Diversity and firm culture – Japan edition [Bonus side plot about bankruptcy]

In previous work, I have written about how real diversity is achieved only when the firm culture supports it. I have also argued in the past that diversity is not just about demographics (gender, race, etc) but also about different perspectives which often comes from belonging to different social classes or having different experiential backgrounds. Finally, in the conclusion of my book, The Corporate Diversity Jigsaw, I make note of how the media reports the appointment of women to top corporate positions with headlines like ‘first women director of X company’ while the women in question want to be recognized for their merit rather than the category we might put them in. This is not to fault the media because being the first woman to hold a position in any organization is indeed significant. But perhaps emphasizing the unique strengths of the person in question is useful.

A news story from Japan brings some of these themes together. The story is made delicious for me because it comes with a side of bankruptcy ( the ‘bankruptcy as an opportunity’ idea at any rate).

The story is about Japan Airlines which recently appointed its first woman CEO, Ms. Tottori. Even more interestingly, she is the first CEO who started as a flight attendant. This gives her a unique worldview as a CEO. Not only this, Ms. Tottori did not attend the elite institutions that the previous CEOs of the company attended. As the BBC notes:

Out of the last 10 men who held the post, seven were educated at the country’s top university. Ms Tottori is a graduate of a far less prestigious women-only junior college.

This is a very important point because it also speaks to class. Irrespective of gender and race (the two most often cited diversity indicators in the west), the informal networks one has through Ivy League schools/ Oxbridge provides access to board and other top leadership positions that is not available to others. I make this general point in my book and Dr. Eleanore Hickman has empirical evidence of this in the UK in her book, Diversity, Merit, and Power in the C-Suite.

Now to the point about media narratives, I thought Ms. Tottori made an interesting point when she said: “I don’t think of myself as the first woman or the first former flight attendant. I want to act as an individual so I didn’t expect to get this much attention.” But as I said above it is a significant event when a large company appoints its first women CEO. Still, we should be careful not to view such an appointee as simply representing a category, but rather to zoom in on her strengths as we would while noting any other CEO’s appointment.

The issue of firm culture is also relevant in this story. The BBC story notes that while people may be surprised by the appointment, if one looks closely, the change in internal culture has allowed for innovative moves including the appointment of Ms. Tottori as CEO. This culture change can apparently be traced back to 2010 when the company went bankrupt and consequently underwent a ‘sweeping restructuring’ which involved change of leadership and that new leadership (specifically, Mr. Kazuo Inamori) introduced changes including promoting ‘people from frontline operations, like pilots and engineers, rather than from bureaucratic posts‘.

To back up a little and look into the bankruptcy itself (because that is amongst this blog’s favorite topics), let me quote from an older article:

When JAL was state-owned and insulated from real-world pressures by its government overseers, it had picked up some bad habits. After privatisation, it lacked the instinct for survival in the open market and the experience required to handle sudden turbulence.

Lurching from one self-inflicted problem to another, and then rocked by a string of global events, it took a nosedive less than a decade ago with debts of ¥2.32 trillion (S$28 billion), more than 100 times its valuation.

After JAL declared bankruptcy, Mr. Inamori, who not only had business expertise but was also ordained a monk, took charge, and is said to have brought a huge change in the way the company was run including the introduction of a style of management that was very different from the prevalent rigid hierarchical system. (Interested readers might check out this series.)

Now going back to how firm culture relates to diversity not just at the top but at various levels of the company, this story shows that encouraging people at various levels to take responsibility and feel like they are part of the company’s journey is an important way to retail talent. With an overarching goal and mission, there is less room for discrimination and passing over of talent for someone who is part of a certain in-group. Of course bankruptcy is such a shock to the system that it allows for a sharp focus on what needs to be achieved. Financially healthy companies can be more complacent and can allow room for bad actors. Just another example to make the point that bankruptcy can be an opportunity to clean house.

May the force be with Disney and its retail investors?

