Yearnings of the vanguard: risk management techniques, underdeveloped in Japan, force curious managers to study in the United States. But Japan's extended economic slump is forcing changes in the way corporations approach risk management

Risk & Insurance, Nov, 2005 by Paula L. Green

To satisfy his love of risk management, Yutaka Sugimoto had to travel nearly halfway round the planet from his home in Japan to the freezing, snow-covered terrain of the Midwestern United States.

The top risk officer of Yazaki Management Co. made the long trip from Tokyo to Minneapolis at age 29 to perfect his craft by pursing a master's degree in risk management at the University of St. Thomas. Now, nearly a decade later, he is helping manage the myriad risks of a giant Japanese multinational that is one of the world's largest producers of electrical wiring devices used in the manufacture of automobiles.

From the company's North American headquarters in a Detroit suburb, Sugimoto's primary responsibility is managing the risks of the Yazaki Corp.'s operations in North and South America. That means minding the hazards associated with more than 55,000 employees working in factories from Argentina to Mexico to Michigan. And as director of risk management for Yazaki Management Co., Sugimoto also gets involved in supporting the company's risk management activities in Europe and back home at headquarters in Tokyo.

"I enjoy the stimulation ... the mental game that risk management is about," says Sugimoto, comparing the skills needed in risk management to those honed in playing roulette, a game he has played since his early 20s.

"Risk management is assessing the probability of an event happening in the future. That makes it exciting and the same as gambling," says the 39-year-old father of two children who also plays electric guitar in his spare time. "Based on past trends and patterns, you try to predict and cover future losses."

Yet to truly develop the skills necessary for a career in risk management, Sugimoto left his homeland after getting a taste of his profession while working at the Reliance Company Ltd. in Tokyo, a risk management consulting firm that has no affiliation with the Reliance insurance Co. of the United States. During his two-year tenure at the Tokyo firm, he helped set up risk-retention groups and captives for public accountants.

Sugimoto, who holds an undergraduate business degree from the University of Toyama in Japan, says that a decade ago the master of business administration programs in Japan were not practical and were designed for students headed for a career in academia rather than corporate life. He also knew that Japanese corporations valued MBA degrees from U.S. universities.

"I was very excited," says Sugimoto of his move to Minnesota's Twin Cities in the spring of 1996. "I was told that risk management was much more advanced in the United States and I believed that there were so many things I could learn. I was committed to a career in risk management ... in either the private or public sector."

And with Japan still mired in tough economic times, Sugimoto thought it was a good time to cross the Pacific Ocean for his career.

Ironically, the economic downturn that hit Japan about 15 years ago is one factor that has opened some Japanese corporate executives up to the value of risk management as a management tool. Until the Japanese economy encountered hard times, most Japanese companies were successfully growing along with the economy. They were also part of giant conglomerates that frequently included a bank that helped with any unexpected financial downturns and an insurance company that satisfied most corporate insurance needs. And the government was always there as savior of last resort to handle any unforeseen risks that the traditional property and casualty insurance policy didn't cover.

"The company mentality is very different in Japan; they have relied on the government. For many years they did not develop self-sufficiency," says Sugimoto. "Risk management began developing since the economy was sluggish. Banks had a lot of trouble ... people's mentality began changing."

Industry experts say the Japanese culture's conservative nature and its aversion to risk--as well as a refusal to acknowledge any risks that did exist--also kept the lid on the development of the risk management profession.

"It is true that a lot of risks, or problems, were already there, but were never unveiled. Japanese society is a risk-averse society, they take all risks as a disgrace," says Yoshi Hamaji, of the Association of Risk Management in Japan, a professional association for risk managers. "Everybody worked for perfection. They couldn't accept any problems and what is more, they could not accept potentials of problems, or risks. That is atypical company image that Japanese consumers have created."

The Japanese corporate tradition of lifetime employment also helped executives manage their risks because employees, confident that their employer would take care of their salary and their retirement, did not readily create problems for their employers.

"It makes a great difference," says Hamaji. "It is not only that they did not make any problems, but also they were all 'risk watchers'. They always kept in mind what is good for the company."