Foreign CEOs face challenges in Japan When Craig Naylor, the American chief executive of Nippon Sheet Glass, suddenly resigned this month after less than two years in the job, the news immediately raised fears of another Olympus-like scandal. Mr Naylor, NSG's second non-Japanese CEO, cited differences of opinion over strategy for his decision to resign and was quickly replaced by his deputy, Keiji Yoshikawa. So far, there are no signs of a scandal such as the accounting fraud at Olympus, which was revealed after Michael Woodford, its British CEO, blew the whistle on puzzling payments to offshore funds before being fired. Nevertheless, Mr Naylor's short tenure at NSG, which followed the equally sudden resignation of his predecessor, Stuart Chambers, highlights the challenges faced by foreign executives in Japan. The executive upheaval at NSG reflects the unsuccessful globalisation efforts at Japanese companies, since the glassmaker, which acquired Pilkington of the UK in 2006, was unusually progressive for a Japanese company in its management appointments. Mr Naylor's resignation comes after a highly public confrontation between Mr Woodford and his former colleagues at Olympus over its Japanese candidate for CEO and other board nominees. Sony's Sir Howard Stringer, one of the best-known foreign chief executives of a Japanese group, is also being succeeded by a Japanese national. Incoming leaders can face an uphill struggle Even in the countries and companies most open to chief executives from elsewhere, the incoming leader can face an uphill struggle. Rosabeth Kanter, professor of business administration at Harvard Business School, says a non-national chief executive is often brought in when a company is struggling in global markets, so the effect of any cultural differences can be compounded by business issues. Whether he or she is viewed as a "foreigner" is often connected to whether a turnround achieves its aims. "When the first moves are successful, people in the company see the foreigner as "our" foreigner, and protect him," she says. But when a new strategy doesn't produce success or there's a major stumble, then both the person and the culture he's from are blamed. Academics and executive search firms agree that there is wide variation in how welcoming different cultures can be to non-national CEOs. Analysis by headhunters Spencer Stuart shows that the UK is the most open, with 38 overseas chief executives among the 100 largest listed companies at the end of last year. The same study suggests that Switzerland and Germany also rank relatively highly, while the proportion of non-national CEOs is much lower in Italy and the United States. Edward Speed, chairman of Spencer Stuart's UK business, says that the number of overseas CEOs in a particular economy depends not only on how ready a culture is to receive them, but how ready individuals are to work there, and the opportunities available to them. "Some cultures, such as Indonesia and Japan, can seem quite closed and insular, but sometimes it is the reluctance of national businessmen to travel that can create a barrier to others coming in," he says. In Brazil, for example, the reluctance of Brazilian executives to leave means that there are fewer openings for overseas chief executives. While some Asian countries are often seen as having closed business circles, Ms Kanter says they may not be alone in that. In a survey I conducted years ago when I was editor of Harvard Business Review, we found that France and South Korea had a great deal in common in mistrusting foreigners and being protective of the home culture. When it comes to the qualities required by a successful non-national CEO, a key theme is an ability to adapt, but not to abandon one's original values. "Skilful executives balance who they are with where they are," says Rob Goffee, professor of organisational behaviour at London Business School. He says one critical quality is to understand whether you are operating in a task-orientated culture or one based on relationships. "In the US, for example, the conversation might be "Can we do a deal? Yes? Good, now let's play golf," while in some Asian countries, the approach might be, "Let me get to know you, and then see if we can do business."" Alison Smith "The string of departures of foreign chief executives . . . begins to paint a less-than-rosy track record for non-Japanese executives at Japanese companies," says Brian Salsberg, principal at McKinsey in Tokyo. Japanese companies that have appointed non-Japanese CEOs fall broadly into two categories: those that are owned by foreign capital or have a large foreign shareholder and those that bring in foreigners to make fundamental changes, particularly those needed to globalise the organisation. Nissan brought in Carlos Ghosn after Renault bought a big stake and Mazda had a series of non-Japanese chiefs when Ford owned a 33.4 per cent stake, which it subsequently sold down. Aozora Bank, headed by Brian Prince, has had a non-Japanese chief ever since Cerberus, the US private equity firm, acquired a controlling stake in 2003. More recently, a number of Japanese companies have followed Sony's example by appointing foreign executives in an effort to bring about change, particularly expansion outside Japan. For example, Shiseido's second most senior executive is Carsten Fischer, its German representative director in charge of overseas businesses. "If Japanese companies want to compete globally, they have to act like global companies and they have to look like global companies," says Mr Salsberg. What is more, "trying to become a global company entirely from within, for people who have never worked for a global company, is extremely difficult," he says. The problem is Japanese corporate culture, which revolves around strong personal relationships, makes it very difficult for newcomers to the company to get things done. The top managers at Japanese companies tend to be men who studied at elite universities and joined their companies after graduation, says George Olcott, senior fellow of the Judge Business School at Cambridge who is also a non-executive director of two Japanese companies. "So, it's very difficult for outside elements to become full members of that kind of very enclosed community," he says. Yoshito Hori, CEO of Globis, which runs a leading business school in Japan, agrees that "Japanese companies are difficult for outsiders, not just foreigners." Furthermore, the outsider CEO will have difficulty making changes because in Japan, loyalty to the company and to one's leaders is more important as an incentive than remuneration, Mr Hori says. "If management isn't behind you, they have a lot of tools to make any change so difficult to execute that the person will ultimately throw up their hands and leave," says Mr Salsberg. Nissan's Mr Ghosn, the most successful foreign CEO at a Japanese company, recently told the FT that the key to managing a Japanese company is to pay a lot of attention to how you are being understood and to "act a lot and speak little and . . . deliver a lot." Despite the latest setbacks, there is growing demand from Japanese companies for non-Japanese executives as they globalise their operations, according to executive search companies, such as Hays, the UK-based recruiter, and Progress Executive Search. As they expand outside Japan's borders, "traditional Japanese companies are genuinely concerned about the lack of diversity among their senior ranks," says Mr Olcott. NSG, for example, employs more non-Japanese than Japanese staff and generates 80 per cent of its revenues outside Japan. Given that growth is increasingly coming from outside Japan, Japanese companies have no choice but to become more international, says Mr Salsberg. But "finding talented foreign executives willing to come to a Japanese company is a bigger problem than Japanese companies continuing to be willing to bring in foreign executives" he says.