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Noriyuki Morimoto's Blog

Artist Takashi Murakami’s Management Strategy

Sep 25, 2017
byNoriyuki Morimoto

Takashi Murakami’s book “Art Entrepreneurship” (Gentosha) is a work of art in prose by a representative Japanese modern artist. I call it art because of its depth that allows it to be read in any way. The book is a long prose poem about the artist himself, and coming from deep insight into the social relevance of creative activity from a historical context, it is something close to a book of philosophy. It is also an excellent book of entrepreneurship based on thorough market analysis. On its cover are the words “super business book” in small print. Given that these words appear nowhere in the book’s pages, it must have been added by the publisher Gentosha. This little twist is also a nice part of this art piece. A well known statement of Murakami is that the modern art market is established with wealthy people in western countries as the main buyers, and art pieces do not sell well unless they match their preferences. As for the expectations of such buyers, Murakami presents the following three elements: whether it involves a suggestion of a new game, whether it involves a new interpretation of western art history, and whether it comes with a violation of rules with conviction. I think his second point is especially poignant: this was exactly the case for ukiyo-e prints. The value of ukiyo-e was discovered by foreigners. In isolated Japan, it was naturally impossible to position the homebred ukiyo-e tradition within the context of western art history. By coincidence, ukiyo-e flowed out of Japan and gained a position in western art history, resulting in the birth of ukiyo-e as an art form. Therefore, modern-day appreciation of ukiyo-e is not for ukiyo-e as Japanese art. It is an appreciation within the context of western art history. What Murakami did as an artist was to change the happenstance of ukiyo-e to a necessity. By studying western art history at an advanced and strategic level, and positioning his own art in its context, he succeeded in gaining a position at the cutting edge of the buyers’ collections. That’s why Murakami’s works sell at hefty prices. A simple extension of western art history does not sell expensively. Suggestion of a new game, a new interpretation, and violation of rules with conviction is needed. Murakami incorporated such drastic elements drawing from Japanese manga culture and otaku culture, bringing them together under his “Superflat” concept. He is an artist with a command of astonishingly deep strategy and highly technical tactics. Truly amazing.

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Entrepreneurship of the artist Takashi Murakami

Sep 11, 2017
byNoriyuki Morimoto

For the artist Takashi Murakami, the art market is a game structured by strict rules. Moreover, it is a game with a long history and depth which cannot be changed overnight. Since it is a game, cheating is not allowed. But by knowing and complying with the rules while incorporating intentional violation of the rules, he offers new rules to the game. Such tough effort is essential to gain acceptance in the market. An artist is worthless unless he adds new elements to the market. But newness exists only beyond strict observation of the rules of the market. Simple violation of the rules is nothing new: it is just a violation to be denied. It is not even art. There should be a profound meaning behind the title “Art Entrepreneurship” when Murakami discusses his art. Some people apparently take it as his attempt to make money out of art, which is a ridiculous misunderstanding. The form of art itself is the fundamental form of entrepreneurship in the business world. Entrepreneurship is art. Actually, if you take Murakami’s logic and apply what he says about the art market to the business market in general, the book stands as an excellent book of entrepreneurship in business. Many people aspire to start a business. Regardless of which field that business would be in, entrepreneurship should attempt to bring something new in the existing market. Meanwhile, every market has rules established through a long history. Visible and invisible rules make up a complicated network. Usually a new business starts with a critical perspective to the existing norm, but if it is just a violation of existing rules, it is simply denied. The startup ends a failure. A new business would not succeed without a new element that is accepted by the market: to borrow Murakami’s words, suggestion of a new game, new interpretation of history, and violation of the rules with conviction. It is a matter of fact that a robust business design which grasps the structural change of society is essential for the success of a business; it should be meaningful to clarify the actual contents through the three aspects Murakami presents.