Retail investors, who made up nearly 40% of Disney’s shareholding brought some magic of their own to the Disney proxy contest. Both parties – Bob Iger as current CEO and Nelson Pelts as the activist mounting the proxy context for seats on the board – made sure to have some special messaging to woo retail investors. This is different from what we see in the case of ‘meme stocks’ like Gamestop during the pandemic where fans of Gamestop caused the stock price to go up well beyond the company’s fundamentals, and currently of Trump’s Truth Social where Trump fans are driving up the stock price. Rather, the Disney case represents an example of retail investor actively participating in governance matters including voting in proxy contests. It seems that nearly three quarters of Disney’s retail investor base voted for Disney, thus playing a role in Disney being able to fend off the activists. Retail investors are usually also fans of the company in which they hold shares and therefore care about more than just the immediate price of shares. However, Pelts’s argument that the Disney’s share price was too low also included an ideological dimension. He had questioned Disney’s ‘woke’ casting choices. Retail investors, who largely consist of younger members of the population are more likely to support ESG strategies and this includes diverse casting for a company like Disney. Finally, Disney’s management did not take its retail investors for granted in this proxy contest. From creating animated videos telling retail investors how to vote, a video of Iger explaining why they should vote for him and the company rather than activists to calling on celebrity friends to publicly support Iger in the contest, Disney pulled out all the stops. One of these celebrity friends was George Lucas, the creator of the popular Star Wars franchise.

While retail investors have been known to coordinate their buying and voting decisions through online conversations, and following advice from finfluencers, these finfluencers are usually social media personalities with a large number of followers. However, celebrities can also influence retail investor behaviour and in this case, George Lucas can be seen as a celebrity finfluencer. As the number of retail investors increases, it will be important, especially for companies with large retail investor bases to learn to engage with retail investors and perhaps even use different kinds of finfluencers as and when required. As I discuss in a recent paper, the retail investor and finfluencer phenomenon extends beyond the U.S. and while contextual differences will be important, there will be important insights from Disney’s engagement of its retail investors for companies across the world.

Taylor Swift, Pakistan elections, and corporate governance

The three things in my title don’t seem to have much in common, but in fact they do – social media. Bear with me and I will explain all.

Taylor Swift (social media influencer more than singer at this point) told people to go out and vote and they did. There is speculation now that she will endorse Biden and that will make a big difference. However, as Dr. Kevin DeLuca has said in an interview about this, there won’t be much of a difference even if Swift endorses Biden for three reasons. I’ve combined the last two reasons into the second point and summarized it here: (1) people already know about both Biden and Trump, (2) existing polarization means that it will take more than an expected endorsement from Swift to shock people into moving to the opposing camp. The only way in which Swift might make a difference is by persuading those in her camp who would not have bothered to vote otherwise, to go out and vote. Here’s the quote about this from his interview:

There are some voters who already lean Democrat and are maybe not that plugged into politics; they’re not planning on voting. And Taylor Swift comes out and says, “It’s really important, you should go vote. You should vote for Democrats.” And then they decide to register to vote and to turn out. That’s a small group, I think, and they’re going to be spread out across all 50 states, so they’re going to have a small effect. I think that’s the avenue where we would see something — with turnout, with registration, that sort of thing. I’m still skeptical at the national presidential level that it’s a significant difference.

However, a more upbeat commentator has put it as follows:

The youth vote is critical in the 2024 presidential election and many believe that, due to the age of the two likely nominees, young voters simply won’t show up on Election Day. But enthusiastic support from the 34-year-old pop star, who endorsed Biden in 2020, may get huge numbers of them to vote.

Of course the president desires her support, but even if Swift doesn’t endorse Biden, her influence can be felt if she simply asks her followers to get out and vote. Her power was proven in the last election when one Instagram post led to over 30,000 new voter registrations. Swift has a staggering 279 million Instagram followers.

