Care and Feeding of CEOs Part Three: "Soft" Controls

Care and Feeding of CEOs Part Three: "Soft" Controls

Being a CEO in Japan is something special. Rather than just a sign of wanting to make more money, it denotes a sense of social responsibility (at least within the realm of the employees and customers) and a commitment to devote one's energies solely on the behalf of the company. With such a total mental and emotional commitment, it's no wonder that Japanese CEOs want to achieve a high level of ownership of their job.

Thus the eternal question of maintaining leaders arises: how to balance the needs of a leader's ego with corporate control and responsibility? In Japan at least, this activity is highly culture specific, and is one that most foreign firms get wrong at some point or other. The objective is to lay down and clearly communicate rules at the very start then allow a high degree of personal interpretation, and to provide controls that are non-obtrusive.

Probably the most fundamental way to feed a CEO's ego in a healthy and productive manner is to let the person manage the business in their own style. That means letting them choose and fit-out the company's new office, hire their own people, develop a Japan specific marketing mix, be the face of the company in Japan, do their own troubleshooting, and much else besides. Clearly this calls for a high degree of trust by the head office, and a willingness to let the new CEO prove him/herself. Loosen up the corporate standards and accept that if you want to be in Japan, at least ensure that the company is structured and presented in an acceptable way by your new CEO. Yes, there is risk, so this can be balanced/mitigated, by instituting the second half of the equation: a set of controls.

Most people think in terms of accounting and legal standards when they talk about controls. Certainly these need to be there, but the controls I'm talking about are those that allow a CEO to understand his/her limits within YOUR company and have a lot to do with communication and culture. Further, these behavioral controls do not need to be obtrusive or pedantic to work. In fact, the more that they can be kept between just the CEO and his/her minder at head office, and be executed with advice from a proven Japan expert, the better the results can be.

The first "control" is establishing communication lines and a baseline for personal and corporate behavior. This starts in the first week of hire with a clear discussion, training really, on fiduciary duty, transparency, admitting mistakes quickly, accounting requirements, HR rules, SOX-related rules, company values, etc. I find that most Japanese managers will accept communication of these values if done at the beginning of an engagement - indeed it is expected.

These very important values should be shared in the right environment, which would be at head office, as part of a 2-3 week orientation. The new CEO should be able to spend time with each senior manager in the company - and with particular time being allocated by HR, Accounting, and the head office CEO him/herself. HR and Accounting emphasis are required because of the major differences between Japan and elsewhere on these topics. Think sexual discrimination, hiring process, use of company funds, and GAAP accounting.

At the end of the orientation, a commitment needs to be made to the new CEO that he/she will get quick response from the key members of the head office team, and this commitment needs to be renewed each time the person filling that position changes (a lot of companies forget to do this). A good way to ensure continued interaction is to schedule quarterly trips for the CEO back to head office, timed for board meetings.

Failure to maintain this level of commitment and interaction is a major cause for the breakdown of goodwill and trust on the Japanese side. There is nothing more frustrating for a local CEO than to not be able to get attention and assistance from senior colleagues at head office - and especially in front of local employees, a CEO who can't even get things done in his/her own company experiences a huge loss of face and is likely to leave.

A second "control" that I've found works well, is to put a senior head office person into the Japanese office. This person needs to be a sensitive operator and have a meaningful job. So long as there is a clear purpose for them being there, such as being the CFO, the in-house Counsel, or a liaison officer of some kind, then employees will see them as a reminder of head office without equating them to emasculation of the CEO. I have found over the years, that the mere presence of someone to "help" the CEO is a great way of not only keeping everyone honest, but also provides genuine help to the CEO in their dealings with head office - especially if the CEO is not 100% bilingual.

This position should be injected into the company at an early stage, not as the result of some incident - else their appointment will be seen as lack of trust by the head office. The liaison person should not be rotated more frequently than once every 3 years, and at least 3 months handover between appointees should be planned. To ensure that there is sufficient separation to provide leverage in the relationship with the CEO, the person needs to report both to the local CEO and also to a senior manager back at head office - thus removing any threats of dismissal while in Japan.