Originally published in Nikkei Asia's “Henry Kravis: My Personal History"
Chapter 16
Management diversity will be crucial if Japan is to make a lasting comeback
George Roberts, my KKR co-founder, likes to say, "If I were 30 years old today and I could speak Japanese, I'd go to Japan." I think I would too.
Of course, like any country, Japan is not perfect. For example, it has always been somewhat insular, "an island unto itself," and historically lacking in diversity.
Many years ago, I spoke to a gathering of 100 executives of a major Japanese bank and was surprised to see almost no women or foreigners in the audience. When I pointed out that the bank's male-dominated top executive echelon shows a lack of gender and nationality diversity and is "not international," the bank chairman responded, "I hadn't thought about that."
Over the years, this issue has gained awareness alongside growing social discourse and efforts to enable women leadership and diversity in corporate Japan. We are supportive of these initiatives -- and have looked to encourage the same within KKR -- as evidence across the board has convincingly shown that more diversity of thought leads to better outcomes.
Japan's immigration policy has also been known for its restrictiveness. Setting aside whether this is good or bad, the U.S. stands in sharp contrast. It is a melting pot of different cultures and races. Immigrants come, get educated, join companies and climb the corporate ladder. Without immigration, many of America's big companies wouldn't exist today, nor would the country have grown as it has.
Opportunities for young professionals to showcase their abilities have been more limited in Japan. In meetings with Japanese companies, I have noticed that many young employees do not speak and are often there to take notes. They also tend to be the last to shake hands with people from the other side.
George loves to speak to individuals of all levels and ages because he learns from them. At a dinner meeting with a Japanese company, the atmosphere became awkward when George addressed a young person sitting far away instead of the chairman next to him.
At KKR, we like to call on the youngest person in investment decision meetings and encourage everyone to speak up. We know they have done a lot of the work on the company or deal. In many aspects, they know it best. I think it is a bit dangerous for young people to hold back out of deference to their seniors.
Nevertheless, Japanese companies have been making progress. They have gradually increased the number of women and foreigners among their executive ranks, and some companies have hired outsiders to serve as CEOs.
Young Japanese businesspeople are so energetic and vibrant. Every time I visit Japan, I dine with young entrepreneurs, and it is clear that there is appetite and excitement around change.
The 1980s were a turning point for the Japanese economy. Japan failed to seize a great opportunity to dominate the world. U.S. stocks were cheap, Japanese companies were boasting strong earnings performance and the yen was strong. Japanese companies should have bought up every good American company they could have bought and "owned the world."
Take this example: In the 1980s, Apple CEO John Sculley came to us and asked KKR to own half of Apple's stock. Due to its poor performance, Apple needed capital. We didn't end up making this investment because it wasn't right for our funds. Had a Japanese company noticed his proposal and grabbed this investment opportunity, it might have been in Apple's position today.
Instead, what many cash-rich Japanese companies did at the time was buy trophy real estate assets like Pebble Beach Golf Links at high prices. Japanese companies still struggle with managing businesses overseas. While it's increasingly common to see foreigners leading American major companies, you don't see many Japanese leaders of American businesses.
Finally, however, Japan is facing a great opportunity to make a comeback. When former Prime Minister Shinzo Abe launched Abenomics back in 2013, I thought the Japanese were waking up. During his visit to the U.S., I suggested he build a system where both shareholders and executives are aligned. The current administration is carrying Abe's policy in the right direction and bringing Japan Inc. into the 21st century. I hope this economic renaissance and encouragement of foreign investment will continue under Japan's future leaders.
As one of the first private equity firms to enter Japan and having spent close to two decades there now, we see several ways to work closely with the government to burnish Japan's reputation as an investment destination, including supporting Japanese companies on their corporate governance reforms and helping them to become globally competitive, growing Japanese individuals' financial assets and retirement savings that are today mostly held in low-yielding deposits, and developing a domestic credit market to help the economy become more resilient.
We also believe there is significant value for Japanese investors and the overall economy that can be unlocked by promoting the local circulation of capital within Japan and making it an investment destination. We have coined this concept "Chisan-Chito" -- to convert local capital into local assets -- after being inspired by the Japanese concept of chisan chisho, where local food production is converted into local food consumption.
An example of Chisan-Chito is our acquisition of KJRM, a domestic real estate manager that was previously owned by Mitsubishi Corp. and UBS. We made this deal several years ago directly from KKR's balance sheet as a sign of our confidence in Japan. Through KJRM, we provide attractive Japanese real estate investment products to a wide range of clients and provide the much-needed liquidity and growth capital to the Japanese real estate market.
"You've got a blank canvas. You are an artist. What are you going to paint?" I was asked this by the CEO of a Japanese bank in the 1990s, and it really inspired me. Since then, I've posed the same question to many others. I hope the Japanese will envision and create a form of capitalism where companies increase their value and people, including the employees in the businesses, prosper together.
I would like to paint that picture too.