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Shacho shikkaku: Boku no kaisha ga tsubureta
riyuu
(A Man Who Shouldn’t Be a CEO: Why My Company
Failed)
By Yuichiro Itakura
Reviewed by Shigeru Komago
Until recently, bankruptcy has been something of a societal taboo in Japan. Mindful of the stigma associated with bankruptcy in a society where, as one saying has it, “the person who loses is always wrong,” most Japanese business executives have been very reluctant to make difficult decisions that might lead to major financial losses or other negative consequences. This ingrained tendency to postpone serious decisions or pass them on to one’s successor is a major reason why Japanese banks and companies have taken too long to tackle the problem of nonperforming assets and why the country as a whole has not made progress in terms of structural reform. And if Japanese executives have traditionally been reluctant to opt for bankruptcy, they are even more reluctant to talk about it when it happens. Often, they merely bow their heads, express deep regret, and utterly avoid explaining the reasons for their failures. Witness the press conference in 1997 when the president of Yamaichi Securities (then one of the largest securities firms in the country) wept openly as he apologized for the company’s bankruptcy—an apology that pointedly failed to disclose why Yamaichi went bust. Good case studies of Japanese corporate failures and the executives behind them are rare—one more reason why Japanese companies sometimes fall victim to the same mistakes over and over again.
This book breaks with such traditions. The author, Yuichiro Itakura, is the former chief executive officer (ceo) of HyperNet, an Internet service company that went belly up at the end of 1997. In a work he has billed as Japan’s first autobiography of a business failure, Itakura is quick to blame himself for the demise of his company. But more interestingly for the reader, he also discloses the process that led to his company’s bankruptcy, including his negotiations with major Japanese banks, securities firms, venture capital companies, and other high-technology enterprises. In that respect, his book is both sensational and revolutionary. It quickly achieved best-seller status after it was published in 1998.
An entrepreneur who got his start in the software-games business, Itakura started HyperNet as his third business venture in 1991. Three years later, jafco, Japan’s largest venture capital company, invested in the company and the following year, Sumitomo Bank, one of Japan’s biggest banks, made a large loan to HyperNet, encouraging its emergence in Japan and in the world. Following Sumitomo’s lead, other Japanese banks also stepped in to offer financing. HyperNet’s technologies and software systems received much favorable publicity, winning the company the New Business Award (the most prestigious prize for entrepreneurial businesses in Japan) at the end of 1996. Itakura became a business hero, a modern Japanese success story whose firm was reportedly being scouted by Microsoft chairman Bill Gates as a potential partner for developing technology.
The highlight of the book, though, is Itakura’s chronicle of the rapid downturn that led to HyperNet’s bankruptcy in 1997—an experience that he compares to taking “a roller coaster ride to hell.” When Itakura applied for new loans to cover the mounting losses that were caused by technical glitches plaguing HyperNet’s teleconferencing systems, Sumitomo refused to extend credit. After Sumitomo turned down Itakura’s firm, all the big Japanese banks that had once eagerly shoved money at the new company followed suit. Although the banks’ refusals stemmed in part from HyperNet’s poor business performance, the main reason was the heavy pressure lenders faced from Japanese financial authorities and markets to rid their portfolios of bad loans. So, saddled with enormous debt and unable to pay his workers, Itakura finally pulled the plug in December 1997. HyperNet thus became one of more than 16,000 Japanese firms to fail that year—the highest number since 1986. Adding what a Westerner might consider insult to injury, Itakura notes in his book’s closing chapter that the Tokyo District Court judge handling his bankruptcy case denounced him for his failure as ceo to apologize to his lenders.
Itakura’s experience with Japanese banks helps highlight not only why Japan’s bubble economy expanded so rapidly but why the downturn that followed hit with such severe impact. In Japan, banks and companies tend to follow each other’s moves—a tendency called yokonarabi (literally, “lining up side-by-side”). The tendency of Japanese business to move in the same direction helps create a bubble effect that can eventually lead to large-scale failures. On the one hand, in times of prosperity Japanese executives suddenly become too aggressive in assuming risks. On the other, fear of bankruptcy often makes them hesitate to take business risks and to accept challenges even under ordinary circumstances. The power of these and other cultural factors suggests that Japan’s existing society and structure are not necessarily conducive to the creation of entrepreneurial ventures and the new types of companies that the country needs to generate new jobs.
Earlier this year, the Japanese government launched the Competitive Industry Council to bring together Japanese business leaders to discuss the policy changes needed to foster new types of businesses and ways to encourage entrepreneurship. But such well-meaning initiatives are unlikely to succeed without fundamental changes in corporate behavior and attitudes. Despite the first signs of a revival in the Japanese economy, a full-fledged recovery is a long way off.
Japan’s best hope for economic renewal may well lie in another direction. The increasing flow of foreign direct investment (fdi), which reached a record high in 1998, is likely to do more than any government commission to change Japan’s business attitudes and behavior in the future. As Itakura himself noted in an interview, his company’s fate might have been different if he had raised funds abroad. But because he had been so successful in obtaining substantial loans from Japanese lenders, Itakura delayed trying to raise funds in U.S. capital markets; when he finally did try, it was too late to save HyperNet from bankruptcy. Although a sharp increase in fdi, especially a much more aggressive foreign-company presence in the country, may fuel nationalist sentiments, it may also be an effective way to reduce the negative impact of the herd mentality that is so pervasive in all sectors of Japan’s corporate world.