi is established and its contents are translated into action. (Approval, including that of the president, always takes the form of affixing the seal. For that reason, it is not unusual for the ringi to have more than twenty seals affixed to it by the time it reaches the president's desk.) Since the ringi arrives at the president's desk by the process of passing through many hands, it is safe to say that the president's final approval is a mere formality in all but the most unusual cases.

Ringi is used daily in large Japanese organizations for everything from disposal of trivial matters to decisions on fairly important issues. Even top-level matters are sometimes handled by the ringi system when it was desirable to have formal consensus among all responsible parties, including the middle management in the relevant divisions. Since postwar directors

in Japanese big businesses almost all hold important positions as directors within the company hierarchy, their decision-making function is in great part automatically taken care of by the ringi .

b. Nemawashi. Ringi can be called an established system in the sense that it has certain fixed rules and forms despite variations from company to company. The same cannot be said of nemawashi , which is simply a modal organizational activity pattern. However, nemawashi often has a more important role than ringi in the organizational decision-making process.

We cannot say that nemawashi —a process of prior informal negotiation and persuasion among concerned parties used in decision-making and problem-solving—is unique to Japan. But when the Japanese, historically a homogeneous people, construct lifetime employment groups, the relative weight of such informal activities is far greater than in foreign countries. For example, when a ringi initiator wants to establish a certain ringi , he spares no effort in the prior consultation (nemawashi ) of major concerned parties, especially those whose consent is judged difficult to obtain. Frequently, if the effort in consultation before action is successful, it is tantamount to establishing the ringi . In fact, considering the activities related to the decision-making process, the essential decision is often made by the nemawashi process and the ringi is the formal procedure of writing and detailing the decision.

c. Ato ringi . The custom of consultation before action is one factor making complete consensus decisions possible without excessive expenditure of time. For essential matters on which director consensus seems unlikely, it is usual to have meticulous preliminary consultation among concerned parties. For that reason, long discussion during the formal board of directors meeting itself is rarely necessary to reach a complete consensus.

Not every essential item of business is handled by the ringi approval system. There are instances in which the ringi is sought as a formality in order to authorize a consensus previously reached by all attendants at a board of directors meeting. In such a case, the ringi is clearly a post-facto recognition of the actual decision. Such a ringi is commonly called an ato ringi (after-the-fact ringi ). In such cases, too, the ringi is no more than a formal treatment.

6. Through creation and revision of a large group of laws, including the revision of the Commercial Law, the legal foundations were laid for the group of professional managers to run their companies democratically. There was no reason, however, to expect various Japanese management practices to collapse quickly after the war. However, from the mid-1950s American management formulas and techniques were introduced one after another into almost every sphere of business administration—a phenomenon then known as the "management boom." Under the influence of this boom, most Japanese management practices were

considered premodern and became the object of conscious reform. Naturally, the influence of American business administration on top management and the decision-making system also became noteworthy from 1955 on. The establishment of the executive committee and the strengthening of the general staff division in Japanese companies are typical manifestations of this trend.

Changes in Management Since the Mid-1950s

Since the late 1950s, as the Japanese economy maintained more than 10 percent real growth per year, growth was not confined only to big businesses. Many rapidly growing medium-sized enterprises were in turn added to the ranks of the big businesses. There were no more than six hundred companies listed on the Tokyo Stock Exchange in 1955; now about eight hundred and fifty companies are presently listed on the first section and another five hundred and fifty listed on the second section. Therefore, unlike the situation in 1955, the majority of Japanese big businesses today are essentially new organizations born since the Second World War.

Despite the rapid growth and the adaptation required by the Japanese industrial world of the 1960s, neither the revised prewar big businesses nor the rapidly growing medium-size businesses could afford to adopt radically different management systems. That fact must be considered when we generalize about management and decision-making in Japanese big businesses, since it provides a common element among the more than 1,400 companies that otherwise differ in type, scale, and historical background.^[7] We can summarize recent developments in the present-day big businesses as follows.

1. Although with the spread of the executive-committee system power has in fact come into the hands of the senior executives of most companies, one exception is the case of subsidiaries of big businesses that have achieved rapid growth since the mid-1950s. They constitute an increasing number of companies on the stock exchange. Even when these subsidiaries are themselves big businesses, the rights of company control do not necessarily lie with the subsidiary company's senior executives, but in large part with the senior executives of the parent companies, which are the major stockholders.

[7] The few enterprises that do not fit these general characteristics fall into the following two categories:

1. Among the former zaibatsu , (a) companies that were able to produce distinguished leaders among their new directors after the zaibatsu dissolution measures, or (b) companies in which powerful prewar leaders returned to positions of leadership after relaxation of the zaibatsu dissolution measures.