As it happens, this number (the number of eligible voters that might not have voted if not for some “influencer”/ social media campaigning) is much more in Pakistan which has a huge number of young people. Gen Z seems to have come out and voted in favor of Imran Khan’s candidates (although they contested as independents) because of social media campaigning. The situation in Pakistan is still evolving but the point about Gen Z coming out to vote because of an effective social media campaign remains.

Now, on to our favorite topic – corporate governance. Gen Z is making a difference by becoming eligible to vote (i.e. by entering the market as retail investors), and actively seeking to make their voice heard both through voting and through social media campaigns. Corporate management is responding to social media chatter even outside of formal voting. It may be that governments start to listen and woo the social media generation even outside election campaigns but look, I don’t know much about politics. Those of you who do, might see if there’s anything to take from corporate governance into that world of politics, elections, and what not.

Industry 4.0 – Navigating the Future of Legal Services

The ANU College of Law will host an interdisciplinary workshop on the future of legal services, on June 14th and 15th 2024. This in-person event will explore the future of the legal services amidst sweeping societal and technological transformations.

In an era defined by ground-breaking technological advancements, including artificial intelligence and data analytics, the very fabric of legal services is undergoing a profound change. Simultaneously, as the demographics of legal professionals undergo a shift, with a surge of younger and more diverse talents entering the arena, firms must respond swiftly to foster an inclusive culture. Both technological and demographic changes extend beyond mere adaptation; it is an opportunity to cultivate environments that optimize both efficiency and the well-being of legal practitioners.

This event will host scholars, practitioners, and policymakers at the forefront of legal innovation. Through vibrant discourse and interdisciplinary exchange, we will explore the pathways leading to the exciting future of legal services.

Abstracts can be sent to Akshaya Kamalnath (Akshaya.Kamalnath@anu.edu.au) and Alvin Hung (hoi-chun.hung@anu.edu.au) with the subject line ‘Abstract – The future of legal services’ by March 15th 2024. Draft papers will be due by June 1st. Early career scholars and PhD students are welcome.

Finfluencers, ftw – What’s in a name?

I recently presented my work-in-progress paper titled ‘Finfluencers, ftw’ at Australia’s corporate law conference (the body that runs it is called SCOLA and it stands for Society of Corporate Law Academics and the body aims to represent corporate law academics in Australia, New Zealand, and Asia more generally. I do hope there is more happening on the Asia front but I was very happy to run into some academics and PhD candidates from Singapore, Taiwan, and India.) At the conference dinner, I was told that a group of people were debating what ‘ftw’ stands for – this tickled me no end. At my actual paper session, our very wonderful chair said he initially thought that my paper was titled ‘Finfluencers, wtf’. Another presenter (and friend) added that my paper could have been titled ‘Finfluencers, wtf or ftw’! I’ve really had great fun with the title of this paper and enjoyed my fellow academics engaging on the title as well.

Ok this is not entirely a bubble-blowing post. Here’s the substance – my paper will address the basics about finfluencers and the regulatory moves (posturing) in this regard in some countries. My paper also has an Asia focus. But really my paper is a ‘big picture’ analysis of the changes that hashtag capitalism is heralding. Teaser line about this argument is: ‘On the internet, no one knows if you are a shareholder.’ Alright I admit that this post has been a bit of a tease but if you want to learn more about the ‘big picture’ look up posts on ‘hashtag capitalism’ in this blog.

Finally, since I’ve been thinking and working on what advice early and mid-career researchers might value (because me and a co-conspirator, Dr. Rangika Palliyaarachchi have been involved in putting together a Next Gen Forum that seeks to nurture and build the next generation of corporate law scholars in the region), here’s some advice. Enjoy the job! Blow some bubbles (if that’s what you enjoy). That’s the secret of scholarship with original ideas.

Hashtag capitalism – The Elon Musk edition

Corporate law watchers would have heard about a Delaware court rejecting Musk’s compensation plan by now. As it happens, the shareholder that took the matter to the Delaware Chancery Court is a former heavy metal drummer, Richard Tornetta, who owns 9 shares in Tesla.

