Japanese Banks - What are they good for? What are they not good for?

I have some Japanese clients. One of them is this banker (or so he says) who has worked at one of the banks that submit LIBOR for the last 30 years. He doesn't know a thing about finance, even though he says he has worked in finance ever since the graduation and has a MBA from an Ivy school (from here) - one of very good ones too. This got me thinking; how did this guy survive until today?

Just to put this in perspective, he doesn't know what "effective duration" is despite the fact that he works in a debt-related department, which quite frankly, wouldn't cut it at any other Wall Street banks. He also has no idea about differences between "on-the-run and off-the-run," or the differences between eurodollar and t-bill (which is also known as "TED"). But he has been allowed to run books for the Japanese bank.

More, he is the head of a department. Junior employees, 20-somethings and 30-somethings, know all about finance. So when I have a meeting with them, I could talk about technical things with the junior employees (who are less "Japanese" than the older employees). They say what the head of the department does is to "manage relationships." This sounds ridiculous and outrageous to those of us who don't work at a Japanese bank. Those who don't know should never be allowed to run the business!

A Japanese company typically doesn't pay much by comparison. What matters to them is culture, conformity, and not getting fired. Their thinking is defensive partly because there is a rather stupid employment law in Japan that makes it incredibly difficult for companies to fire people as long as a company is generating a positive profit. The Japanese organizations produce employees who are good at doing what they are told to do, but they can't do anything if you tell them, "right, here are resources, just make money." No, no, no, the Japanese are not built that way. They are built to perform duties that the others create and they are extremely good at doing so. A typical Japanese firm rotate their employees, one day he is in M&A, next day he is in operations. That's ridiculous by our standards!!!

Organizationally, there are clearly defined duties for each role at a Japanese bank, so technically, you don't have to know anything to "do the job well." So there is no point in paying for performance. The Japanese are not expected to "outperform," they are expected "simply to perform." Hence the pay is low. But this begs the question, "why the pay difference when the job of the head of the department can easily be done by a fresh graduate?" There are no answers for this question, maybe, that's why they need to change. The senior guys cannot be paid more just because they have been working there longer than the junior ones!!!

At a typical Japanese bank, there is no such thing as "you screwed this up, you will be fired." If there is a mistake, that belongs to "the firm" and "the firm will deal with it." It's designed in such a way that no single employee will be made responsible for any actions. As a result, as an individual, they don't think.

Toyota, Nissan are a successful story abroad (for good reasons). But many Japanese companies that go abroad have hard time with recruitment, so they bring in their employees from Japan. After all, given what I wrote above, who wants to work for a Japanese company? In the West, we change jobs every 3 - 4 years and the reason we can do it is we learn and build a set of skills that can be transferred to the next job.

Bringing employees from Japan is incredibly stupid as this costs horrendous amount for the company (basically the company has to pay them in the local currency and Japanese yen - double the salary plus rents and other expenses). Remember, the Japanese job - anyone can do it because of the way they structure the organization. It goes without saying that such a move (bringing the clueless Japanese employees from Japan to run an existing business abroad) angers the local employees. So what a successful Japanese multinational does is to separate operations completely, a local company will be run by local people, the Japanese employees will stay in Japan. That way, they get to keep the precious Japanese way (that encourages "irresponsibility" and rewards "loyalty" and "conformity") and can still expand their business abroad.

When you deal with a traditional Japanese company, be mindful. Just because one person is the head of the department, that doesn't at all mean that he knows much about what he does. Find young employees that actually know things, find young employees that are cooperative, find Japanese employees who are hired locally, and I am not being racist in saying this, Just humor the old employees and management.

It takes a while to get used to dealing with Japanese firms.