2. Prewar non-zaibatsu enterprises in which owner control did not collapse after the war (especially in the manufacturing sphere, mainly for goods related to daily life, such as food, cosmetics, textiles, and durable consumer goods).

Subsidiaries use the occasion of being listed on the stock exchange as an opportunity to agitate for greater autonomy for themselves. Listing on the exchange is itself premised on the excellence of the company's record, and if growth and excellence continue, the passage of time strengthens the autonomy of the company's top management. This results from the increased trust of the parent-company top management toward the subsidiary-company top management and the increased freedom of subsidiary-company executives to speak out to the parent-company executives.

As long as the parent company continues to exist as a major stockholder, however, there are natural limits to the autonomy of top management in subsidiaries. Even the most outstanding subsidiary company lacks the autonomy to carry on activities that diverge from the parent company's master strategy. However, the more outstanding the performance of the subsidiary company, the more likely it is to accord with the parent company's master strategy. Furthermore, at least one representative director from the subsidiary company participates as one of the enterprise-group leaders in carrying out the master strategy of the entire enterprise group. In this case, the right of subsidiary company control is held by a group of business leaders that also includes leaders of the subsidiary businesses.

2. Although control of a big business is, in principle, in the hands of the executive committee, the forces directly and indirectly influencing that control have continuously grown and diversified. Interaction between these forces and the directors further complicates the picture. The major forces may be described as follows:

a. Capital groups . It is well known that the high growth rate of Japan's post-1955 economy was induced by the energetic investment of private enterprise, especially big business. Businesses had to obtain this capital for investment as loans from the large banks, and the banks, in an effort to guide the competition of a growing economy and further their own long-range interests, acted as powerful back-ups by permanently financing selected companies in major industries. The result was the creation of capital groups, which had a powerful bank at the center and included a first-rate company in a major industry. The bank sought to make the promising company an exclusive or main customer, and the company sought capital stability by developing patron-client cooperation. Such capital-group formation became very widespread during the 1960s.

When the capital group consisted of only a powerful bank and its important, semipermanently financed client company, the bank could not exercise the degree of influence over company operations exercised by the parent company in the enterprise group described above. However, powerful trading companies sometimes joined the bank as central institutions in the capital group. If these central institutions and the various companies acquired each other's stock, and the precedent was

established for meetings between leaders from the central institutions and the companies in the capital group, then inevitably the capital group acquired both direct and indirect influence over the operations of the various constituent companies.

The old zaibatsu capital groups are typical examples of such capital groups. In the Mitsui, Mitsubishi, and Sumitomo groups, the sense of solidarity is firm among the core institutions, including the banks and member companies. There is close cooperation with regard to both expansionary and routine activities. Stimulated by the activities of these groups, a number of other capital groups with large banks at the center were also created during the 1960s. The most prominent of such groupings are the Fuyo Group (associated with the Fuji Bank) and the Daiichi Group (associated with the Daiichi Bank).^[8]

In the 1960s, the expression "zaibatsu revival" became popular among a certain group of scholars and social critics. However, the connection between capital groups or their core banks and individual companies is completely different from that between prewar zaibatsu holding companies and their subsidiaries. Now, as long as the individual companies maintain above-average performance records, they are not in a subservient position to the core banks or capital groups, but more like partners. However, the individual company, because it must maintain and improve its own record, actively uses the core bank or capital group, and in certain cases, must depend heavily on the larger institution. Since certain decisions of the company executives are necessarily influenced by the bank or capital group, there are more than a few companies that have directors who are from the core banks or who are hijokin^[*] (holding additional posts in other organizations) directors.

b. Gyokai^[*] and Zaikai. Gyokai is an association or circle that includes all companies from a certain industry. Big businesses with a substantial market share in at least one industry are of necessity finely attuned to the interests of that entire industry. These companies sometimes form an association to lead the industry in a way that maximizes their interests, or at least minimizes harm, and to regulate conflict among companies. Big businesses are always the leading members of such associations, and their senior executives become the executive officials of the industry associations. In addition to collecting together the members of an industry, these groups plan daily contact with politicians and bureaucrats, and occasionally engage in active lobbying for the interests of their association.

