Japan Inc. has to speed up its decision-making process

Companies are working to modernize 'nemawashi' consensus-building

To prepare a tree for transplantation, experienced gardeners begin cutting roots in a circle around the base of the trunk a year or two before the move. The notion is that this can ensure the tree carries along a network of young roots which can immediately start absorbing water and nutrients in the new location.

This technique is the origin of the term?nemawashi?-- literally "turning of the roots" and one of the first terms that foreigners learn in the Japanese business world. In corporate terms, nemawashi represents the preparatory phase before a major decision is taken.

A practice born from Japan's high-context culture which strongly favors private communications over official, public discussions, nemawashi is a nebulous term.

In its most simplistic form, it is the benign sharing of information to allow for a smarter collective decision at a later point. Nemawashi can often go a step further to include a preparatory alignment of the perspectives of disparate stakeholders.

The practice can be a source of both frustration and fascination for non-Japanese.

An expatriate country manager at a major global consumer products company was appalled to find that a proposal he had enthusiastically endorsed for immediate action did not advance for weeks.

It turned out that it had disappeared deep into a nemawashi process of endless alignment meetings. But once stakeholders came into alignment, the manager was amazed how quickly everyone mobilized behind the idea.

Khalil Younes, who leads development of new global revenue streams at The Coca-Cola Co. as emerging category global president, tells of mastering another form of nemawashi during a five-year stint with the company in Japan.

"Upward" nemawashi provides a route for companies to recognize and develop ideas from front-line or junior staff. In this way, as an idea floats up the decision-making chain, rough edges are polished by experienced senior managers such that they are ready for implementation by the time they are presented to key senior decision-makers.

Yet the multifaceted Japanese corporate decision-making system is under growing pressure to modernize.

The first challenge is that nemawashi's preemptive consensus can obscure accountability, promote excessive conformity and suppress productive debate. This can prevent the diverse opinions increasingly recognized as a vital ingredient to innovation from being heard.

Second, in a world of fast change, the painful slowness of nemawashi can be problematic, especially as increasing complexity requires an ever-greater number of stakeholders to be involved in the preparatory consensus. The more people in the loop, the more time exponentially required for nemawashi.

Some Japanese companies are facing up to the challenge of modernizing nemawashi. At MUFG Bank and Sumitomo Mitsui Trust Bank (SMTB), the goal is to promote individual accountability and diversity.

"We act with a sense of urgency," said Yohei Kaneko, managing director in the corporate planning division at MUFG. "Now we compete against fast-moving, nontraditional players such as fintech."

Part of MUFG's approach involves encouraging the delegation of authority and pruning unofficial meetings. By abolishing ceremonial nemawashi, MUFG is freeing executives from hours of extra meetings, Kaneko said.

SMTB has also moved to streamline nemawashi discussions. "There will always be offline chats to expose different viewpoints," said Senior Managing Executive Officer Futoshi Itani.?"But the agenda and participants are compartmentalized to fit the predefined mandate."

As part of the same set of reforms, SMTB has also made each executive's specific areas of responsibility clearer for accountability purposes. This is something of a new approach in Japan because of the long-held devotion to nemawashi as a way to elevate the ideas of frontline staff. With its reforms, SMTB is trying to preserve the upside of spirited offline discussions while articulating clear frames of decision-making accountability.

Ensuring a diversity of opinion, as opposed to suppressing it through behind-the-scenes coercion, is a key ingredient to the success of modern nemawashi. "Nemawashi built on peer pressure to conform no longer functions," Itani said.

In alignment with the revised Corporate Governance Code put out by the Tokyo Stock Exchange in 2021, the parent companies of MUFG Bank and SMTB, like most large listed Japanese companies, have appointed independent directors to fill at least a third of board seats. For top management to answer to such boards, internal decision-making must be assessed through multiple lenses, not just one convenient to the in-house majority.

"For us senior management, it is important to take stock of the diversity of opinions," Itani said. "Whenever a decision is ultimately taken, we ask for its background and processes to make sure that it is digested through diverse viewpoints."

If successful, the updated form of nemawashi, embracing diversity at each level, will present a new model for large Japanese organizations. Compartmentalized nemawashi processes at each level of the organization, each benefiting from offline brainstorming, can work in concert like the countless gears of a complex mechanical system. This could give reform-minded Japanese companies a subtle but powerful competitive edge to ensure agility and innovative thinking.

Nemawashi, for all its benefits, evokes the downside of traditional Japanese organizational culture -- namely, behind-the-scenes decision-making by older men without clear accountability or transparency, let alone diversity.

The upside of nemawashi continues to be its ability to encourage the formulation of bottom-up ideas. It remains to be seen whether Japanese companies can introduce formal framing of responsibilities into nemawashi, fundamentally an informal modus operandi, while sustaining its organic virtues.

Transformation takes time. "We are still only halfway to where we want to be," said Itani. "We suffer from the birthing pains of designing the overall framework."

But modernizing this Japanese business tradition is a challenge well worth tackling.

This article was published by Nikkei Asia on May 5th, 2024.