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Wagyu, Manga, Nippon

Aug 28, 2017
byNoriyuki Morimoto

As English becomes a global language, it has to transform itself from the original form by obtaining new expressions and words from various other languages. However awkward the language may be, what matters is whether it can be understood. Spreading the acceptance of English with Japanese features has more value than learning authentic English. So what is wrong with Japanglish? Values that are uniquely Japanese may not always be translatable to English. As Japanese culture finds its way into the global environment, Japanese words naturally become embedded in the English language. Wagyu means Japanese beef, but since it is a special kind of beef only available in Japan, the word has been transplanted directly into English. Wagyu became a globally renowned food ingredient as a result of strenuously keeping its high Japanese quality. But on the other hand, its global appreciation is based on the status of beef as a signature ingredient in western cuisine. It might not have been globally recognized if it was simply something original to Japan. So-called “cool Japan” is not global if it is just about Japanese appeal. Thinking cool Japan from a global perspective, it should aspire to create something new by combining Japanese and non-Japanese features, rather than introducing existing Japanese things to other countries. Even if Japanese manga culture is introduced overseas from a Japanese perspective, it is not enough to spark the creative evolution of manga as global culture. Japanese manga culture can make a global contribution when it resonates with all areas of modern art outside of Japan and creatively interacts with them to deliver something new. The position of Japan in the global environment is comparable to the position of local regions within Japan. In the past, regional growth meant to bring locally unavailable things from Tokyo. This is parallel to how Japan’s development took place by absorbing the achievements of western culture. As a result, regions became increasingly dependent on Tokyo, causing local sources of growth to dry up. With the inability to give a cultural blow to western culture, Japan seems to have been backed into a corner, rapidly being caught up by emerging countries taking the same growth strategy.Efforts to revitalize regions are shifting gear to enhance locally unique qualities. Regional revitalization is the domestic source of growth, and the globalization of uniquely Japanese qualities is the international source of growth for Japan’s future.

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What’s Wrong with Japanglish?

Aug 14, 2017
byNoriyuki Morimoto

Globalization stands for the uniform rule of reason, as well as coexistence of diverse values: different values that respect, stimulate, incorporate, and affect each other to create new things. It stands for the progress of humanity, innovation in the global civil society, and socioeconomic growth. Global rule of reason and diversity, the rich culture created from diversity, the ideal global civilization... in such diversity, Japanese qualities shine, as the food cultures of China and India inspired the creation of ramen and curry rice in Japan, as ukiyo-e prints had a strong impact on French impressionism, and as Imari ware influenced Meissen porcelain. Japan can actively contribute to the progress of global culture by offering everything Japanese to the Global space of cultural creation: things that are uniquely Japanese, things that were born in the cultural tradition of Japan, things of Japanese origin, things rooted in the historical experience of Japan, Japanese characteristics, and individual strengths of each Japanese person. A strong focus on Japan is not to close oneself within Japan’s borders. To globalize means that all kinds of non-Japanese features are fused with everything Japanese to trigger a chemical reaction, or rather an explosion. In that sense, ramen is amazing. It is not global to think of promoting authentic Japanese cuisine overseas. Global means to apply the methods of Japanese cuisine to all kinds of food ingredients in the world, and to use uniquely Japanese food ingredients in all kinds of cooking techniques in the world. In that sense, learning the formal English language is far from being global. Native English speakers who speak authentic English may wish for the language to maintain its authenticity as it is used as a global language, and non-natives tend to hope to learn authentic English. But as English becomes a global language, it has to transform itself from the original form by obtaining new expressions and words from various other languages. People always talk about English education when they talk about globalization in Japan. But as the purpose is English communication as a way of social interaction, and not the acquisition of the authentic English language, the issue should be how to create opportunities to use English, not how to teach the language itself. However awkward the language may be, what matters is whether it can be understood. Spreading the acceptance of English with Japanese features has more value than learning authentic English. So what is wrong with Japanglish?