Zaikai is not as easily defined as gyokai^[*] . Originally, it was a circle or association formed by businessmen from all the enterprises in the business world. Today, it signifies to most Japanese a circle formed by a certain

[8] Since the Daiichi Kangyo^[*] Bank (the largest single holder of savings in Japan) was established by the merger of the Daiichi Bank and the Nihon Kangyo Bank in 1971, it is presently called the "Daiichi Kangin Group."

group of elite businessmen and financiers who exercise a strong indirect influence over the political activities of ministers and political parties and the administrative activities of the bureaucracies.

Lobbying directed at politicians and bureaucrats is more effective when carried out by zaikai than by the gyokai^[*] . This is because, at present, the contributions that comprise a considerable part of the income of the LDP are made through groups established and backed by the zaikai . Moreover, countless executives of companies and banks are prominently included as "representatives of the zaikai " on most of the review boards that have been founded as administrative advisory organs to the various bureaucracies. For this reason, the majority of big-business executives regard zaikai activity as an essential function of top management. In industries where governmental policy has an especially large effect on company operations, lobbying as a member of the zaikai is on a scale comparable to the operations required for daily management and administration; in some cases, the chairman of the board, president, vice-president, and/or other senior executives may be in charge of zaikai katsudo^[*] (lobbying through the zaikai ).

Like the gyokai , the zaikai is actually composed of groups, such as Keidanren (Federation of Economic Organizations), Nippon Shoko^[*] Kaigisho (Chamber of Commerce), Nikkeiren (Japanese Federation of Employers' Associations), and Keizai Doyukai (Japanese Committee for Economic Development). Although these four associations have different objectives and different organizational structures, they act as a single unit in carrying out zaikai activities and thus, senior executives in the big businesses hold concurrent positions in these organizations. For these executives, a reciprocal relationship grows up in which their positions as senior executives in big businesses are the source of their status and authority as zaikai members, and their status and authority as members of the zaikai benefit the company.

c. Political parties . There is a close relationship between big business and political parties, in particular the Liberal Democratic Party (LDP), which has continued as the party in power throughout the postwar period of rapid economic growth. In exchange for the continued support of the zaikai , which expresses the consensus of big business and acts as a large pipeline supplying the capital necessary for LDP activities, the LDP has made the utmost effort to reflect the designs of big business in its policy-making. However, there is very little personnel interchange between the LDP and big businesses or the zaikai ; almost no politicians have taken positions in big business, and only a very few members of the zaikai have entered the LDP (and then, with less than splendid results). Moreover, the zaikai has not supported the LDP as a party that shares its own ideology, but as the party that has happened to be in power. The zaikai 's attitude toward the LDP is best reflected by the anti-intervention, wait-and-see attitude it has taken each time the LDP has faced a crisis. In

reverse, the LDP cannot exercise decisive influence over big business activities via the zaikai , nor has it tried to exercise such influence.

d. Government bureaucracies . In contrast to the lack of personnel interchange between big business and political parties, the personnel interchange between big businesses and government bureaucracies—although a one-way street from the bureaucracies to businesses—is fairly active. Since the Meiji Restoration, Japan's major bureaucracies have, because of impartial and fervent nationalism, absorbed the outstanding products of the first-rate universities, and this tendency has changed little in the postwar era. As careermen in the various bureaucracies, the members of this promising group achieve important positions at a young age. They are sifted according to ability and character, and some reach the position of kyoku-cho^[*] (bureau chief)—the highest rank in the bureaucratic organization—at an age of about fifty. Administrative vice-ministers (jimu jikan ) are chosen from among these bureau chiefs, but since it is established practice that the tenure of both bureau chiefs and administrative vice-ministers will last only one to three years, outstanding personnel in their early fifties are discharged almost every year from the major government agencies.

Since Japanese big business has had to expand its scale, as well as diversify the content of its activities during the process of intense economic growth, it has always sought outstanding personnel for top management. Big businesses in the heavy and chemical industry sectors, whose operations are directly affected by government policy, have especially extensive connections with the bureaucracies and a particular need for personnel who can easily obtain information from government agencies. It is not surprising that each year an increasing number of former high-level bureaucrats wait the required time period after retirement and then enter the business world.

However, if we look at big business as a whole, companies without former bureaucrats are in the overwhelming majority, and even those that have welcomed former bureaucrats onto their boards of directors have, as a rule, not given more than one directorship to a former bureaucrat. In any Japanese company, there is—among not only the company-bred directors but also the rank-and-file employees—strong emotional resistance to bringing in a large number of full-time directors from the outside. Former bureaucrats are well aware of this resistance and, at least initially, they concentrate on their assigned roles without engaging in overt activities.

