Imagine a suit that has lived at the back of the wardrobe, cut for someone it no longer fits in a style now outdated.
The costume survives mostly on nostalgia for the happier times enjoyed by a once more expensive occupant – steamy parties, slam dunk job interviews, searing romances – and on the illusion that there must surely come a time when its owner is slimmer and the garment back in vogue.
Despite its name, this is the appeal of Japanese ‘new capitalism’, as it harkens back to traditional business methods and challenges the need for a quarterly financial report.
Since Fumio Kishida became Prime Minister in October, he has carefully crafted the new phrase of capitalism to float behind him like a grand thought in the air without clinging to anything substantial. Much of its power comes from its lack of definition.
The “new capitalism,” in the hands of an openly consensus-driven leader, is driving the growing sense that much is wrong with current capitalism without risking failure by committing to hard-line solutions. Useful, it also comes with no hard time limits. His main political objective has been to differentiate Kishida from his two declared pro-market predecessors, Yoshihide Suga and Shinzo Abe. Now that he has achieved his goal, the pressure to keep that delineation clear is fading.
But, with an important Upper House election in July, the air in the balloon of new capitalism still requires regular hot flashes. Hence, according to financial and political analysts, a series of leaks last week that the government was discussing changes that could eventually relieve listed companies of the burden of quarterly reporting.
Despite this line coming from the highest levels of administration, the true extent of any change is unclear. Listed companies have overlapping quarterly reporting obligations to the government and the stock exchange, the former with penalties for false disclosures, the latter without. Removing government requirements would reduce duplication, but would not necessarily lead to a radical change in business behavior.
The details of the debate, while critical for investors, were not the subject of the leaks. The central mission was to show Kishida that he was addressing an issue with an easily identifiable villain – the “short-termism” supposedly encouraged by quarterly reporting requirements. For a Japanese leader without a strong ideology, he’s a perfect bogeyman for business.
Short-termism sounds, to a domestic audience raised in the nation’s long-termism mythology, inherently un-Japanese; quarterly reports can rightly be presented as something imposed on its listed companies by outsiders. And Japan can cite good company in this fight as even unrepentant market capitalists in the US and UK have begun to voice concerns about the dangers of short-termism.
The problem with creating such a bogeyman, at the expense of a fuller discussion of the finely balanced pros and cons of quarterly reports, is that it sows the idea that a suit that should have been discarded a long time ago can suddenly be wearable again. Two things in particular—both reflecting a change in attitude outside of Japan—could lead Japan into this error.
The first is the idea that the pursuit of a new capitalism is prompting a favorable reassessment of Japan’s traditional way of doing things: in this case, the assertion by listed companies that they exist to serve a range of stakeholders rather than the supposedly narrower shareholder demands. In this context, nothing could be more seductive than an interview with the Japanese media last week where BlackRock’s managing director, Larry Fink, suggested that Kishida’s “new capitalism” is akin to the stakeholder capitalism that , he says, promotes sustainable profitability. Remove non-Japanese quarterly reporting requirements, and perhaps companies can also return to a more natural focus on stakeholders.
The second incentive lies in the idea that the type of long-term business planning at which Japan has always believed itself to excel has been brought back into vogue by a combination of ESG investing narratives and blows to globalization caused by disease, war and trade disruption.
The big problem is the belief that the old Japanese capitalism was better than the current capitalism and that the new capitalism will somehow prove that to be the case. Claims of stakeholder focus were too often a disguise for terrible governance and outright abuse of minority shareholders. Assertions of the long term were too often an excuse for hoarding and inaction. Memories of great times can be extremely strong and extremely fond, but Japan may have to accept that this has always been a terrible costume.