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An Innovative Way to Introduce ERISA in Japan

Jul 31, 2017
byNoriyuki Morimoto

Nobuchika Mori, Commissioner of the Japanese Financial Services Agency (FSA), gave a lecture on April 7th in which he implied that fiduciary duty applies to corporate pension funds. However, corporate pensions are under the jurisdiction of the Ministry of Health, Labor and Welfare, not the FSA. So how is the FSA going to drive a corporate pension reform? Preceding Mr. Mori’s lecture, on March 30, the FSA announced a soft law titled “principle for client-oriented business operation”. The term fiduciary duty is no longer used in the title, but before official disclosure, the preliminary title had been “client-oriented business operation (fiduciary duty)”, treating the two concepts as equal. This principle is a soft law, not a regulation imposed by the FSA. Moreover, in the process of devising this principle, despite criticism that the scope was not clear by stating that it covers “a broad range of financial businesses engaged in asset management related activities”, the FSA pushed through its position that the scope should not be strictly identified. Therefore, if a firm conducts activities related to asset management, it would classify as a financial business under this principle even if it is beyond the jurisdiction of the FSA. Then there is no room to deny that corporate pension funds are also financial businesses that fall under the scope of this principle. It is free for the companies and pension funds that support the position of the principle to actively comply with it. Conversely, entities that do not support the principle are free not to comply; if they do not think the principle applies to them in the first place, there is no need for them to explain the reason for non-compliance either. However, if even one corporate pension fund starts complying with this principle, subscribers and recipients of non-compliant pension funds should wonder why theirs do not. Such subscribers and recipients can then request explanation for non-compliance.  When that happens, there is no way the employer can explain that the company selects management firms by friendly relationships with certain financial institutions based on bank loans and shareholding, or that the person responsible for the corporate pension is selected in a way to secure positions for employees and officials who have reached retirement age. As failure to change an unexplainable situation would only prove their unacceptably low level of corporate governance, efforts should surely be taken to correct the situation. Mr. Mori regards such dynamics as a market principle driven by clarification, and uses it as a measure to address administrative issues. Companies that proactively comply with this principle are without doubt excellent companies. If one company expresses compliance and thus “clarifies” its excellence, other companies would be pressured to clarify their position as well, and such a race to excellence would drive the reform forward. This is the method of execution taken by Mr. Mori.

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The Shock of Japanese ERISA

Jul 18, 2017
byNoriyuki Morimoto

On April 7th, Nobuchika Mori, Commissioner of the Japanese Financial Services Agency (FSA), gave a lecture in which he referred to the poor state of asset management for Japanese corporate pension plans. He first pointed out the reality that firms that manage corporate pension funds are largely selected according to friendly relationships between the company and financial institutions. His second point was that the personnel overseeing the pension fund is primarily decided according to the company’s personnel relocation policies, resulting in the assignment of people who lack any professional insight. Mr. Mori said that this situation surrounding corporate pensions is problematic from the viewpoint of fiduciary duty. He is making it clear that companies and pension funds have fiduciary duty in their relations with subscribers and recipients who are the end beneficiaries. In other words, by referring to the selection of management firms, Mr. Mori is saying that managers of corporate pension funds have strict duty of loyalty to pursue the benefit of their subscribers and recipients without taking the benefit of the employer into account. His comment on selection of personnel overseeing pension funds is about strict duty of care to ensure best asset management practices for the beneficiaries. Preceding Mr. Mori’s lecture, on March 30, the FSA announced a soft law titled “principle for client-oriented business operation” to drive the reform of asset management-related businesses. The term fiduciary duty is no longer used in the title, but before official disclosure, the preliminary title had been “client-oriented business operation (fiduciary duty)”, treating the two concepts as equal. Then, does Mr. Mori’s comment imply the FSA’s view that the “principle for client-oriented business operation” also applies to corporate pension funds? By replacing “clients” with “subscribers and recipients of corporate pensions”, is the principle directly applicable to corporate pensions? If that is the case, a major reform is bound to happen in Japan in the same way as when ERISA was introduced in the United States. It should have a huge impact on Japanese corporate management, and should be a chance for Japan’s asset management industry to take a great leap forward.