For this reason, former bureaucrats who have reached such important company positions as president or vice-president exist as unusual exceptions. No matter how great his powers of leadership were in the bureaucracy as an individual, the former bureaucrat exercises little influence over big-business top management.

e. Labor unions . From the perspective of company management, legal

adjustment of labor union related practices was, among the democratization measures enforced by the Occupation army, equal in importance to zaibatsu dissolution. Under the new legal measure, a startling number of labor unions were born in Japan within a short period of time. Japanese labor unions developed historically on a company-wide rather than an industry-wide or trade-wide basis. The rate of labor unionization was considerably higher in big businesses than in small- and medium-sized businesses, because big businesses more successfully met the variety of economic and societal conditions necessary for labor-union formation.

In the initial stage of labor unionization, labor-management relations were awkward and productive of repeated unnecessary struggles. This was partially because the period of postwar economic confusion was a time of ideological instability during which economic livelihood was still a struggle for workers. Moreover, neither labor nor management yet possessed the knowledge or skill to utilize collective bargaining and other techniques. Around 1955, precedents were established regarding Japanese labor-management practices, and with difficulty at first, individual enterprises drew upon the newly established practices and developed the capacity to deal with labor-management relations as a routine task. Generally, the labor division came to play a larger role within the company organization, and a senior executive was placed in charge of this division.

Company unions are a fundamental and distinctive feature of Japanese labor-management relations. They developed as company unions not so much because of historical factors but because such established Japanese practices as lifetime employment and promotion by seniority produced a strong sense of identification with the company in the union. The Japanese Labor Law is generally interpreted to mean that those in management at the rank of section chief and above do not qualify for union membership, but in all companies the majority of such managers are former union members. In the seniority promotion path, the average age for appointment as section chief is about forty, and it takes another ten to fifteen years to reach the position of director. Thus, it is safe to say that the majority of big-business managers who became directors in the 1960s were former union members. We must bear in mind that it is not rare for managers to have served as officials in the company's union.

These facts, however, do not signify full accord between management and unions within Japanese businesses. In the majority of Japanese businesses, labor unions display opposition backed by strong union demands, and labor-management conflicts, including strikes, are as severe as in other advanced countries. However, Japanese union members never intend that their activities should create marked disadvantages for their company in its competition with other companies at home or overseas. Nor do they desire to undermine company operations. Whenever a group of radical leaders seeks to guide union activities in that direction, they are

destined to isolation and then exclusion from the company-based union.

Viewing the situation in reverse, the decisions of even top management cannot be implemented if they are opposed by the labor union. Since labor union support is necessary for the executives to exercise successful authority in most top-level decision-making, the executive in charge obtains preliminary approval from the union—or at least, requests union cooperation after the decision. That the majority of people in management are former members of the company union is, of course, a distinct advantage in maintaining smooth communications with the labor union.

f. University cliques . Western scholars often emphasize the role of gakubatsu (cliques consisting of graduates of a certain school or university) in company relations. There is no doubt that university cliques exist as a statistical artifact: executives in leading companies are disproportionately graduates of certain universities, and certain companies have reputations as strongholds for graduates of a given university. It is dangerous, however, to infer that because such university cliques are statistically significant, they also play a significant role in company relations. Such statistical data describes an elite that was schooled prior to World War II. At that time, there were only a limited number of universities and a limited number of graduates each year. It is natural that these educated few would be selected by the top companies and government ministries.

With the spread of higher education, the eagerness of young people to pursue business careers, and the expansion in hiring during the postwar era, companies have taken graduates from a variety of schools. In utilizing graduates of various schools, Japanese management has learned a valuable lesson: good students are not necessarily good businessmen. During the prewar era, before the separation of ownership from management, the post of head clerk or manager was best performed by a "bureaucratic personality," but postwar company structure requires entrepreneurial talents and innovativeness. It also requires flexibility for dealing with the variety of new tasks. The government ministries, which are less subject to economic pressures, can still afford to emphasize competence in dealing with defined tasks rather than innovation and creativity in their personnel selections, and their young employees are still overwhelmingly from the old national universities. But businesses, under competitive pressure, cannot afford to limit themselves to graduates of certain universities.

3. The seniority principle was gradually institutionalized in the selection and retirement of the directors, except the president, who is a representative director. For a time during the postwar period, after the business leaders had been completely replaced by the democratization measures (including the "purge") of the Occupation army, the seniority principle was somewhat vague. However, with Japan's rapid economic growth and as company expansion stabilized, the seniority system gradually revived. Table 1 shows the results of a 1958 Keizai Doyukai study on top management in 233 Japanese big businesses. Even at that time, we can

already see clear ranking in average age from the chairmen to the ordinary directors.