That was interesting in itself but there was some X (which is not called Twitter anymore but which will be called Twitter on this blog now and then) activity after the decision which is the story I’m about to get into here. Essentially he had had enough of Delaware and wanted to move the company’s place of incorporation to the place where Tesla’s physical headquarters are. At first he posted, ‘Never incorporate your company in the state of Delaware’ on X. He then went ahead and polled his X followers:

His followers had spoken. So it after the ‘public vote’ that he decided to put it to shareholders.

It is interesting that the ‘public vote’ (traditional corporate law only talks about shareholder voting!) is a step that Musk feels he must take before taking the legally required steps. As the Financial Times notes, Musk has done this before:

Musk has previously canvassed his followers on X for their opinion on significant business decisions. In 2021 he asked whether he should sell more of his Tesla shares, while a year later he sought their views on whether to step down as head of Twitter, now renamed X, following his purchase of the platform.

As a celebrity CEO and an influencer (even a finfluencer), it makes sense that Musk leverages the online crowd. The crowd that joins the social media conversation and has an impact on the overall reputation of his companies. Many of the people in this crowd could be customers of one or many of his companies. Others may just be fans. Since we are at a time when the general public is becoming increasingly interested in holding shares, fans can translate into retail investors and this has already happened at Tesla. Musk is leveraging this.

Moon-age daydream to corporate reality

Thanks to entrepreneurs, we are seeing a number of developments in space research, exploration, exploitation and space tech as well. In a recent interview, the director of the UN Office of Outer Space Affairs (UNOOSA), Aarti Holla-Maini, rightly noted that the existing international law architecture of treaties is not suited for the current times. Since I don’t want international law scholars accusing me of misquoting, here is a quote from the FT which ran this interview:

But delivering a binding treaty at a time of global tensions and international rivalry in space “will be contentious and take time”, she said. An agreement that “solves all of the problems . . . would be difficult”.

Instead, she is of the opinion that ‘national regulators should accelerate implementation of a suite of voluntary UN guidelines issued in 2019’ and that ‘implementing the guidelines is the only chance we have to move in the right direction’.

However, the same FT article quotes H Ludwig Moeller , director of the European Space Policy Institute think-tank, saying that rather than new treaties, or relying only on guidelines, best practices should be encouraged. I agree with Moeller particularly in the era of corporate activity in the space sector. The best practices or ‘soft law’ approach is very popular in corporate regulation because corporations respond to reputational incentives. In my (co-authored) article on this topic, I have also talked about how sandboxes in this sector might help regulators engage positively with corporations. I also appreciate Professor Nayef Al-Rodhan’s using the term ‘global commons’ for outer space because that is the lens we need to use if we want solutions that work! (For a more developed analysis of Ostrom’s commons framework re outer space, you’ll have to wait a while – there is a book in the brains and hearts of two academics – me and a co-author).

On the role of sci-fi, and fiction more generally

Science fiction has a useful role to play. While some utopia builders like Kim Stanley go as far as to say that sci-fi (or climate fiction which is this writer’s forte) is a “modelling exercise” for the future, others like Asimov and Clarke just got on with their sci-fi-ing and let their ideas provoke readers into thinking about relevant issues. Engagement with the big issues is very important because it affects perceptions which indirectly feed into policy-making. I’ve seen two studies in the recent days – one about perceptions of the efficiency of courts and tribunals in India and another about public perceptions of space and space policy in Australia. The former included surveys/ interviews with practitioners and litigants and then concluded with a wish ‘ to go further, by way of surveying the general public, measuring the view of persons who have not experienced litigation at a given location’. What can their perceptions be based on? Perhaps what they hear from others they know or on social media? Fiction may not provide the detail on specific tribunals but can broadly influence perceptions on courts and litigation in general. The latter article on perceptions of space lists the sources of people’s perceptions (this list is also based on the surveys) as: news outlets, documentaries, non-fiction books, social media, movies, television, fiction books, friends and family, local museum, work, and space sites or cultural institutions. I have previously written about pop culture influencing perceptions of business, as well.

