Post Office Scandal
A recent TV drama aired in the UK brought to life the suffering and injustice that many British sub-postmasters experienced after being accused of fraud, based on accounting losses that were caused by defects in the Post Office’s Horizon IT system, which was developed by Fujitsu. The TV drama led to a public outcry, endless newspaper headlines and public interest in an on-going government enquiry that is slowly revealing to the British public the depth of involvement of Fujitsu in what is becoming known as ‘The Post Office Scandal.’ Fujitsu have recently admitted that they were aware of the system being faulty but despite this, helped the Post Office prosecute innocent postmasters and in doing so, covered up these defects. To compensate, Fujitsu has announced that they will not be bidding for Government contracts whilst the investigation continues and that they will work with the British Government on the appropriate compensation needed. This will hopefully go some way to alleviate the public backlash in the UK, that led to local people in Bracknell (the location of Fujitsu UK) launching a petition for Fujitsu to leave the town.
UK Public Opinion
The UK public opinion on this is, rightly so, angry and justified in feeling anger towards a company that has been involved in practices that ruined people’s lives in such a destructive way but was able to be rewarded with government contracts, even after these practices came to light. It shouldn’t have taken a TV programme to get there but the ITV drama awakened the British instinct for supporting the underdog, as outlined by social anthropologist Kate Fox in her book: Watching the English. In the Post Office scandal, the underdogs were the hard-working, community-based post masters treated so unfairly by those who knew it was happening and even got bonuses and rewards from it. This behaviour breaks another of Fox’s fundamental rules of ‘English’ behaviour: the rule of fair play, which dictates that everyone should act honourably and observe the rules. This doesn’t necessarily mean it happens, but when it is made obvious that people are breaking this rule, it can lead to a public backlash.
Role of Fujitsu
Although the extent of Fujitsu’s role in this scandal is still being uncovered, it is imperative that Fujitsu’s top management takes accountability for this, not least to try and save the reputation of a company that carries with it ‘brand Japan’ and is becoming linked with substandard operating systems and nasty corporate behaviour. However, there was initially very little communication coming from Fujitsu Japan, who seem to have been taken off-guard by how quickly this has moved from being an underreported issue to being in every single newspaper, resulting in a painfully slow response. This was a PR mistake. In the UK, swift crisis management is expected not least to show acknowledgement of the role played by companies but to reassure the public that those responsible will be punished, and the wronged will be compensated. The Japanese penchant for consensus-building and slow decision making as well as reticence to lose face may well have played a part in this delay.
It is also unclear how much Fujitsu Japan knew about this and why they had not intervened and used the process-driven Japanese business philosophies of getting to the root of a problem, making improvements, and taking accountability. Maybe it is because these philosophies rely on a system of communication/information sharing/problem solving used within Japanese organisations called horensou (reporting, informing and consulting), which is not intuitive within Western individualistic business communications. It is possible that having better information-sharing in place between Fujitsu Japan and Fujitsu UK may have alerted the decision makers in Japan. Maybe Fujitsu Japan were blindsided by the belief that since the Post Office is an Institution of the State and the fact that they kept receiving Government contracts, it was acceptable to not take accountability for the wrongdoings.
Regardless, it seems that Fujitsu Japan had a lack of oversight on what was happening in its acquisition in the UK, and they underestimated both the depth of the problem and the impact this would have on their brand. This has been a common dynamic in some of the relationships I have seen between large Japanese companies and their acquisitions- an initial lack of due diligence into how British institutions operate and the corporate cultures, followed by keeping a significant distance in terms of information-sharing and long-term business development/staff development. There also seems to have been a lack of awareness of the general business environment in the UK, where a short-term ROI mentality along with the growing presence of institutions that operate unethically towards workers and their wider CSR duties to communities, has created a very different business environment to that of the Japanese and is slowly creating a culture of distrust between top management and workers. Industrial relations in the UK are at their worst since the 1970s, poorly performing train companies and highly indebted water companies that dump sewage illegally are still rewarding their COEs with huge bonuses.
Taking accountability within M&A
My message to Japanese companies who are looking to do M&As here is to do your due diligence and don’t be scared to be involved, not by micro-management but by really understanding the current corporate environment in the UK and the wider influences in your industry including the social and political context. The information below. which was recently published in Japanese in Forbes Japan, gives a good overview of what Japanese companies should take into account when investing into the UK.
For optimal success, long-term investment and reputation building in the UK, it is important that Japanese companies can:
· Understand the corporate cultures of the businesses they are buying and invest in on-going staff training and development to ease the transition and keep the relationships strong. I have seen a major Japanese company buy a UK business that had such an awful corporate culture that employees were very hostile to the buy-out and the Japanese ex-pats-this affected staff retention and reputation.