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The Poor State of Japan’s Corporate Pensions Exposed by FSA

Jul 03, 2017
byNoriyuki Morimoto

Nobuchika Mori, Commissioner of the Japanese Financial Services Agency (FSA), gave a lecture on April 7th in which he lashed out at the current state of the asset management industry and demanded for a reform. In the lecture, he also referred to the management of Japanese corporate pension funds. According to the official record of the lecture disclosed by the FSA, he commented as follows: “In addition to asset management firms, the role of asset owner is also important. For instance, pension funds are required to fulfill fiduciary duty to benefit the citizens paying into the pension system. The asset owner has to determine which management firm has the capabilities to which it is best to entrust their assets, but if corporate pension funds give the mandate for management based on relations with certain asset management groups, that is problematic from the viewpoint of fiduciary duty. US university funds and pension funds that are high-quality asset owners and deliver great mid-to-long term results always have responsible personnel with a sharp eye for excellence and high skills of management. Also for corporate pension funds in Japan, it is desirable that such personnel is selected and appointed from a wide range of candidates in and outside of the company, based on expert skills and decision-making capabilities rather than relocation of personnel within the company. Both the asset owner and asset manager should heighten their fundamental capabilities and fulfill fiduciary duty for the citizens who are the ultimate beneficiaries: I believe that would lead to growth of the asset management industry in Japan.” Mr. Mori has, in effect, exposed the poor state of Japanese pension funds. Although he presents a hypothesis in saying ” if corporate pension funds give the mandate for management based on relations with certain asset management groups”, it is natural to interpret it as a euphemism for the recognition that corporate pension funds are indeed giving management mandates based on their relations with asset management groups. By saying “for corporate pension funds in Japan, it is desirable that such personnel is selected and appointed from a wide range of candidates in and outside of the company, based on expert skills and decision-making capabilities rather than the regular circulation of personnel within the company”, Mr. Mori is not simply expressing a wish but is rather pointing out the inappropriate way asset owners select their personnel for corporate pensions funds. By the way, in Japan, corporate pensions are under the jurisdiction of the Ministry of Health, Labor and Welfare. What is the intention of the FSA Commissioner to deliver this statement? Assuming that it is not overstepping of authority, is it indicative of a change in the regulatory framework?

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Japan Going Global as a Small Country

Jun 19, 2017
byNoriyuki Morimoto

The word global is used very often in Japan, as in globalization or development of global talent. But what does it mean to be global? There should be some kind of philosophy beyond superficial aspects like enhancing English capabilities, or economic phenomena such as multinationalization of companies or expansion of free trade. Being global is not the same as being international. International literally refers to the relationship among different nations. Global literally refers to the globe, a concept that transcends nations. The establishment of modern society was marked by the rise of the nation state. Ever since that happened, there has been a fundamental difference between the domestic relations among people of the same country and international relations among people of different countries. Meanwhile, to be global is simply about the relations among people. For a Japanese company, the idea of selling products to an American customer is international. Globally speaking, this is simply a company selling products to one of its customers. Globalization has to be this shift in the way of thinking. The global concept represents historical progress, advancement in human wisdom, and creative development of intelligence. Human history has long been a history of rule of violence. The rise of the nation state at least manifests the rule of reason within the country, but in turn justifies violence between countries in the form of war. Nevertheless, the advancement of globalization is likely to overcome the limitations of the nation state and ultimately achieve rule of reason in the form of a single global civil society. However far that day may be, it is sure to arrive: the direction of mankind is set towards that destination. If American companies are backed by their country’s overwhelmingly powerful military force when expanding into foreign markets, that is not global. It is global only when American companies expand worldwide purely based on business rationality. Globalization has to be the shift from the rule of power to the rule of reason. True globalization is in the horizon of social philosophy, not by physical force but by the force of intelligence. That is why Japan has a great opportunity, having abandoned active use of military power, being a small island country bound to shrink further through population decline, and having betted on establishing itself as a knowledge-oriented nation.

