When Eric Johnson took over at the helm of leading semiconductor supplier JSR three years ago, he planned to split his time between his native US and the company’s Tokyo headquarters. The aim was to build on his experience running its US operations to grow the group’s global footprint.
But the next three years would drastically change those plans.
Only weeks into his job, amid a row with Seoul, Japan banned exports to South Korea of photoresists, the thin layers of material used to transfer circuit patterns on to semiconductor wafers. Johnson’s JSR is the top global supplier of the material: it has up to 40 per cent of the market, which is expected to be worth $14.2bn by 2029. Its clients range from Samsung to Taiwan’s TSMC, the world’s largest contract chipmaker.
Johnson says he used JSR’s “global infrastructure” to navigate the dispute between South Korea, where the company has big customers, and Tokyo, “without running afoul of any of the concerns from the Japanese government”.
Then in 2020 the start of the pandemic threw global supply chains into disarray, leading to delays in the production of electronic goods. Johnson was grounded in Tokyo.
But possibly the most difficult task facing him was dealing with the company’s original elastomer business, focused on making synthetic rubber for tyres. It had stopped being competitive, but continued to eat up resources which were needed for the capital-intensive semiconductor operations.
“We couldn’t feed all of those businesses properly,” says Johnson at JSR’s headquarters in central Tokyo. He holds a large, round silicon wafer in front of him and his face lights up as he explains the engineering behind the latest semiconductor technology. “But also in terms of the organisational mindset, you could see two divergent cultures. And in management focus there were two different types of businesses happening,” he adds, comparing the mostly domestic, slow-growth rubber business with higher-growth global segments involving semiconductor materials and biomedical devices.
Shedding a business on which any company had been built would not be easy in any country. But getting it done in Japan — by a foreigner in the middle of pandemic-induced semiconductor mayhem — was bound to throw up enormous challenges, from potential resistance from staff to opposition from customers and shareholders.
Even without these pressures, foreign executives have not always had an easy run in Japan. Examples range from Nissan’s Carlos Ghosn and his infamous escape from the country in a box, to more recently some senior American and British executives at the brokerage SMBC Nikko who have been accused of market manipulation. But right from the start, Johnson played down any idea that being a foreigner was a factor in his leadership.
“There’s often an assumption that a non-Japanese CEO is brought in to disrupt an organisation. That wasn’t the case at all in this scenario. I’ve been at JSR for 20 years, and when JSR started working through the transition looking for the next CEO, I was part of that process,” he says. Johnson studied chemical engineering at Stanford and spent the first leg of his career at Nikon, before moving to JSR to develop a new “life sciences business” and lead its operations in the US.
Faced with the dilemma surrounding the rubber segment, Johnson says the key for him was taking an organic approach and working from the problem to the solution with an open mind. First, his team zeroed in on trying to restructure the business, settling later on looking for a buyer “that’s going to allow them to get the investment”.
Johnson centred his approach on two elements critical to getting anything done at a Japanese organisation: nemawashi and honne. The former refers to a process — often slow and arduous — of building consensus and airing grievances. Honne means someone speaking their mind: a quality often in short supply in Japanese corporations, especially larger ones, which can become highly political and siloed, riven with internal rivalries.
“I’m teased. A lot of people say that my favourite Japanese expression is honne . . . I encourage people to tell me exactly how they think and they trust me enough to be able to do that,” says Johnson.
To gain their trust, he moved to Japan to focus on the reorganisation. “I needed to make sure I was connected very closely to the folks that were going to be mostly impacted by this . . . to be able to stand there directly, give them very open, honest answers on how we came to these decisions.”
He adds that the Ministry for Economy, Trade and Industry (Meti), which keeps close tabs on industry leaders, especially in sensitive areas, has been “a part of the discussion”, although “they never said: do this or do that”.
Dealing with customers and other “stakeholders” was also a key part of the process, he says. “We did bring the discussion up very transparently to all the folks that had interest, including some important customers too — those relationships go way back and obviously the value of the business depends on them, and also our reputation depends on how they feel about it.”
Johnson’s team went through more than a year of talks with tens of different companies, finally settling on the Japanese refiner Eneos. JSR completed the sale of its elastomer business in April with an enterprise value of Y115bn ($845mn).
Despite many factors at play, Eneos was not a difficult choice, says Johnson. “They checked a lot of boxes — primarily because they would bring the best opportunity for this business to thrive. They made our customer much more comfortable, and Meti was much more comfortable with that scenario.” He adds that when the decision finally came, “there was already consensus”.
“Obviously I’m not Japanese, but I appreciate the process that allows the people to engage, with transparency, to air whatever concerns they have and it’s up to me to make a decision. But I never felt like I had to ram this thing down anybody’s throat,” he says.
The ability to have such an open conversation about a very sensitive subject was enabled by a high degree of trust among the executives, and an effective governance structure. “It’s important that JSR’s governance has been very progressive from the start and it’s something we take very seriously. We make sure we have a very well-functioning board,” says Johnson.
Analysts covering the stock, such as SMBC Nikko’s Miyamoto Go, agree, pointing to four powerful and knowledgeable outside members of the board and a stock price that has more than doubled from about Y1,500 to about Y3,500 since Johnson took over the company.
Johnson emphasises that JSR’s DNA contains the ability to “reinvent itself every two years” with the cycle of innovation in the semiconductor industry, where there’s an intense pressure to continuously come up with smaller chips. He stresses the need to be adaptable while being “comfortable being uncomfortable”.
When he starts talking about fresh investments being made in quantum computing by JSR, the engineer in him comes through. “There’s no business model for quantum right now. If someone asked me to justify these investments, I couldn’t do it. Like any exponential, you can be on a flat part — but it’s going to tilt very quickly,” he says. “You can literally take problems that are unsolvable today in the material science space and optimise and find new opportunities. That’s an example of how we think.”
