The Journal The Authority on Global Business in Japan

There are many ways in which damage can be inflicted on a company. Often, an organization’s financial standing or reputation are at the mercy of factors beyond the control of management. Harm can also be self-inflicted, however, through poor decision-making or a strategic error. Arguably the worst—and therefore most damaging—mistake that any company can make is a lapse of ethics that drags its previously good name through the mud.

An ethical error can see clients losing trust in a company’s products or services, leave investors no longer wishing to be associated with the operation, or find the most talented employees—sensing which way the wind is blowing—jumping ship for a safer place of work.

In a worst-case scenario, these factors combine to become the death knell of a company. We do not have to look far for an example: Lehman Brothers Holdings Inc. filed for bankruptcy in 2008 after 158 years of largely faultless investment banking. Losing the confidence of the market, this industry stalwart collapsed and its fall had worldwide economic repercussions.

More than a decade after that debacle—and despite the lessons learned—ethical standing remains an area of critical concern for companies, especially in the realms of technology, privacy, and protection of customer information. That recognition has also deepened on the part of consumers, who are demanding higher standards from the organizations with which they do business.

For companies operating across international borders—with local corporate cultures that are often extremely different—the complexities are, inevitably, multiplied.

“Reputation is critical to doing business in Japan,” said Timothy Langley, president of public affairs consultancy Langley Esquire. “Credibility is founded on personal relationships, and these relation­ships are founded in ethics.

“Everything revolves around personal relationships here: it is people who are the essential ingredient, the constant element in establishing who you do business with,” he said. “You build trust with the community and your consumers by demonstrating integrity and ethical leadership.”

The sheer difference in doing business in Japan can often be difficult for newly arrived professionals to grasp, Langley emphasized, with ethics high up on the list of corporate cultural differences.

“In Japanese society, as in the corporate culture here, ethics is calibrated and evaluated differently,” he told The ACCJ Journal. “Toss in the foreign element and it is no wonder there is confusion and perplexity—and tons of mistakes.”

Foreign companies operating here often find themselves in the “vulnerable position of striking that fine balance between Western ideals and Japanese standards for business ethics,” Langley continued.

“The underlying theme is the constant tension between expediency versus ‘doing the right thing.’ Executives running a foreign company in Japan must be wary of unforeseen exposure or brand erosion, which will, inevitably, result from neglecting proper business ethics.”

Morio Sotsu, a consultant in the Public Affairs Division of public relations company Vector, Inc., said that, on the surface, the ethical requirements of a company and its executives are pretty straightforward.

“One of the best-known business principles in Japan is what we call sanpoyoshi, which means good for yourself, good for your customer, and good for society,” he said. “As long as you stick to that, ethical lapses will rarely damage your business.

“The concept of society, however, needs a closer look,” he cautions. “It may, for example, include your employees, the customers of your customers, and the general public in a very broad sense.

“It is very difficult to foresee the reactions of every possible player in society—especially when a totally new type of business or industry is emerging,” he said, adding that the best course of action may well be to adhere to a rule-making process, with rules that are either “soft laws,” such as a code of conduct or guidelines, or “hard laws,” such as legally set legislation.

The question of ethical misbehavior has become more compli­cated with the rapid advancements that we have seen in every aspect of our lives—including the corporate world—in recent years.

“Regulation only begrudgingly follows the rapid advancement of technology,” Langley said. “It is important for business ethics to be a guiding principle to safeguard the interests of the public and other stakeholders involved.

“Emerging technologies invite new opportunities and threats as they naturally challenge the status-quo,” he added. “The opportunities lie in creating frameworks that serve society as a whole, so win–win scenarios can be achieved, and bad actors prevented from exploiting vulnerabilities. This can only be realized through healthy cooperation between government, business, and the rest of society.”

There are two key reasons why ethical leadership is “critical” in today’s world, believes Midori Kaneko, director of Public Relations at Amazon Japan. The first is the often-unprecedented speed of change. The second is technology being adopted so rapidly among people who may not be fully aware of the limitations or dangers that it poses, and who, consequently, require security and protection.

“In the case of Amazon, we always go back to our customers and make sure these evolving technologies are working on their behalf,” she said. “Technologies are enablers and never solutions in and of themselves, so we are figuring out how to coexist with social media, artificial intelligence, machine learning, and so on every day as these continuously evolve. The outcome of technological advancement is only as good as the human beings.”

Amazon has embraced Japan’s vision for Society 5.0, promoting digital transformation with people at its core, but is still mindful of protecting the environment and ensuring sustainability. And businesses are more aware today than ever before that short-term maneuvers for immediate but brief gains are no longer an efficient business model.

While business ethics vary widely between business sectors—energy providers may worry about the impact of their operations on the environment and broadcasters must avoid outraging or upsetting their viewership—tech companies such as Amazon and Google LLC are under a different kind of scrutiny. For companies that do the vast majority of their operations online, customer privacy and security is paramount. But their ethics are also under the spotlight.

Marketing is particularly an area where such companies’ efforts are monitored, due in part to data mining technology that permits businesses to track their customers’ activities online and potentially sell that data to marketing companies, or match users with advertising promotions. While some consider that to be abuse of a customer’s private data, it is unquestionably valuable to businesses and can boost the bottom line.

“Those who operate at the cutting-edge of technology face the very real dilemma of either exploiting the lack of oversight or acting as ethical leaders,” said Langley.

“Current trends highlight the need to demonstrate ethical leadership in a company’s marketing-communications strategy,” he added. “Globally, companies are under scrutiny for unethical practices through the internet and social media. To mitigate this risk, it is important for a company’s marketing efforts to far outweigh any disclosure by whistleblowers.”

And the benefits of “getting it right” are easy to see. Clear and appropriate business ethics go far beyond improving employee loyalty and morale, or deepening the bonds within the management team. Doing the right thing, and being seen to do the right thing, have a direct bearing on profitability. A reputation—among related businesses, customers, investors, and other stakeholders—can be burnished and attract more investment, goodwill, and sales.

For customers and investors alike, there are few more attractive components than a positive public image. Some see corporate social responsibility (CSR) initiatives as a way of building this.

“The real challenge can be discerning when companies are truly ethical, or just presenting themselves to be through CSR,” said Langley. “While business ethics and CSR are inherently connected, there are some companies that simply leverage their resources to offset negative PR.

“To truly build goodwill with the public, companies need to embrace opportunities to create shared value with the communities in which they operate,” he added in closing. “This must be communicated as part of your brand to build trust with business partners, government bodies, and other external stakeholders.”

Julian Ryall is Japan correspondent for The Daily Telegraph.
To mitigate this risk, it is important for a company’s marketing efforts to far outweigh any disclosure by whistleblowers.