Integrating Stakeholder Capitalism: Lessons from Japan

Gapponshugi: A Shibusawa neologism referring to the ‘pooling of monetary capital, managerial talent, and labor to serve the public interest.’

As the world’s third largest economy, Japan’s actions have a significant impact on global challenges. In recent years, Japan’s inherently sustainable agenda has attracted substantial attention in its financial markets. As the world focuses on adapting meaningful business practices to balance the social and economic disruption of COVID-19, it is important and insightful to look back at the historic practices of ethical capitalism in Japan.

In the 19th century, Shibusawa Eiichi, “the father of Japanese capitalism”, was a key figure in the establishment of industry and commerce during Japan’s emergence from the country’s Second Industrial Revolution. Through his extensive travels, he learned that profits could, and should, coexist with social good. In 1873, Shibusawa established the Dai-ichi Bank, Japan’s first bank (now a part of the Mizuho Financial Group) along with 600 other organizations including Japan Red Cross and the first women’s university. His fundamental beliefs of the intertwined nature of social and financial success meant that the organizations were built around these core values.

Although Shibusawa is often called “the father of Japanese capitalism”, he did not use the direct word “capitalism” (“shihon shugi“). He instead used the word “gappon shugi which is translated as “stakeholder capitalism”, weaving the needs and values of all stakeholders into the capitalist system.

From Japan’s industrial inception, the values and practices of stakeholder integration have been at the core of everything the nation has achieved. These fundamental practices serve as a powerful roadmap for other countries across the world striving to shift to similar trends.

Academic James Abegglen found that “when US managers ranked nine corporate aims, they prioritized return on investment, share price and market share. Their Japanese peers opted for market share, return on investment and new products, ranking share price ninth.”

Despite its seemingly idyllic approach, Japan still has a long way to go. Japan is second to last in both the percentage of women in management as well as women on boards. A new study found that Japan represents one in three of the top 10 lenders to projects driving biodiversity loss.

Even though these detrimental practices exist, Japan provides a prime model for stakeholder capitalism and the integration of thoughtful stakeholder leadership into its corporations. Japan continues to lead by example in its recent pledge to reach carbon neutrality by 2050, an ambitious goal that sharply accelerates the country’s global warming mitigation targets.

Read more here on how Japan’s ethical capitalism has lessons for the world on ESG.