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Unfinished business for corporate leaders

14 1 0
08.10.2019

Recently I have become somewhat unpopular among corporate leaders in Japan. Yes, they are sincerely fascinated and even envious of my unfaltering Japan optimism, but they do not like to hear my view that now the primary obstacle to a new Japanese golden age is a lack of corporate leadership and ambition, rather than bad politics.

Don’t get me wrong. There is plenty of work to be done to improve the finer points of Japanese economic policy, but the basic parameters laid out by Abenomics are consistently delivered. This is a stable, predictable, highly coordinated and fundamentally pro-business government. Make no mistake, if you think Abenomics is not working it is in large part because of the lazy defensiveness and apparent lack of ambition of the many “salarymen” corporate leaders.

Just look at the data: Corporate Japan reports record profits, with the earnings of listed companies up almost three-fold from the 1990s average. So far, so good. But what do companies do with this newfound record profitability? There are five basic choices: invest in productive capital: Invest in your brand and intellectual property assets; invest in human capital; buy growth through acquisition; or pay your shareholders a higher dividend or buy-back shares.

The other option is to, well, do nothing and simply hoard cash. And that latter option is exactly what salarymen corporate leaders have been doing: Cash holdings of listed companies have surged from just about 30 percent of GDP 10 years ago to almost 140 percent of GDP (this is cash and cash equivalent, i.e., short-term securities). In contrast, business investment, human capital investment, R&D investment, M&A investment and shareholder yield (dividends plus share buybacks) have basically stayed flatlined relative to cash flow and earnings generated. There has effectively been no change in the........

© The Japan Times