Resolute Japan

Toyota Overtakes GM as Bestselling Auto Maker
—Wall Street Journal, 2022
During a congressional hearing in 1953, General Motors president Charles Wilson, nominated as U.S. Secretary of Defense, sought to blunt questioning from a senator implying that the CEO’s business leadership could compromise his public service, and place corporate interest ahead of national interest. Wilson countered that his firm’s welfare actually “goes with the welfare of the country,” and what “was good for our country was good for General Motors.”
There was some truth in Wilson’s hyperbole. GM had emerged as America’s premier car producer in the 1930s, and by the 1950s, the company and the country indeed seemed geared to prosper from one another’s prosperity. General Motors assembled more than half the cars sold in the United States, making it the number one automaker in the world’s number one auto market.
It came as a shock, then, when a Japanese competitor eclipsed General Motors’ American production in 2021. “Toyota Overtakes GM as Bestselling Auto Maker,” headlined the Wall Street Journal. While General Motors sold 2.2 million vehicles in the United States that year, Toyota retailed 2.3 million, up from zero when Wilson sought to defend his integrity.
Who would have ever anticipated, then, that such a reversal of fortune would come to America one day? Especially since Japanese companies had hit a wall in the 1990s, in what became known as the “lost decade.” Prices deflated, shares flattened, and companies contracted—from great growth to the great retreat.
That Japanese expansion fell well behind other nations was doubly surprising, since Japan had until then been so far ahead. Six of the world’s twenty largest banks were headquartered in Tokyo, Japanese investors owned Rockefeller Center, and Sony owned consumer electronics. Harvard sociologist Ezra Vogel’s Japan as Number 1, published in 1979, became a bestseller, and UCLA business academic William Ouchi explained why: In stark contrast to the American way of cost-cutting and profit-taking, Japanese managers placed their faith in consensus building, quality manufacturing, and forward thinking—and it worked.
The Japanese model had become so compelling that it attracted its own labels, like quantum mechanics in physics. Professor Ouchi formulated one tag that especially appealed to observers outside Japan—“Theory Z”—and it emerged as a global benchmark.
Though the Japanese way had come to be seen as a global standard for modern capitalism in the 1980s, it caved dramatically and enduringly during the 1990s. The Tokyo stock market shifted into reverse for two decades, Sony devices gave way to Apple, Japan’s #1 moniker vanished, and thought leaders turned elsewhere for exemplars. General Motors’ Mary Barra, Apple’s Steve Jobs, and Alibaba’s Jack Ma—and not the CEOs of Fuji, Sony, or even Toyota—came to grace magazine covers. From 2004 to 2021, Google searches for “Japanese management” plummeted fivefold. Of the world’s fifty largest banks by assets in 2023, just four were still headquartered in Japan (topped by Mitsubishi UFJ Financial Group, Sumitomo Mitsui Financial Group, and Mizuhuo Financial Group).
Note: 225 large, publicly owned companies in Japan; end of trading days, 1949–2024, Macrotrends 2024.
That was then, however, and in consonance with Toyota’s triumph in the United States, we have now found that many Japanese firms have been staging a comeback. Investors in Tokyo’s traded shares have signified well Japan’s reversal of fortune. After flatlining for nearly two decades, the Nikkei 225 Index quadrupled in value from 2009 to 2024, from ¥9,346 to ¥40,061. On March 22, 2024, the Nikkei Stock Average reached its highest level ever. The “winds are blowing Japan’s way,” wrote the Wall Street Journal. One might “think” that Tokyo “was the capital of a fast-growing Asian Tiger economy the way American CEOs are flocking” there, said the Journal, including the leaders of Apple, Berkshire Hathaway, Google, Intel, and OpenAI. Bloomberg piled on: “Japan overcomes long-term stagnation and becomes the envy of G7 countries.”
By way of a more short-term comparison, America’s S&P 500 index rose 10.1% during the first six months of 2023—but Japan’s Nikkei 225 Index rose 43.4 percent. Hinting at a development at the center of this book, the New York Times reported that the Nikkei 225’s “far outstripping” of the gains of the S&P 500 could be attributed to “a significant shift in how the country’s corporations are run.” It should be noted that Japan’s GDP slipped behind that of Germany near the end of 2023. But many large companies—our focus here—and their valuations and earnings continued their comeback. By 2024, the Nikkei Index had topped its peak of 34 years earlier on the eve of the deluge.
