Case 7 Eiichi Shibusawa: Mobilization of Managerial Resources by an Investor-Manager

Abstract

This chapter discusses Eiichi Shibusawa, a representative example of an investor-manager who played a pivotal role in the process of Japan’s industrialization.

A Tumultuous Life

We now turn to the third type of manager, the investor-manager, differing from the salaried manager and the owner-manager. Eiichi Shibusawa is a representative example of an investor-manager who played an active role in the process of Japan’s industrialization.¹

On the Shibusawa Eiichi Memorial Foundation’s website, the following overview is available in the “Brief Biography of Eiichi Shibusawa” section. The following is a translation of the Japanese site.

Eiichi Shibusawa was born on February 13, 1840 (Tenpo 11), in a farmhouse in Chiaraijima village in present-day Fukaya City, Saitama Prefecture. While assisting his family with farm work, the production and sale of indigo beads, and sericulture, his father taught him with his cousin Atsutada Odaka [Junchu Odaka] from an early age, and was introduced him to the study of the “Analects” [The Analects of Confucius] and other subjects. Eiichi and his cousin, influenced by the Sonno Joi ideology [to promote the Emperor and expel foreign forces from Japan], made plans to take over Takasaki Castle but decided against it and headed for Kyoto. There, Eiichi entered the service of Yoshinobu Hitotsubashi (later, Yoshinobu Tokugawa), where he gradually gained recognition for his abilities in improving the family affairs of the Hitotsubashi family.

At the age of 27, Eiichi accompanied Akitake Tokugawa, later lord of the Mito Domain and the younger brother of the 15th shogun Yoshinobu Tokugawa, to the World Exposition in Paris. There he observed and learned about life in European countries and gained a broad understanding of the developments in various advanced economies.

After the Meiji Restoration, Eiichi returned from Europe and established the “Commercial Law Office” in Shizuoka. He was invited by the Meiji government to become a member of the Ministry of Finance, getting deeply involved in Japan’s nation-building efforts.

After stepping down from the Ministry of Finance in 1873 (Meiji 6), Eiichi flourished as a businessman in the private sector. He started his new career as superintendent (later, president) of the First National Bank (Daiichi Kokuritsu Ginko). Eiichi, based at First National Bank, focused on creating and fostering corporations through joint-stock company organizations. In addition, he continued to preach the “unity of morality and economy” principle and was involved with about 500 companies in his lifetime. Eiichi devoted himself to the support of some 600 educational institutions, social and public services, and private-sector diplomacy – greatly missed by many when he passed away on November 11, 1931 (Showa 6) at the age of 91.

Clearly, over the course of his 90-plus years, Eiichi Shibusawa changed his professional position several times: from farmer to shogunate retainer (samurai) to official of the Meiji government to private businessman. In addition, although initially a believer of Sonno-joi ideology of revering the Emperor and expelling foreign forces, he changed his thinking after traveling to Europe at the end of the Edo period, becoming a business leader with global perspective in prewar Japan.

These shifts do not mean that Eiichi led an opportunistic life without vision—quite the opposite. During the turbulent period from the end of the Edo era through the Meiji Restoration to the early Showa era, he placed himself in the most effective position at any given moment to promote Japanese modernization and industrialization, doing so with great dedication. In this, his approach and purpose were consistent.

During his 90-plus years, Japan experienced a series of transitions: the opening of the ports at the end of the Edo period, the Meiji Restoration, the Industrial Revolution, urbanization and electrification, and establishment of heavy and chemical industries, continuously following the path of modernization and industrialization. Eiichi always stood at the forefront of this process—the reason he is often called the “father of Japanese capitalism.”

As an Investor-Manager

Eiichi Shibusawa’s activities after resigning from the Ministry of Finance and becoming a private-sector businessman can be viewed from four different perspectives: (1) investor-manager; (2) social entrepreneur; (3) business leader; and (4) private-sector diplomat. The following sections will discuss each of these in depth in turn.

Eiichi Shibusawa was not a salaried manager like Hikojiro Nakamigawa, nor an owner-manager like Yataro Iwasaki, Zenjiro Yasuda, or Soichiro Asano, but rather an investor-manager. Masakazu Shimada, who identified Shibusawa as such, examined Shibusawa’s business activities in detail.²

According to Shimada, Shibusawa’s entrepreneurial activities had two aspects: (1) simultaneously establish multiple modern companies, and (2) set on track infrastructure-related industries that require long-term commitment and are required for modernization. In the former, the following mechanism was important: establish the stock price to secure funds by selling part of the shares, and then use the funds to establish the next company. To accomplish the latter, “the utilization of a wide range of entrepreneurial contacts with financial resources” was of great importance.³

Shimada classifies into three categories Shibusawa’s roles at shareholders’ meetings following the establishment of a company: (1) participation as a major shareholder; (2) involvement as an external executive; and (3) offer of support for mergers outside of shareholder meetings. Shimada concludes that “in all cases, the function expected of Shibusawa was to resolve problems through coordination, arbitration, and mediation among conflicting interests.”⁴

One investor-manager similar to Eiichi Shibusawa is Tomoatsu Godai, mainly active in Osaka. The two were referred to as “Eiichi Shibusawa of the East and Tomoatsu Godai of the West” (East = eastern Japan; West = western Japan).

