The Driver's Seat: Getting by Without a Local CEO

By Terrie Lloyd

Founding an office in Japan and hiring a local CEO is not only expensive, but fraught with risk. We take a look at an economical yet safer option.

Although any foreign firm doing business in Japan should set up a small representative office here to show commitment, there is no doubt that it is an expensive exercise. At very least you need a local country CEO, a sales/marketing manager, a technology person, and someone to look after the office.

But apart from expense, setting up your own company can also be a risky exercise for the following reason: After the distributor is chosen and staffing the operation becomes necessary, a local CEO is required. The typical recruiting procedure is to contact three recruiters recommended by your market entry consultant, then wait for candidates to interview.

The resumes come in and the key phrases stand out; candidates who have been employed at known competitors, have extensive personal networks, have achieved millions of dollars in sales at previous jobs, or have managed dozens of staff who were over-achieving in the market. A couple of the candidates speak excellent English and in the ensuing interviews, a lot of empathy is found. In the excitement, the “perfect” candidates are escalated to speak to your CEO back home, and a final person is selected— ready to start work on your new venture six to 12 weeks later.

"What’s wrong with this picture? The entire future of your business...will be entrusted to a complete stranger."

What’s wrong with this picture? The entire future of your business, your company’s reputation, and the legal and financial responsibility for the operation in Japan will be entrusted to a complete stranger. Even by conducting reference phone calls, the referees are people that the candidate or their recruiter has already sanitized and it is unlikely to be an unbiased view.

Therefore, to be serious about any longterm success in Japan, a strategy for managing the risk of hiring an unknown senior person is vital. Larger companies manage this risk by bringing the candidate back to head office for several months of training where they can be closely observed. Some companies, such as Sweden’s IKEA, even send their new CEOs to another country for up to 12 months, enabling them to work in one of their stores and thus both learn the corporate culture as well as be tested for their personal integrity and mettle.

Unfortunately, this type of induction is expensive but it also doesn’t demonstrate whether or not the new Japan CEO can actually function in a proper business leader role in their own country. The market is fraught with excellent English-speaking, urbane CEO candidates who have charmed the boards of a trail of companies. Fortunately there is another methodology for appointing a country CEO that significantly reduces the risk. This involves putting the candidate on a one-year probation and in the interim hiring someone to sit above that candidate and manage their training, their activities, and most importantly how they hire other staff and spend company funds. Of course, this could be achieved by giving the candidate full rights and responsibilities from day one by putting in a board of outside trusted advisors, but the suggested system not only removes risk, it can also reduce cost.

The process is to bring in a part-time consultant or friend of the company to be the nominal country CEO (“daihyou torishimariyaku”— managing director) for at least one year. This person will be trusted to oversee the usage of cash, the development of local strategy, the interaction of the CEO candidate with the distributor/resellers, and general implementation of plans. This nominee does not need to be an executive member of the team, they just need to have credibility with the CEO candidate and be able to motivate and mind them for the one-year probation.

The CEO candidate can function in part capacity as daihyou-in-training, and part as sales manager, although a country manager status will be required for the benefit of clients, so as not to “castrate” them in terms of their effectiveness. While serving as junior management may be ego-bruising for a candidate who is already a CEO, it is perfect for a sales manager who is looking to step up to a CEO role. Unless the CEO candidate is particularly talented and accomplished, and already a proven entity, then 90 percent of the time, an ambitious sales manager will prove more effective—they will be hungrier and more likely to make personal adjustments in style and execution, so as to fit in with your company culture.

In terms of cost advantages, a full-blown bilingual CEO for a start-up operation is going to cost you 20 million yen base and five to 10 million yen incentive in today’s market. On the other hand, a trusted nominee CEO and a sales manager/CEO will cost 12 to 14 million yen base and 5 to 10 million yen incentive between them. On top of the initial cost savings, what price for peace of mind in covering your initial risks while incubating your future country CEO candidate?

Terrie Lloyd has started 15 companies in Japan. He can be reached at terrie.lloyd@japaninc.com