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Learning Investment Philosophy from Basho

Jun 05, 2017
byNoriyuki Morimoto

Matsuo Basho’s famous haiku is about a small unidentified sound of water:Old pond — frogs jumped in — sound of water. It is unknown whether this scene took place during the day or at night, but it’s better to imagine it in total darkness. Even if it’s not dark, it has to be quiet. When you hear a strange sound in the dark silence, you are disturbed and stricken by anxiety. That anxiety dissolves when the sound is attributed to a frog. This haiku gains poetic value once it is interpreted as an expression of shifting emotions: anxiety caused by a mysterious sound of water, an attempt to remove that anxiety by attributing it to a frog, and afterwards, feeling a faint but lingering anxiety, given there is no way to confirm that a frog was really the cause. This emotional shift from anxiety to its removal through rationalization relates to investment philosophy, as investment also involves anxiety caused by the impossibility of finding an answer or describing the situation. The collapse of the euro, a plunge in Japanese government bonds, and the fear of war are potential causes. Strong anxiety creates a strong desire to describe, or to rationalize by explaining the situation. But what you gain through explaining is just the false sense that the situation has been explained. Thoughtless rationalization brings a thoughtless sense of security, which covers up the fundamental anxiety. Here is the investment philosophy we can learn from Basho. Indescribable anxiety has no choice but to be accepted. And we can only describe what we can. What we can describe is not the price shifts of the entire market that is so huge that we cannot even grasp its perimeters, but how we analyze the prices of individual, small and specific assets. It is possible to gain the ultimate strength of overcoming anxiety. Put simply, rationalization is different from conviction. Attributing a small water sound to a frog in a poetic context is one way of rationalization. But to assume the plunge of a frog based on experience and thorough training of distinguishing water sounds is a way of conviction. Practice, experience, repetition of thorough financial analysis, and artisan-like training to analyze the value of specific investment assets support the conviction to determine value. This conviction fights back the anxiety of market volatility and supports consistent management undeterred by changes in price. Conviction does not arise from intelligent maneuvers. An artistic capacity to face existential anxiety is needed for a poem to be more than a word game. For investment to be more than a word game and truly an investment, you need to have the capacity to ignore critics’ rationalization of price volatility, and to keep true to your own conviction as an experienced professional.

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On Not Finding any Attractive Investment Trusts in Japan

May 22, 2017
byNoriyuki Morimoto

A short while ago, I attended a gathering of industry peers at which a representative from a major asset management company delivered some words that I would not forget. What he mentioned was about the current state of Japan’s investment trust industry: “The biggest problem is that there are absolutely no products that we as professionals would want to buy”. This is very true, precisely pointing to what‘s wrong with Japanese investment trusts. But at the same time, it’s not. It’s ethically wrong if the representative of a manager of investment trusts can offer things he doesn’t want to invest in with a straight face to his customers. Before discussing the problem with investment trusts, it’s against business ethics. Whatever you sell, whatever its value measured by your clients, you have to have confidence in its benefits in order to make the business an ethical foundation. An economically viable business is established only on top of this ethical foundation, and when the value of the product from your and your clients’ perspectives match at some point. Investment trusts are not an exception. Many people have special attachments to certain hobby items, such as audio equipment, cars, motorcycles, or cameras, and they are likely to be supporters of certain manufacturers. Those manufacturers might be the ideal workplace for them. There is no joy above creating things you love, and earning a livelihood by selling them with confidence to your customers. The people who purchase such products naturally share values with the people who sell them. A business built on top of this kind of relationship is a source of long-term sustainable profits: it is a classic case of commerce at work. Of course, businesses do not generate sustainable profits for being ethical. They do so because they realize a shared value with the customer. The realization of shared value with the customer forms an ethical base that makes the business sustainable. In other words, commerce is not equal to ethics, but there should be no commerce that runs against ethics. Coming back to Japanese investment trusts, they are unlikely to be sustainable given that they are contradictory with business ethics. This is one reason the Japan Financial Services Agency launched a major overhaul for investment trusts to become a commercially viable product. It is only natural that the core measure is thorough implementation of fiduciary duty.

