Davos Agenda

How Japan can lead the world in a new era of stakeholder capitalism

Japanese Prime Minister Shinzo Abe and Executive Chairman of the WEF Klaus Schwab attend the World Economic Forum (WEF) annual meeting in Davos, Switzerland, January 23, 2019. REUTERS/Arnd Wiegmann - RC1C4176BCC0

Japanese Prime Minister Shinzo Abe and Executive Chairman of the Forum Klaus Schwab at Davos 2019. Image: REUTERS/Arnd Wiegmann

Makiko Eda
Consultant, World Economic Forum Tokyo
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Davos Agenda

  • Japan has long had a business philosophy of stakeholder capitalism.
  • “Sanpō yoshi” means “three-way satisfaction” between the seller, buyer and society.
  • The nation now needs to work on improving its workforce diversity, acting to close its skills gap and increasing female participation.

The concept of stakeholder capitalism has long been familiar in Japan. Businesses have been aware of the importance of engaging multiple stakeholders and acting for the good of society since the Edo Period (1603 to 1868) and the Meiji Era (1868 to 1912).

It all began with the Omi shōnin merchants, who sold mosquito nets, mattresses, medicine, textiles, fertilizers and various other goods throughout the country. Omi shōnin would bring goods back home to Omi, present day Shiga Prefecture, and later came to operate their businesses in the regions that they’ve visited. The success of Omi shōnin comes from the business philosophy, “sanpō yoshi,” or “three-way satisfaction” between the seller, buyer and society.

For merchants to be successful traveling throughout various regions and cultures, it was vital for them to gain the trust of their buyers. They were not able to revisit regions without the welcome of the community. Communities then made investments in businesses to share the success and profits.

This led to a focus not only on the profit of the seller, but also on the satisfaction of the buyers and the contribution to society. In fact, it was imperative for the merchants to focus on the long-term sustainability of their market in order to maintain their success.

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Fast forward to the 20th century. While the philosophy of sanpō yoshi continued throughout the decades, Japanese businesses adopted the more modern idea of shareholder capitalism in an effort to rapidly catch up and rebuild the nation’s economy after World War II. The emphasis on shareholder capitalism strengthened as businesses were increasingly exposed to global competition.

Today, we see another welcoming shift of the pendulum toward long-term, sustainable value creation as we face the impacts of globalization, the climate crisis and demographic shifts. Leveraging on sanpō yoshi, Japan is in a position to further expand on this philosophy.

Emulating what worked in the past is not enough. We live in the 21st century, the era of the “Fourth Industrial Revolution,” where the advancement of technology pushes societal issues to a global context and connects all at speeds we have never seen in the past.

The accelerated nature of change also means that businesses can no longer stay in their comfort zones. The nature of business has shifted, and the business practices of the past have become vulnerable. It is no longer about thriving, but surviving — and surviving well. For example, the climate crisis may not have been on top of the priority list for businesses a decade ago, but it is today. The realization that a company’s stakeholders are global citizens leaves no option but to pursue a shift in approach.

In today’s fast-paced world, innovation has become one of the crucial aspects of growth. The World Economic Forum’s Global Competitiveness Report 2019 finds that Japan ranks sixth out of 141 economies, yet there is more work to be done, and the challenges for the country are clear. The nation needs to work on improving its workforce diversity, acting to close its skills gap and increasing female participation. To do so, it must address its high levels of risk aversion and rigid corporate culture, while spurring innovation and promoting business dynamism.

To further accelerate the importance of stakeholder capitalism, the World Economic Forum’s Annual Meeting 2020, under the theme, “Stakeholders for a Cohesive and Sustainable World,” will focus on the six imperatives of ecology, economy, society, technology, industry and geopolitics. Leaders from the private and public sectors will discuss how to take a long-term approach to address key issues in those areas, as well as evolve to meet the demands of the Fourth Industrial Revolution, while staying inclusive at the same time.

Leveraging on the heritage of sanpō yoshi, Japan has the opportunity to become a leader in stakeholder capitalism in the Fourth Industrial Revolution era.

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Related topics:
Davos AgendaFourth Industrial RevolutionEconomic ProgressCorporate Governance
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