However, seniority ranking is not—as it is often misinterpreted among foreigners—a practice that ignores or underemphasizes ability, and uses age or tenure with the company as the major criteria for advancement. We should remember that the following three points are basic to any discussion: (1) the authority of Japanese middle management in daily execution of business is very great, and the initiator in the ringi system is always the section chief; (2) among the numerous positions in middle management, authority is especially given to the several key positions that are on the orthodox promotion route to a directorship; and (3) promotion and selection of these key positions is more dependent on a total evaluation of character and ability than on seniority. Thus, the seniority system, over the long run, effectively selects the people with ability. Establishment of the seniority system does not imply a rejection of the new concepts of professional management, but the establishment of a distinctively Japanese pattern of professional management.

4. In principle, the decision-making of the board of directors is carried out by complete consensus, but even in this form the decisions of the directors are still often guided by the opinion or will of a particular member. Such cases usually fall into one of the following two categories:

a. Executive directors in charge of departments . Since almost all Japanese company directors hold positions within the company, even a junior director is also a chief of a main factory or department where he must practice departmental management. Members of the executive committee usually hold additional positions at a higher-level of top management such as president, vice-president, executive director, or managing director. The responsibility and authority of the senior directors other than the president almost invariably extend to areas such as manufacturing and technology, marketing and purchasing, finance and accounting, personnel and labor, and overseas operations. In each of these areas there is a chief with formal responsibility for managing daily departmental affairs. But in each area,

matters that require the judgment of top management generally reach executive committee deliberation through the executive director in charge of that area.

In Japanese big business, the promotion route from talented young employee to director generally includes every major position in the department. In other words, by the time he becomes a director, the employee has the clear stamp of his department. To exaggerate, we could say that every executive director put in charge of a given department has served as the head of that department. He has usually established the close informal ties of senpai (senior) and kohai^[*] (junior) with department members, with whom he has worked on shared tasks over a long period.

Executive directors in charge of various departments do not formally give orders to the heads of these departments. The decisions of the executive committee are handed down as the president's orders to the responsible parties in each department, but the executive directors of the departments heavily influence executive committee decision-making on items that concern their departments. Usually the other members of the executive committee, including the president, have less information and professional knowledge for forming opinions on department matters. Therefore, the executive director of a department speaks at the executive committee meeting both as a member with professional knowledge and as a representative of the department interests. The executive committee, which viewed externally is the highest organ of company decision-making, is the organ for regulating major department interests when viewed internally. As long as a matter affects a single department, the complete consensus of the executive committee is in effect dominated by the will or opinion of the executive director responsible for that department. When the scope of the decision extends beyond the concerned department, the executive committee naturally assumes the additional function of regulating interests. Once again, the decision-making process is not directly related to the procedure for assigning responsibility for decisions.

b. President (shacho^[*] ) and chairman (kaicho^[*] ). The position of the president in a Japanese company is probably more stable than it is in other advanced industrial countries. Since the members of the board of directors and the executive committee were, in actuality, all appointed by the president as his subordinates in the occupational structure, no internal powers influence the president's course of action except in such extreme circumstances as sudden failure in performance, outbreak of a serious problem within the company, or continued and severe factional quarreling among directors. And as long as the company maintains a tolerable record, there is no external force powerful enough to shake the autonomy of the board of directors. Thus, while decision-making in the executive committee takes the form of complete consensus, there is a natural tendency for it to be dominated largely by the opinion or will of the president.

A former president, however, is one force outside the executive committee that can have a major influence on the current president's decision-making. There is a joke among Japanese businessmen that "only the president decides when the president retires," and in fact appointment of the next president is the prerogative of the outgoing president. Except in cases of forced retirement due to unavoidable circumstances, the reasons for presidential retirement are generally old age, a long period in office, or the coming of retirement age in a firm where this is fixed. But there are very few cases of complete retirement, and the former president normally remains a representative director and assumes the position of chairman. This type of chairman is generally referred to as an "active chairman" because, while he engages in a wide range of activities as a leader of the zaikai outside the company, he also exercises hidden power over the important decision-making of the company via his successor.

5. The "management boom"—the movement to modernize existing Japanese management practices on the model of American company management—brought experimentation and reform. The movement made ringi the central object of reform for two reasons: ringi obscured individual responsibility for the effects of a decision, and its process was too time-consuming.

