Why this crisis is a ‘disguised blessing’

On May 1, after nearly two months of lockdown and upheaval, the chief executive of one of the world’s biggest building materials companies ended negotiations, agreed to terms and put his digital signature on the sale of a major subsidiary. 

The sale of Lixil’s Italian engineering business, Permasteelisa, looked humdrum. Lixil’s chief executive, Kinya Seto, had made many divestments in his career. And while Permasteelisa may have played a central role in London’s Shard and Apple’s doughnut-shaped headquarters, ultimately it was being sold at a loss to Atlas Holdings, a US private equity group, for less than $100m over a virtual handshake in the middle of the night.

But to Mr Seto, the deal was of paramount importance: the culmination of a vicious boardroom struggle that had stretched for almost five years and had been derailed by a successful plot to have him sacked, a miraculous reinstatement and arguably the most spectacular proxy shareholder showdown Japan has ever seen. Much of the significance of the sale may get lost in the distractions of the pandemic, he admits, but this was a symbolic victory for a new breed of professional CEO over the traditions of corporate Japan.

“During my first term, I had to fight with old folks and I had to make compromises,” Mr Seto says in a video interview from his Tokyo apartment, wearing a dark polo shirt. “Then I came back and I realised I shouldn’t compromise anything. I feel like this is an ideal situation now. If I can’t do the job, either I’m not capable or nobody can do it.” 

Mr Seto chooses his words carefully, but since Japan went into lockdown in April, he has evolved a contentious idea: that the pandemic, for all its misery, is a “disguised blessing” — not just for Lixil, but for the parts of corporate Japan that realise they can use this moment to make changes that would otherwise never happen. In the right hands, he says, it will accelerate a long overdue transformation of the way work is measured, and the way that information and ideas are transmitted within Japanese companies.

The sale of Permasteelisa was not his only unfinished business. When he was first appointed Lixil CEO in June 2016, he tried to inject a dose of freewheeling entrepreneurial spirit into the group, which was born from a merger of five traditional domestic companies. Recruited for Lixil’s top role after his success at MonotaRo, the online tool and supply retailer he founded in 2000, he set about turning the company into a flatter, more modern organisation.

Flexible working hours and new digital tools to transform its showrooms were introduced. But he met resistance, particularly from his sales staff. While working from home was introduced, few took the option and those that did had to fill out forms for their managers well in advance.

His efforts were abruptly curtailed when he was removed as CEO in October 2018, after a clash with Lixil’s founding family members. Others might have moved quickly to another challenge. But Mr Seto’s quest to reinstall himself as CEO has become the stuff of legend in Japan, where shareholder activism was only very tentatively gaining acceptability as he called on shareholders to reverse his forced resignation. His success in the landmark proxy battle last June was decisive: and to clarify that to the staff, Mr Seto was back at his old desk at 6am on the day after investors voted for his return.

The landscape then transformed with the arrival this year of Covid-19. 

The pandemic forced Lixil’s salespeople to meet local contractors and builders virtually. Soon, they realised it was more productive to set up 20 video calls a day than meet each client in person. By the time Japan declared a state of emergency in April, more than 98 per cent of employees at its Tokyo head office were working from home. When 93 of its showrooms shut across the country, customers were able to design their kitchen virtually using digital tools. Jin Montesano, Lixil’s chief people officer, who works closely with Mr Seto, says the outbreak was “the perfect storm” to put old norms to bed. 

Virtual meetings have their shortcomings. But Mr Seto relishes the opportunity to hear his staff be forthcoming about their concerns when they chat using Facebook’s Workplace, an online communication tool used by Lixil’s 75,000 employees.

“We management tend to be very spoiled,” he says. “I used to get information from US general managers that was pretty much sugared and filtered all the time. Sometimes, what I want to know is unfiltered information.” 

He admits he spends his time “checking everything” on Workplace, and in many cases he acts immediately. When a showroom attendant posted a question asking why women had to wear high heels in showrooms, he replied “Why is that?” and the rule was changed. A day after Prime Minister Shinzo Abe asked for schools to be closed in late February, Lixil introduced unlimited paid holiday after Mr Seto learnt of employee concerns about juggling work and childcare. “It usually takes at least a week for this kind of information to get delivered to me. So it is an important tool for me to understand what is going on,” Mr Seto says. 

Beyond the change in working style, the outbreak also had a material impact on its business. It forced Lixil to stop taking new orders from February until late March, following panic buying of toilets by housebuilders, as Chinese factories closed and supply chains were halted. But fewer plants were affected compared with rivals, and as business continued virtually, the group managed a 12 per cent gain in net profit for the year that ended in March. 

© Tomohiro Ohsumi/Bloomberg

Despite the huge hit that Lixil and other companies have taken through the lockdown and the predictions of only a very gradual return to health for the Japanese economy, Mr Seto is determined to stick with the “blessing in disguise” dogma. He focuses on the way Covid-19 has changed the troubled relationship between Japanese people and their homes. The experience of families spending increased time together in poorly segregated living areas has exposed, he says, basic shortcomings of design. There is a rethink coming, says Mr Seto, of the way Japanese homes are designed — and Lixil is poised to benefit.

“If all the families are staying home, then you understand that you need multiple toilets. You need a more secluded space and many things. You begin to understand the value of family, too,” he says.

The sale price of Permasteelisa has been amended since publication

Three questions for Kinya Seto

Who is your leadership hero? 

I used to say Shigenobu Nagamori, the 75-year-old founder of Nidec [a motor manufacturer]. When he speaks, he does it. He might be a micromanager, but I believe that I want to have the same level of understanding about my business. If I don’t understand, I keep asking until I understand it. But now I think everyone has a good quality of leadership, whether it is a front manager or local sales manager. 

If you were not a CEO/leader, what would you be? 

When I was a child, I used to make amateur films and I wanted to become a film director. But when I joined high school, I realised there were other people making better films and I gave up. Sometimes I feel like I want to be a singer, but one of the qualifications to be a leader is that you should not escape any moment. So I should not think about it. 

What was the first leadership lesson you learnt? 

When I was in business school, there was a class about a Swiss company buying a British chocolate company. The case study was about the financial performance of the English plant, and everybody agreed that particular plant needed to be shut down. The answer seemed pretty obvious. Then all of a sudden, a man wearing a workman suit shouted at us, saying I have a sick parent and young children. If you close down the plant, they cannot live. The guy turned out to be an actor but I learnt my first lesson. Sometimes we need to terminate people and we need to close down plants. But even if I terminate someone who is not good, you need to understand that person’s tomorrow is different from my tomorrow.