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On Not Enjoying Work in Japan

May 08, 2017
byNoriyuki Morimoto

Fraudulent business is sustainable if the people involved don’t think it’s fraudulent. But when the customer is emotionally harmed at some point, that sustainability is lost. When you know well as an insider that the product you offer is not good, you would normally not have the emotional durability to keep offering it as a good product. Things continue because they come with joy and without harm to the society: they wouldn’t last if they are totally joyless, and even if they do, the occurrence of social harm would put an end to them. We enjoy our work when we create good things and our customers enjoy them, and that joy ensures that there is no social loss. Such a business is likely to generate sustainable profits. Reforming the working style is a hot topic in Japan, but it seems to be perceived as the effort to reduce working hours. However, this is really not an issue of making working hours shorter, but one of the emotional length of labor. If you keep on doing joyless, menial labor for many hours, you become exhausted more emotionally than physically. Fun times fly past, while boring times drag on. The question is how to make labor enjoyable. You’re likely to enjoy offering what you love and believe in to your customer. At least there should not be any emotional burden of contradicting yourself. By contrast, wouldn’t it be a cause for pain and psychological illness if you are forced to offer something you lack confidence in, of which faults you know well, and dislike, just to make a living? The suicide of an employee following excessive working hours at Dentsu, a major advertising agency, became a big social issue. It was also a trigger to push forward the working style reform. So what is an advertisement? Is it a way to make faulty products sell better by making false claims to its quality? It’s understandable that one would want to commit suicide if forced to engage in such futile effort over long working hours. True advertising should be to unleash the potential demand that exists only for a good product. The true client of an advertising agency is not its direct clients, but their customers. It may not always be fun and may sometimes be hard to strive for the client’s satisfaction. But it’s probably fun to think advertising from the ultimate customers’ perspective. At least it should not be a torture. Dentsu has probably lost its advertising philosophy. There is no future for Dentsu if it has lost perspective of its true customer and continues to make ads solely to satisfy its direct clients, thereby forcing its employees to work painful and excessive hours.

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Bushido and the Death of Banks

Apr 17, 2017
byNoriyuki Morimoto

A bank is defined to be a bank by accepting deposits. Without those deposits, banks cease to exist. The deposit function bundles payment and saving functions. When fintech causes the bundling of payment and commercial transactions, the functions of deposits and payment are unbundled. Left with the sole function of saving, deposits lose their basis of existence: they have no chance of beating other methods of asset formation such as investment trusts. When deposits, thus banks, cease to exist, what would happen to bankers? The end of typewriters meant the end of typists. Bankers serving a role equivalent to that of typists have no way to survive. But IBM, which used to be a manufacturer of typewriters, stayed true to its mission of rationalizing business processes, and remains a global leader in information services to this day. The same can be said for bankers. Those who have been faithful to the mission of banking would easily find new, and probably more attractive, opportunities outside the conventional banking business. There are people in retail finance who have prioritized the customers’ true benefit when offering investment trusts, insurance, mortgage loans, and other types of consumer loans. Once set free from their sales quota, these people would be hugely successful in asset-related businesses that show signs of strong growth. In corporate finance, people who have been making proposals to improve management and procure funds not only by loans but through methods in the best interest of their clients—that is, people who have truly served as corporate finance consultants—are likely to find attractive positions in investment management and financial divisions of various industries. People who have been working behind the scenes in financial infrastructure, such as bank administration and asset management procedures, shall come to the fore to play creative and innovative roles in the fast-growing fintech field, as well as independent businesses derived from the infrastructure built for financial administration. In short, those who have been bound by strict and cumbersome rules, and forced to prioritize the banks’ profit over customers’ benefit against their will, would be given a new, free environment in which they can unleash their creativity and customer-oriented mindset. There is no more happiness than that. The end of banks and freedom for bankers should be something to celebrate. Newly gained freedom is always a leap from the conventional, which requires determination. Such a determination is possible only when people readily accept that conventional banks are bound to die. To die a false death in order to truly live—that is the real message behind the statement “The way of the warrior is death” in Hagakure, an epitome of Japanese spiritual history.

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