The focus of the reform was summarized by the phrase "clarification of the job and its authority." In short, every company strove to define objectively the scope and content of major administrative jobs within the company structure and to assign to each job an appropriate sphere of authority. The former would clarify responsibility for results of task execution, and the latter would be used in the overall process of decision-making. The intention was to correct the drawbacks in an organizational format so heavily dependent on the ringi . However, it became clear that it was nearly impossible to define objectively the content or scope of administrative jobs. Even when authority was formally assigned insofar as possible, it was unrealistic to expect such changes within the context of the Japanese organizational and personnel practices of lifetime employment, the seniority system, and group decision-making.

During the latter half of the 1960s, there was a general realization of the difficulty of introducing such reforms, and the fever of Japanese big business for modernization of ringi and management on the American model suddenly cooled. Along with this came a trend in the industrial sphere toward new recognition of the merits of Japanese administrative practices. Companies that had quickly taken the radical measure of abolishing the ringi system had no choice but to revive it.

It is clearly a mistake to think that because the "management boom" broke down without attaining its initial objectives, it made no real contribution to Japanese management. Through the struggle to reform, Japanese companies (1) eliminated or amended several clearly irrational Japanese administrative practices affecting Japan's adaptation to its new

economic environment (domestic and international); and (2) wiped out the excessive inferiority complex entertained by most Japanese managers, administrators, and professionals with regard to the American management system and enabled them to evaluate objectively the characteristics, advantages, and weak points of Japanese management practices.

At present the ringi system still exists as a formal system in most Japanese big businesses, and it is widely used together with the process of nemawashi . Formally, the work of top management is carried out through the executive committee, but in fact the work load of senior executives in big business is lightened considerably just by the ringi system. Compared with practices in the 1950s, ringi today is a remarkably more refined system and it is employed in a decidedly more realistic manner. Although the modernization of Japanese management practices failed if "Americanization" is used as the yardstick, it produced tangible results in the correction or elimination of weak spots in existing practices.

6. The executive committee was a new system introduced from the outside and modeled on the (senior) executive committee of American big business. That the general staff was either strengthened or newly established at the same time suggests that the executive committee was intended as more than just the company's highest decision-making organ composed of a limited number of senior executives. In fact, the introduction of the executive committee was premised on some degree of change in the existing Japanese decision-making system.

Prior to the period in which the committee was introduced, Japanese senior executives, both as individuals and as a group, lacked an American-style general staff—and they had little need for one. As managers of their own departments, senior executives had the authority to mobilize personnel for use as general staff whenever necessary. In turn, the president could require the senior executives to serve as a kind of general staff to him.

Why then were the executive committee and general staff introduced? In a word, the objective was to strengthen and develop top management jobs. Competent adaptation to the rapid growth of the national economy and the accompanying changes in internal and external environmental conditions, as well as a quick grasp of those changes in order to execute a superior business strategy were the fundamental conditions for company growth. But Japanese big business in the early 1950s lacked certain of these conditions. The majority of directors, including senior executives, was burdened with the daily tasks of departmental management and could not get a long-range or comprehensive view of company management. For this reason, when the executive committee was introduced, companies generally either eliminated or greatly lightened the task of departmental management for executive-committee members.

Gradually it became common for directors who were members of the executive committee—even senior executives in charge of departments—to

be requested to evaluate and investigate problems. In order to fulfill such demands, the executive committee members needed a staff that could collect and analyze the information required for general management tasks and at times give professional advice. Since the existing organizational structure of Japanese businesses was usually divided vertically, little staff existed to carry out such tasks, and even if a small staff did exist, there were few opportunities to mobilize it. Therefore, in the context of the introduction of the executive committee system, a real general staff was established for the first time. With this change, the practice of general management by senior executives became institutionalized in Japanese big business.

Company Spirit and Administration

In implementing the decisions from higher levels and adapting to the environmental changes, Japanese executives give great attention to problems of morale and human relations. If Japanese executives have a characteristically Japanese approach to management, it is not so much a specific body of practices but an effort to create a company spirit such that members wish to take part. Seen in this light, the slow increase in salaries in the earlier years of an employee's career and the steep salary increases with years of service is a way of ensuring that company employees not only stay with the company but retain a long-range identification of personal interests with company interests. Various company practices like entering-the-company ceremonies, group living during training programs, company trips, company recreation centers, company-sponsored travel, company facilities for private parties, daily ceremonies, and company sports teams are all efforts to maintain a dynamic involvement with the company. Indeed, many Japanese employees are so involved with company activities that they prefer short vacations and even during vacation become restless to return to the daily life of the company.