As we see in the contrasting picture of “individualism versus collectivism,” the difference between the owner-manager and the investor-manager was that the former considered the company to be his own, while the latter viewed it as belonging to a large number of shareholders. Moreover, the difference between a salaried manager and an investor-manager is that the former became a manager based solely on expertise, not on investment, whereas the latter became a manager based on capital contribution. Thus, the investor-manager was a third type of businessman, different from the owner-manager or the salaried manager.

Table 1 shows a selection of Shibusawa’s activities as an investor-manager, taken from the “Chronology” section of the Shibusawa Eiichi Memorial Foundation’s website.

Table 1 Eiichi Shibusawa’s activities as an investor-manager

As professional managers were promoted within the company, they often acquired shares in the company and became investors. However, they were promoted only because of their expertise, with the investment only an incidental result of their promotion.

Complementary Effects Among the Three Types of Managers

So far, we have seen that three types of businessmen were active in Japan’s industrialization process: salaried managers such as Hikojiro Nakamigawa, owner-managers such as Yataro Iwasaki, Zenjiro Yasuda, and Soichiro Asano, and investor-managers such as Eiichi Shibusawa. What was the relationship among these three types?

As the scale of business expanded and diversification progressed, owner-managers could no longer carry out business management on their own and began to enlist salaried managers. A typical example of this was the active recruitment of salaried managers by Yataro and Yanosuke Iwasaki, the founders of the Mitsubishi zaibatsu.

Among the owner-managers who lacked sufficient fund-raising capacity, some established joint stock companies or relied on bank loans from an early stage. In such cases, they had to rely on the power of investor-managers such as Eiichi Shibusawa, who was dubbed “the man behind new joint stock companies.” Also, as Shibusawa was the president of Dai-Ichi Bank, he supported owner-managers through bank loans. Soichiro Asano and Ichibei Furukawa were typical recipients of help from Shibusawa.

Eiichi, an investor-manager, also focused on educating businessmen and supported the establishment and development of many institutions of higher learning, such as the Tokyo Higher Commercial School (now Hitotsubashi University). From the latter half of the Meiji period, the School’s graduates joined many large corporations, including the Mitsui Group, thriving as salaried managers. Here, a mechanism operated with investor-managers supporting the nurture of salaried manager candidates.

The key to success or failure in the industrialization of a late developer lies in how effectively scarce resources such as human and financial capital can be utilized. Reviewing Japan’s industrialization process and the utilization of human capital, one sees the significance of the active role allowed to salaried managers. The presence of owner-managers who actively hired them, and investor-managers who supported their education, was important.

In terms of financial capital, it was significant that salaried managers used the owner-managers’ funds for industrialization, while the investor-managers mobilized public funds by adopting a joint-stock company format at an early stage (Shibusawa also mobilized funds in the form of bank deposits). Thus, three types of businessmen—owner-managers, salaried managers, and investor-managers—worked in complementary fashion to effectively utilize scarce resources of human and financial capital. This mechanism can be usefully applied to the industrialization process of all late developing economies.

As a Social Entrepreneur

As a social entrepreneur, Eiichi Shibusawa’s activities were diverse: supporting vocational training and girls’ education, contributing to social projects, attempting to unify different ideologies, and seeking to build a new labor-management relationship. Table 2 shows a selection of Shibusawa’s activities as a social entrepreneur, based on the “Chronology” available on the Shibusawa Eiichi Memorial Foundation’s website.

Table 2 Eiichi Shibusawa’s activities as a social entrepreneur

The historian Shimada evaluates Shibusawa as follows:

He not only successfully managed the various companies he was involved in, but also actively expressed his opinions on economic policy, exercised a certain degree of influence, and continued his active engagement in the development of human talent through social programs and education. He created a model for the expansion and reproduction of wealth and practiced the redistribution of wealth back into society. While he was a private businessman he had his own views and influenced economic policy. These activities can be described as the forerunners of the activities of “social entrepreneurs” who are in great demand these days: “entrepreneurs who achieve social innovation by solving problems and creating new mechanisms through ground-breaking innovations” (Economic and Social Research Institute [ESRI], Cabinet Office, Government of Japan, “Social Innovation Casebook 2008”)⁵

As a Business Leader

Table 3 shows a selection of Shibusawa’s activities as a business leader from the “Chronology” on the Shibusawa Eiichi Memorial Foundation’s website.

