Case 5 Shinsei Bank

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  • Topic: Shinsei Bank, Culture, Bank
  • Pages : 5 (1734 words )
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  • Published : November 29, 2011
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Shinsei Bank’s current organizational structure and culture reflect the effects of several defining moments in the bank’s history. When its original incarnation, the Long-Term Credit Bank of Japan, failed in 1998, it set in motion a series of paradigm shifts for the bank. First, the bank was sold to a US private equity group, Ripplewood. This was controversial as, per the case material, “corporate Japan loathed private equity groups, and the government was reluctant to allow a foreign group to control a major local bank.” Thus, right from the start, Shinsei Bank had an uphill climb ahead of it in terms of public acceptance.

Ripplewood smartly chose a highly respected Japanese senior executive, Masamoto Yashiro, as CEO. He had worked for decades in American companies’ operations in Japan, and could use that experience to integrate the new owners’ expectations into the company structure and culture. The “injection” of foreign values and culture cannot be underestimated. Within the first year, Yashiro chose not to support one of its biggest clients during its financial troubles, and the company, Sogo, ended up filing for bankruptcy. This was counter to the historical moral code in Japan that banks support company clients even if they suffer losses, and confirmed the public’s and government’s worst fears of changes that might be wrought by foreign ownership. Furthermore, Yashiro abolished the former rotational assignment system so that employees could specialize. He decentralized hiring and promotion decisions, allocating them to individual groups and disbanding the former Planning Department that handled all such duties. Finally, he aggressively pursued hiring employees from outside the former LTCB in order to increase fee-based revenue. All these choices were significant events that affected the culture and operations of Shinsei Bank. By moving away from the historical moral code of Japanese banks – supporting failing companies, charging small spreads on loans regardless of credit worthiness—Shinsei began to reflect the values of foreigners in the industry. With the aggressive external hiring of product specialists, Yashiro cemented this internal shift. He chose to further differentiate Shinsei bank by aggressively developing retail banking, and by combining the commercial banking department (relationship oriented) and investment banking department (product and fee-oriented) into one Institutional Banking Group.

In order to keep both long-term LTCB employees (permanent staff) and the new product specialists (market employees), Shinsei instituted a two-tier system for promotion and compensation that was designed to compensate each group according to its accustomed manner. While it probably seemed logical on its face, in hindsight this decision caused more divisiveness and hostility between the employee factions. Though each was paid according to a system they were culturally accustomed to, the faster promotions and higher bonuses afford the market employees rankled the permanent staff, despite the fact that they themselves enjoyed more security via steadily increasing salaries and generous retirement packages. This resentment caused the already fragmented culture to fracture further, and collaboration was minimal. Such an environment is an impediment to successful operations, and, by extension, profits. While in theory a “hybrid” bank, the lack of integration among employees meant that instead of reaping the benefits of diverse backgrounds and outlooks, it was instead the worst of hybrids – neither fish nor fowl, with little common ground on which to build.

The values and vision exercises was implemented because Thierry Porte recognized that integrating the diverse cultures (and attendant professional behaviors and expectations) of Shinsei’s employees was critical to the bank’s success. He hired Tom Pedersen to help him in this endeavor. Pedersen launched the Vision and Values initiative in...
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