In most companies, the management makes a very serious effort to look after the long-term interests of the employee, providing personal attention and assistance in dealing with his individual problems. Compared with the American corporation, which tends to be more "dry" and impersonal, Japanese firms do not make such a sharp distinction between business affairs and personal affairs and assume more responsibility for what Americans consider personal affairs.

Japanese executives identify with their employees and take pride in them. When a young executive is traveling or has business with other companies, his superiors make considerable effort to pave his way by contacting appropriate friends elsewhere.

Japanese company executives consider competing for the employee's spare time—against threats of affluence, ownership of automobiles, and shorter working hours—as a key management issue. For this reason they

make every effort to incorporate the spare-time activities of employees within the range of activities provided by the company.

Japanese executives are also constantly concerned about the competition with other companies and make generous use of this sense of competition to inspire employees. Young employees quickly catch this atmosphere of company involvement and sense of competition with rival companies.

Even company ceremonies like anniversaries, commemoratives, welcomings, seeings off, and openings are all consciously designed to reinforce company spirit. The large company expense accounts, which are much larger than in the West, are not only designed to win the favor of people outside the company, but to provide desirable opportunities for those within the company. And company efforts to project lively images are not only for promotional advertising, but also a way of attracting lively, able, devoted employees from among college and high school graduating classes.

The Section as the Company Module

Although there are overwhelmingly similar patterns of administration in Japanese companies and foreign companies, there are some approaches to administration which are perhaps more common in Japan.

In general, it appears that the American executive and his secretary, with possibly some assistants, constitute a kind of module unit within the typical American company. The executive supervises the activities of the somewhat more specialized persons below him, and he is accountable to the rest of the company for everything that is handled within his jurisdiction. In contrast, the basic module of the Japanese company is a section. Personnel are selected for a section in a way that will form a team that can work well together. Team members are matched for temperament and personality as well as capabilities.

The head of the section is always older than the other people working in his section, but he is not necessarily more competent. A section head of moderate ability can be paired with an assistant section head of extraordinary ability. In an American company the second-in-command might feel impatient and frustrated if someone less competent were serving above him, but in Japan the situation works more harmoniously. The Japanese section head, realizing that he possesses moderate abilities, knows that if he does not work well with the abler person under him he will not be able to accomplish the purpose of his section and, hence, will be vulnerable to criticism from superiors. The assistant section head of greater capability will be sufficiently known to superiors that he can be sure he will be rewarded eventually. He also knows that he will eventually rise to higher positions than the person now serving above him, but he also knows that if he hopes to do well in the future, he must get along well with his superior now.

Memos and correspondence in an American office are likely to come from an executive who dictated the letter or memorandum for his secretary to type. In Japan, a more characteristic pattern would be for one, two, or three persons within the section to draw up a document, which is discussed or shown to others for approval and then sent out as a section document. In Japan, there tends to be less of a distinction between secretarial and nonsecretarial personnel, and the duties of various personnel are less sharply defined and differentiated. When one person is out or involved in certain other tasks, it is more likely in the Japanese firm that someone else in the section can draw up the necessary documents in his absence. This pattern places less reliance on any single person and helps ensure that the work of the section will be done even if one or two persons are absent or less than perfectly competent.

Although there has been some discussion in the West on the importance of cliques, no cliques within the Japanese firm are as important for daily activities as is the membership in a given section. The members of a section tend to have close personal as well as work relations, and the superiors in a section, who are almost invariably older, are likely to be supportive and personally helpful to the other members of their sections.

Career Patterns

Because companies intend to keep their employees from school graduation until retirement at age fifty-five or so, they are extremely careful in selection procedures. They want to ensure not only that an employee is capable and reliable, but that he has a special commitment to the firm and that he is likely to remain there. For this reason, in addition to difficult entrance examinations, they provide opportunities for a prospective employee to get acquainted with a number of people inside the firm, and they prefer personal introductions, since this increases the commitment of the individual to the firm.

All those entering a company in a given year start on the same day and spend more time with one another than with others as a way of building solidarity. The time of entry into the firm becomes the basic point of ascription for promotion. Time of entry is much more important than age and even ability in determining the basic relationships between superiors and inferiors. Those who entered in earlier classes are superiors, and those who entered later, inferiors.

Members of an entering class generally all receive the same wages. In the first several years there are almost no title and pay distinctions. Newcomers take part in a wide variety of activities in various parts of the company. Thus, before anyone has moved up the ladder to an important position he will have had broad contacts and experience with all parts of a company. As a result, he will be able to understand the complexities of company activities and have a personal basis for effective cooperation

throughout the firm that could not be duplicated by anyone brought in from the outside.