All this is to say that fiction and pop culture more generally has an important role to play in impacting perceptions. Both government and corporations should pay attention to this (well, some corporations are participating in this) and sci-fi is particularly important in the age of rapid technological leaps in areas like AI and space exploration/ exploitation. My one plea would be to pay attention to a broad range of sci-fi work rather than focusing on those that are within our own ideological radius.

Lessons in everything

We live in an extraordinary time. (But Dickens’ statement about it being ‘the best of times’ and ‘the worst of times’ is always applicable.) Okay, why are we in an extraordinary time? We have some semblance of free markets that don’t close the gate on all women like before. I had dinner with an older friend yesterday who was telling me that she never went into legal practice because it was not open to women. She became an academic instead. Of course, this is not an isolated story. I can thing of the celebrated RBG who had a similar start to her career. I read the book, Lessons in Chemistry which follows a female chemist’s desperate journey to make a career in a world that did not see women as chemists. In today’s world we not only have discrimination law but corporations attempting to (or being pushed to) do much more than that via diversity measures. We might have got lost in the woods a bit in terms of how we are going about ‘doing’ diversity. We might be so lost that the gates of many institutions may be closed for people who think differently. (As I say in chapter 1 of my book, diversity of thought is just as important as other kinds of diversity.)

As someone who has worked a lot on diversity in corporations I’ve encountered one set of voices being dismissive about any work about diversity and another set of voices being dismissive about someone who dares to have heterodox views on the issue of diversity. Within these constraints (the worst of times), I have found amazing academic and non-academic friends, and a lot of strangers who come from both sides of the ideological divide who have have thoughtfully engaged with my work (the best of times). I have also found institutions (publishing houses, editors, etc) that have been willing to publish work espousing heterodox views and for that I am grateful. Before I close off this rumination, I want to acknowledge Prof Katy Barnett’s recent substack post about how she had a fulfilling conference because that post sent my thoughts in this direction. People tend to take stock of how far they have come and where they need to go at the end of each year and I hope that academics can think about how to make institutions more open to different ideas.

Holiday story

If you are looking for corporate law related Christmas reading, I highly recommend Christmas on Ganymede, a short story by Asimov. It is a story about corporate management’s response to short term pressures and the workers union refusing to work unless they are given presents from Santa Clause, with plenty of humour. The story also reminds us of the bad old days of colonialism especially because of the way in which rank and file workers (creatures of Ganymede) are spoken about, and of the East India Company because Ganymedan Products Corporations, Inc. seems to be a monopoly on Ganymede. The state, back on earth, seems to be turning a blind eye to how things are run in Ganymede.

Speaking of colonialism, let me add here that Adam Smith was highly critical of the East India Company and of monopolies:

Monopolies of this kind are properly established against the very nation which erects them. The greater part of that nation are thereby not only excluded from a trade to which it might be convenient for them to turn some part of their stock, but are obliged to buy the goods which that trade deals in, somewhat dearer than if it was open and free to all their countrymen. Since the establishment of the English East India company, for example, the other inhabitants of England, over and above being excluded from the trade, must have paid in the price of the East India goods which they have consumed, not only for all the extraordinary profits which the company may have made upon those goods in consequence of their monopoly, but for all the extraordinary waste which the fraud and abuse, inseparable from the management of the affairs of so great a company, must necessarily have occasioned. 

…

Exclusive companies are nuisances.Such exclusive companies, therefore, are nuisances in every respect; always more or less inconvenient to the countries in which they are established, and destructive to those which have the misfortune to fall under their government.

I haven’t said anything much about the creatures on Ganymede in this fictional world – they are very interesting and would like to have their own perspectives to Asimov’s story.

Whether it is Christmas in Ganymede or Adam Smith or something else you pick up to read this festive season, don’t forget that ‘The Corporate Diversity Jigsaw’ (CUP 2022) will also make for great holiday reading/ gifting!