Table 3 Eiichi Shibusawa’s activities as a business leader

The historian Miyamoto asked: “Why did Meiji Japan need a business leader like Shibusawa?” As Japan at the time needed two things in particular—“the ability to accurately gather economic intelligence” and “an organizational structure capable of utilizing new technology and knowledge”—Miyamoto offered the following analysis:

Those who wanted to start a new business were expected to be first and foremost well-informed and strong coordinators. Contacts with politicians and foreigners with useful information, broad credibility among businessmen, and the ability to coordinate different interest groups were needed. However, these entrepreneurial skills were a scarce resource, concentrated in a limited number of persons in a given period and region. In Kyoto, the role was filled by Gentaro Tanaka, in Nagoya by Masaka Okuda, in Osaka by Tomoatsu Godai, and after his death by Denzaburo Fujita, Ichibei Tanaka, and Michio Doi, while in Tokyo the role was [singlehandedly] filled by Eiichi Shibusawa for a long period of time through Meiji, Taisho and Showa.⁶

As a Private-Sector Diplomat

Table 4 shows a selection of Shibusawa’s activities as a private-sector diplomat (from the “Chronology” on the Shibusawa Eiichi Memorial Foundation’s website). Many were undertaken at the request of the government.

Table 4 Eiichi Shibusawa’s activities as a private-sector diplomat

The historian Masato Kimura, taking the view that Shibusawa’s private-sector diplomacy was underpinned by his commercial ethics, stated:

Although Shibusawa kept saying he was an amateur at diplomacy, he believed that it was part of commercial ethics for private-sector business leaders to get involved. In other words, he accepted the government’s request because he believed that private-sector diplomacy was part of a broader, active commercial ethics that would facilitate entrepreneurial activities in a global society that extended beyond national borders. After his 60th birthday, Shibusawa visited the United States four times, Europe once, China once, Korea several times, and actively worked towards improving these countries’ relations with Japan.⁷

Gapponshugi and Its Significance Today

The economic philosophy that underpinned Shibusawa’s success as a private entrepreneur was Gapponshugi, or the principle of collaboration. It refers to “the idea of bringing together the human and financial capital best suited to pursuing the public good and promoting business.”⁸

Teiji Kenjo, who wrote a critical biography of Shibusawa, states that “Gapponshugi was positioned at the core in the formation of ‘joint-stock companies’”,⁹ thus linking it to the joint-stock company system that Shibusawa introduced to Japan. Shibusawa’s Gapponshugi is therefore usually understood to highlight the financial aspect of mobilizing social funds.

However for a late developer nation to accomplish industrialization and achieve growth as an emerging economy, it is crucial to secure human and financial capital. In fact, as a recent study has revealed, “Shibusawa Eiichi’s principle of Gapponshugi was a method of developing human as well as financial resources”.¹⁰

Eiichi Shibusawa (left) meeting with Chiang Kai-shek, leader of the Nationalist Party of the Republic of China, in 1927. (Photo courtesy of Jiji Press)

In 2006, the Shibusawa Eiichi Memorial Foundation published the results of a survey on Shibusawa Eiichi’s individual donations throughout his life, categorized by fields. It showed that “education and academic” led the list in terms of both amount and number of donations (approximately 35% in value and 30% in number).¹¹ Shibusawa believed that fostering and securing human capital was essential to the formation of modern Japan, devoting a great deal of effort to the cause.

In “Conclusion,” I plan to propose an overhaul of Japanese-style management through a transition to a “new Japanese-style management” that places more emphasis on long-term employment and less on the seniority system. The philosophy of this restructuring has much in common with Shibusawa’s Gapponshugi that greatly values human capital. The new Japanese-style of management emphasizes long-term employment, providing employees with a sense of security, based on Shibusawa’s people-centric capitalism. On the other hand, new Japanese-style management, by rejecting the seniority system and adopting meritocracy, encourages competition among employees, also consistent with Shibusawa’s emphasis on utilizing an open market mechanism.

Furthermore, the long-term perspective of new Japanese-style management is in line with Shibusawa’s position that often required a long-term commitment from shareholders in the companies they invested in. Thus, Shibusawa’s principle of Gapponshugi overlaps with conventional capitalist values in the following ways:

• 1. It aimed for an open economic system that utilized market mechanisms in contrast to the closed economic system formed by zaibatsu.

• 2. It limited the role of government and was oriented towards private-sector-led economic management.

However, it differs from conventional capitalist values in some areas:

• 1. It asked stakeholders, including shareholders, to make a long-term commitment.

• 2. It emphasized a moral perspective when uniting stakeholders (shareholders and management), discouraging self-serving behavior.

• 3. It called for a certain level of order in corporate competition.

If we can systemically make use of these unconventional capitalist values, it might be possible to create a new capitalist value to replace the one that is dominant today, which can be summarized as the “worship of money-making.”¹²