Two economists wrote in mid-2023 that akin to Japan’s post-war economic miracle, over the “past decade, and with little international attention,” Japan had “achieved a second economic miracle.” The same for operating profits of Japanese companies in the Tokyo Stock Price Index, based on some 2,000 of the largest companies listed on the Tokyo Stock Exchange. Their total operating profits more than doubled from ¥21 trillion in 2012 to ¥43.6 trillion in 2022. The Economist concluded in 2023 that Japan “is awakening from its decades-long torpor” and global “investors are giddy about Japan again.” The Wall Street Journal declared that “Japan is the most exciting market in the world” because “the shift toward market capitalism ought to lead to better-run companies that are worth more.” Its revival came with “the new shareholder friendly approach of government, stock exchange and corporate boards.” Japan’s prime minister Shinzo Abe baldly declared: “Japan is back.”
Academic observers have reached much the same conclusion. Ulrike Schaede, professor of Japanese business at the University of California at San Diego, wrote in 2020 that Japanese firms have reinvented “their strategies, operations, and financial markets” while preserving “an alternative, more balanced model of capitalism.” Investment bank Morgan Stanley reported that Japan has been undergoing “a great process of reinvention” that is “the most interesting and underrecognized turnaround story in global equity markets.”
What Is Driving This Resurgence?
To understand what has created this turnaround, we interviewed more than 100 Japanese business leaders from 2019 to 2023. To these interviews, we brought our decades of experience as professors and researchers, and our deep interest in global leadership styles. Jusuke J. J. Ikegami is a professor at the Waseda Business School of Waseda University; Harbir Singh is a professor of management at the Wharton School of the University of Pennsylvania; and Michael Useem is the Director of the Leadership Center at the Wharton School of the University of Pennsylvania.
What we discovered is that business practices at some Japanese firms are morphing into what can be deemed a new model, retaining what has long been conventional, and at the same time adopting what had once seemed heretical. We share here what we have learned about this new model—a new leadership model we call Resolute Japan, or Model RJ.
Resolute Japan has come as a quiet, even hidden revolution among Japanese enterprises, and one that is sure to both challenge and inform the West, after decades of corporate retreat in Japan and neglect abroad. Japan’s resolute leaders, we have found, have a longer-term focus on enterprise agendas than in the West, combined with a nearer-term discipline in their execution. At the same time, they are riveted on a host of beneficiaries, not just the institutional investors that have so dominated the United States. They are doubling down on fresh talent and nimbleness in deployment. They are remixing their portfolios to better advantage. And they are more ambidextrous, simultaneously serving diverse constituencies and varied agendas: shareholders and stakeholders, short-term gains and long-run goals, and stability and agility.
In this book, we profile a host of Japanese business leaders and the distinctive capabilities that they bring to their leadership (their given titles are those they held at the moment of the interview). As these leaders demonstrate, Model RJ is exemplified by the ability to
• combine traditional Japanese management methods with more innovative agendas;
• redirect their governing boards from passive overseers to active partners;
• move away from seniority in their work ranks in favor of more active talent development and deployment; and
• strengthen their personal impact as enterprise executives.
And in so doing, they are transforming their enterprises and driving a corporate comeback. In Chapter 1, we look at this new leadership model and what we learned from our research and interviews about them. Chapter 2 examines the key components of the resolute way in Japan, including its companies’ human-centered leadership and balancing of stakeholder interests. Chapter 3 identifies the engines and architects that have driven the move from habitual to resolute leadership. Chapter 4 identifies how company leaders have both exploited their present advantages and successfully explored new arenas. Chapter 5 reports how company boardrooms have changed along with company leaders, becoming resolute promoters themselves. Chapter 6 characterizes the executive shift from prioritizing work security to prizing human talent. Chapter 7 identifies how Japanese business leaders are further strengthening their resolute leadership for the challenges ahead. And the final chapter identifies what companies everywhere can learn and master from Japan’s corporate comeback.