· Make use of Japanese business concepts such as ‘kaizen’ by implementing root-cause analysis and improvements as well as taking accountability for mistakes and defects. This process relies on a certain amount of trust and long-term relationships, as well as high-level information sharing. Establishing ‘horensou’ to enable this high-level information sharing with your acquiree will also allow the UK side to feel involved in the company’s decision-making processes.
· Understand the political environment-with a change of government due to happen before next year, there will be more focus on ethical and employee-friendly corporate behaviour as well as more investment in skills and education.
· Understand the relationship between BB and Government. In Japan, due to a historically close relationship between BB and Government, there is a certain tolerance to the Government subsidising and supporting companies that have been fiscally irresponsible or have behaved badly. The UK is different-private companies are supposed to perform or dissolve. Don’t be fooled into thinking that the current British Government does due diligence on contracts awarded through its bidding process or that companies supported by the Government behave in a more responsible manner. They don’t, and the tolerance of the British public towards Government contracts being awarded to incompetent companies is very low, especially after the recent Post Office Scandal and the Covid contracts scandal.
· Research the ‘ethical’ environment of the company and its operations as well as the behaviours of other companies in that industry. Sumitomo and Osaka Gas bought SES, a highly leveraged water company, in 2013. The industry was already struggling with underinvestment in an ageing infrastructure and has been involved in dumping illegal sewage into the rivers. The Japanese sold the business last year as they were not prepared to put anymore equity into it-the timing coincided with the uncovering of illegal sewage dumping into British rivers and huge public protests against that.
· Understand the power of public opinion in the UK and the changing social environment- vast inequalities are emerging in the UK and there is an acute cost of living crisis, meaning that when the actions of executives who receive huge bonuses impact upon innocent, modest and hardworking people, it can lead to public anger. Such behaviours are almost as upsetting to the public as seeing the Queen attend her husband’s funeral alone due to Covid restrictions that were largely ignored by the leading politicians and their aides. Unethical corporate behaviour is also not acceptable in Japan but given that inequalities have not risen to such a huge extent there and there is a much higher respect for hierarchies and preference for harmony, there can be more of a ‘shoganai’ attitude towards such behaviour.
· Invest in effective reputation building, PR and strategic communications. This has not always been seen as a key part of Japanese business development, especially since the level of trust in business is much higher in Japan than in the UK and given the cultural aversion towards ‘blowing your own trumpet’. However, it is key in the UK. Japanese investment in the UK has many value-added aspects within communities including skills training, apprenticeships, education and cultural benefits but I do not see many Japanese companies really PRing the benefits of these. Instead, they take a more modest and Japanese CSR approach, whereby investments into the wider community are seen as part of a company’s remit as opposed to a USP. However, there are huge advantages and opportunities for Japanese companies to build up their reputation in the UK by continuing to invest in training and education and highlighting the benefits of these investments. For example, Fujitsu Ltd’s Education Ambassador Programme, which partners with schools, colleges and universities across the UK to enable students and educators to improve their digital skills, is hugely successful in supporting young people with their careers. This would be a perfect platform on which companies like Fujitsu can rebuild their reputation in the UK. However, Japanese companies need to be aware that PR and strategic communications are cultural-what works in Japan does not necessarily work in the UK and ‘face saving’ is not acceptable here.
Japanese investment is important to the UK and especially with a change of Government on the cards, Japanese companies would do well to bring in their stakeholder model of governance alongside philosophies of what companies actually stand for and who they serve-not just the shareholders and management but also the employees, customers and local communities. According to Calbee Inc.’s boss Akira Matsumoto, ‘Stock owners come only fourth in his list of priorities, after customers, employees and the wider community. Only by ignoring them — and focusing on the greater good of the company — can he serve their needs.’ Japanese companies would also do well to bring in a more socially acceptable form of CEO renumeration and resist the pressure from Western corporate governance advocates to move Japanese CEO bonus in line with more Western structures that further inequalities and currently bear no resemblance to the behaviour of the company or its responsibilities to its wider stakeholders.
Sarah Parsons, based in Lincolnshire in England, is the Managing Director of East West Interface, supporting companies with their cross-cultural communications and strategies. They have worked with many large Japanese companies and Japanese executives in the UK. Sarah is also an Associate of the Chartered Institute of Public Relations, UK and has lectured on Japanese Business, Cross Cultural Communications, International HRM and Industrial Relations at leading universities in the UK such as SOAS, University of Sheffield, University of Warwick and Cranfield University. She is currently a Research Associate in the Japan Research Centre and Associate Tutor within the Centre for International Studies and Diplomacy at SOAS and a Tutor within Warwick Manufacturing Group on their International Business Development Module.