After the incoming group has been in the company for a few years, minor pay differentials may appear, but only after employees have been in the company long enough for their fellows and superiors to have a high degree of consensus about who is more promising. By this time, the incoming class has developed a basic spirit of equality even while recognizing that some among them are more promising. Even after these several years, the initial differentials of pay and position are, in fact, minor, although they may have great symbolic and psychological significance. The abler employees who have been in the company for several years may be assigned to more important sections with more difficult and complicated tasks, but their title and pay may be almost the same as that of their peers who entered with them. A very able young man may become an assistant section head of a very important section at about the same time that a mediocre classmate may become the assistant section head of a less important section. Their pay and titles may be essentially the same, but people within the company are aware of the difference and its significance for prestige and eventual position.

Although emoluments of title and salary are thus based on seniority, the actual task within a section is more closely related to the individual's capacity. The very able young man will be given considerable responsibility despite low pay and title. He will have the informal praise and respect of people around him, which is more than adequate to provide him with the kind of motivation for working hard and doing his best. His role as a promising young man provides terrific motivation. Even though an able young man does not get financial rewards, he expects that he will in the long-run. Although there is no direct short-run relationship between work on the one hand and title and pay on the other, they do mesh in the long-run. Expectations about the future play a very important role in the motivation of individuals at any given time.

The greatest morale problem is among those who are defined as not particularly promising and not promoted to the better sections. Such a young person's superiors generally try to encourage him, communicating that while his performance was not outstanding for the last round of assignments, he still has opportunities. He is then assigned to a new section with entirely different people who were not involved in defining him as a less promising person. In this new section, he thus begins again on his own, and the expectation is that he has a new chance to prove himself, and if he does extraordinarily well, his prospects will brighten. A person is likely to serve in this new position for another period of two or three years, during which the same process may be repeated, and he may then be given a slightly more favorable assignment in the next round.

Although the competition for advancement within a company is strong, the long incubation period prior to the introduction of differentials

provides a basis for solidarity, which—with the reinforcement from company spirit and identification with the company—provides personal support even from the least able and prevents competition from completely disrupting the bonds of solidarity.

Since it does not work well for a person to supervise subordinates who are his age and older, the top executives in the company—the president, the vice-president, and the board of directors—assume their positions only after the peers who entered with them have retired. Thus most employees of a company will be retired at about age fifty-five, and only a small group of top executives, selected from the most promising of their age group, will remain on past this age.

The employees who retire at about age fifty-five to sixty are often placed in "child companies," smaller affiliates, or in other companies somehow related to the main company. Although a person may receive less salary on his postretirement job, he is usually pleased to continue working. Sometimes these smaller companies are created in large part to provide employment opportunities for former executives.

The president, vice-president, and other members of the board of directors who remain in the large enterprise were selected from the very ablest of their age group, and they had long looked forward to the prospect of reaching this pinnacle. When they advance to these high positions, they have unquestioned authority based on superior talent, experience, and seniority. The long period of gestation has given them an opportunity to think through what they would do in office. Although they ordinarily do not hold office for more than a few years, the timing of their period of responsibility was quite predictable by seniority rules, and they are prepared to make the most of their brief term.

Decision-Making

Japanese firms prefer to reach a consensus supported by all, but the top executives are capable of making tough decisions when necessary. When they have made reasonable efforts to obtain consensus but there remain two options of about equal weight on which there is no widespread consensus, the executives will generally come down firmly on one side or the other. They prefer to do this, however, only after long debate and discussion and after they have thoroughly explored all the options and all the opinions within the company.

The top executives in a Japanese company prefer to avoid the cool rational presentation of options where advocates neatly present all the arguments for each option. They prefer that an obvious solution emerge from these long discussions with a broad range of company employees so that, when a decision is finally made, the overwhelming majority in the company can see why such a decision is desirable and necessary. In the meantime, the leadership makes every effort to explore all options, sending

employees everywhere to acquire the kind of knowledge and skills that will be required to make the decisions. Oftentimes the leaders will go over and over possible solutions before finally arriving at a decision.

This process can be excessively long, especially if the top leadership is wishy-washy. With weak leadership, it may be difficult for the company to reach any decision if clear-cut choices do not emerge from down below. With active leadership, however, the top people in the firm do not simply respond to people under them, but take the initiative in selecting which problems to work on.

In short, some foreigners who have noticed certain specific practices within Japanese firms have tended to ascribe too much to tradition and to "Japanese characteristics." Decision-making in Japan is, in fact, an active, conscious process, and leadership is much more vigorous and adaptable than many accounts of "Japanese traditions" would indicate.