Today's Notables

Attendance at the AFG Meeting

October 2014
Hisashi Furuichi
President and C.E.O.

Starting August 1 for three days, I attended the 2nd Alliance Forum Global Meeting (AFG Meeting). The organizer of the meeting was Mr. Jōji Hara, Executive Director of the Alliance Forum Foundation and Advisor to the Cabinet Office of the Japanese government. Shintaro Hara, Mr. Hara's father, passed away at the age of 95 this July. He was once the managing director at Kokuyo Co., Ltd. and was a world-renown builder and collector of model railways. I once visited the Hara Model Railway Museum, which is a five minute walk from Yokohama station and is the world's largest museum of its kind. Most of the installations are handmade by Shintaro Hara beginning from his elementary school years. I was amazed at the level of precision he had at such a young age. I would highly recommend visiting the Hara Model Railway Museum.

To get back on topic, I would like to explain about the Alliance Forum Foundation. The Alliance Forum Foundation is a 501(c)(3) non-profit, public service organization established in 1985 in California. The Foundation is an NGO that has received special consultative status from the UN Economic and Social Council. With the vision of “changing the world using technology,” the organization develops new industries in Japan and challenges businesses in Japan to become leaders in solving the poverty issues of developing countries around the world by using their advanced technologies. The theme of the meeting was public interest capitalism and how to achieve it. Public interest capitalism is one of the major areas of advocacy of the organization.

The principles of shareholder's equity found its beginnings in the US and spread throughout the world. The idea that a company exists for the benefit of shareholders began to impact the management philosophy of Japanese corporations. Shareholders investing for the short-term do not correctly understand the capital equipment or R&D investments of a company, however, and assert their rights as shareholders while focusing only on immediate profits. Further, when foreign-owned corporations make investments and marketize the resources of developing countries, local job opportunities are produced, but corporations with the right to profit are controlled solely by those in power, who are the major shareholders. As a result, profits from the resources are returned to the shareholders, and not to the poorest classes or the country itself. Amidst that backdrop, a suitable amount of profit will be returned to shareholders under public interest capitalism, but the priority is placed on the benefit of stakeholders by using profits to improve research and development capability, and returning profits to employees.

In 1754 in Japan, the mindset of “Sanpō Yoshi” (lit: good in three directions) was advocated by the ideas and philosophies of the Ōmi merchants. This was recorded by Jihē Nakamura from Kanzaki Ishibaji Village (currently Gokashōishibaji-chō, Higashiōmi, Shiga) in his family precepts. “Sanpō Yoshi” is the sloganized term created by a researcher after WWII, and the term did not exist prior to the Shōwa period. Because of this mindset, which states that business will go well if there is something good for the seller, the buyer and the world at large, Japan has many long-standing, well-established companies. If a well-established company is defined as one that was founded at least 100 years ago, there would be more than 20,000 such companies in Japan according to Teikoku Databank’s database. This represents about 1.6% of the total number of registered companies. Many long-standing companies also exist in Europe and the US, but with many mergers and acquisitions, the number is on the decline in the US.

Mr. Hara uses American Airlines as one example. In 2008 during a severe recession, American Airlines pressed employees to accept a salary cut by saying the company must cut expenses by $340 million dollars or they would go bankrupt. The employees had little chance of getting similar employment with other airlines so they accepted the offer. As a result, upper management received a bonus of $200 million. In the US, there's a strong belief that the shareholder is the owner of the company, so the logic becomes, “What’s wrong with giving management a one-time bonus for cutting yearly expenses by $340 million?” If this US-born idea of shareholder capitalism were to become a worldwide norm, wealth inequality in developing countries will never be resolved, while developed countries will be in an economic environment that is not conducive to growth of new industry. Thus, the purpose of this meeting is to build a mid to long-term investment framework for public interest capitalism and make this Japanese idea the world standard. The framework would promote markets conducive to new industry, and provide benefits to the stakeholders.

The meeting started at 5pm on Friday with Mr. Hara explaining the goals and objectives of the 2nd AFG meeting. Mr. Nikkaku of Toray spoke as did Mr. Takeshi Noda, Councilor in the House of Representatives who works in the Liberal Democratic Party's Tax System Research Commission. The discussion was followed by a reception. The second day was fully scheduled from 8:30am until 9pm, the third day included many discussions at the subcommittee level, and on the first two days, we were able to spend time getting to know the other participants over dinner and drinks after the seminar. It was a very worthwhile experience. At the end, the participating members agreed to pull together and promote a system as follows.

System for Mid and long-term prosperity of Japan based on public interest capitalism
1. Clearly identify in law the significance of the company and the responsibility of management.
    (Japan's Principle of Capitalism)
2. Develop a system that can operate in favor of stockholders in the mid to long-term.
3. Build a framework to commercialize innovative technologies and develop new industry.
4. Establish new methods of measuring corporate value to replace return on equity (ROE).
    (Introduce new performance indicators for fairness in distribution of wealth, sustainability, improvements, etc.)
5. Change the extreme deregulation designed for players of the zero-sum money game that only benefits investors.
6. Introduce economic indicators based on public interest capitalism that complement GDP and GNI.

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