The Succession Dilemma: Finding Future Leaders in Japanese Corporations
Japanese business culture is experiencing an obstacle that transcends tradition and defies succession. Finding potential successors for old enterprises has become a Herculean effort, reflecting the difficulties of a changing culture and economy.
Japanese culture values bloodline and continuity, making the passing of the baton sacred. However, globalization and technological change have made the search for qualified heirs a major challenge, straining the delicate balance between tradition and innovation.
Japanese corporations followed the traditional "oyakata kōshin," preparing family members or trainees as heirs for decades. The rigidity of tradition has clashed with the imperatives of a fast expanding global marketplace as the business environment changes.
Japanese corporations have several obstacles in finding successors. Shareholder activism and transparency demands have increased attention on succession arrangements, forcing corporations to rethink ancient norms in favor of meritocracy and diversity.
Demographic trends and an aging workforce have made succession planning harder. Japan's falling population and declining birth rate have reduced the pool of possible candidates, worsening the shortage of skilled successors who can lead enterprises through the 21st century.
Japanese business culture, with its hierarchical structure and respect to authority, has also stifled new voices and viewpoints. The succession process is plagued by "amae," or authority reliance, which stifles creativity and perpetuates conformity.
Kawano Kenjiro started working at Nishiyama Onsen Keiyunkan, what it registered as the world's oldest continuously operating business, in 1984 at age 25 and worked in several capacities, including wall repair and computer construction, before becoming manager.
Kawano and his predecessor, the last descendant of the family which had run the hot spring inn since the year 705, bonded over decades of working together. But Kawano had no idea what would follow.
“I was called to the predecessor's office one day and told I was taking over the business,” said Kawano. “I felt immense pressure to take over such a historic place. Accepting the offer took six months.
“I was worried I would be the last generation to run this ryokan.”
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Japan's population reduction breaks records annually. Youth have gone to Tokyo for greater possibilities, leaving towns with largely elderly population. Kawano couldn’t legally inherit the ryokan because he wasn’t a blood relative. To fix this, he bought the original shares and founded Nishiyama Onsen Keiunkan Limited. So the inn continues, but under new ownership.
Kiyoshi Hashimoto's equipment facility outside Tokyo should be abuzz with industry, yet the atmosphere is so tranquil that one can hear him practicing the recorder. At over 80 years old, Hashimoto established his company nearly four decades ago, building a devoted customer-focused business. However, he finds himself without a successor or buyer for his enterprise.
As Japan grapples with a declining and aging population, there is growing concern that by 2025, about a third of small firms could face severe challenges. "All of this would go to waste if I were to close now," Hashimoto laments, gesturing towards his Yachimata plant east of Tokyo, where workbenches, drill tables, and parts cupboards stand as remnants of a thriving past.
Having downsized his staff, Hashimoto currently relies on just two part-time workers to keep operations running. The scale of the problem is so significant that Japan faces the looming specter of a "mass closure era," warns bankruptcy researcher Shigenobu Abe of Teikoku Databank.
A 2019 government assessment paints a stark picture: by 2025, 1.27 million small business owners will be 70 or older, without successors in sight. This demographic trend threatens to eliminate 6.5 million jobs and shrink the Japanese economy by ￥22 trillion ($166 billion).
According to Teikoku Databank, by 2029, baby boomers will reach 81, which is the average life expectancy for Japanese men—the demographic that predominantly occupies the presidency of these corporations.
"We know for sure that many workers will lose their livelihoods because of this," Abe remarks solemnly, underscoring the profound implications of Japan's demographic and economic challenges.
As Japanese corporations face modern demands, they find themselves at a crossroads where the past and future meet and the hunt for acceptable successors becomes urgent. Japanese corporations demonstrate their tenacity and agility in their search for successors.
Ultimately, Japanese corporations' succession struggles mirror society's changing values, goals, and interests. Companies must establish a route ahead that acknowledges the past while embracing the future as they negotiate generational transition. During this time of upheaval, the search for prospective successors becomes a defining story of 21st-century Japanese business culture.