In Japan, is a company going bankrupt considered very shameful? Does this lead to more robust business operations?

Hi, that's a really interesting question and it's indeed a key point for understanding Japanese business culture. As someone with some knowledge in this area, let me break it down for you.

Simply put, the answer is: Yes, in traditional thinking, a company going bankrupt is considered deeply shameful, but this double-edged sword brings both stability and rigidity.

Let me explain this more clearly point by point.

Why is "Bankruptcy Considered a Deep Shame"?

This stems from deep cultural roots, primarily understood through these points:

The Culture of "Not Causing Trouble for Others" (迷惑 - Meiwaku) This is a deeply ingrained concept in Japanese society. A company bankruptcy means:
- For employees: You've made them unemployed, cut off their livelihood, and caused immense trouble for their families.
- For partners/suppliers: You likely can't repay what you owe them, potentially plunging their companies into crisis too.
- For banks: The money you borrowed becomes a bad debt.
- For family: Your reputation is ruined, and your family loses face.
Imagine the company president (社長 - Shachō) not just as a businessman, but more like a "patriarch." They are responsible for everyone connected to the company. Bankruptcy means this "patriarch" has betrayed the trust and responsibility placed in them. In a society that places extreme importance on responsibility and reputation, this constitutes a massive failure and disgrace. In the past, there were even presidents who chose suicide to "atone" for their company's bankruptcy, highlighting the immense pressure.
The Historical Influence of the Lifetime Employment System Although this has changed somewhat, Japan's post-war economic boom was built on "lifetime employment" (終身雇用 - Shūshin Koyō) and the seniority system (年功序列 - Nenkō Joretsu). Employees entrusted their entire lives to the company, which was their second home. Letting the company go bankrupt is tantamount to personally destroying the "home" of countless people – a moral pressure difficult for outsiders to comprehend.
The Issue of "Face" (面子 - Menji) Similar to other cultures, "face" is extremely important. A poorly managed company is seen by the outside world as proof of the president's personal incompetence or lack of virtue. This sense of failure is public and stark, making it very difficult for the executive to maintain their standing in society.

Does This "Culture of Shame" Make Companies More Stable?

This is an excellent question. The answer is "Yes, but also no." It's a classic double-edged sword.

The Stable Side (Advantages)

Precisely because the consequences of "bankruptcy" are so severe, Japanese executives have an ingrained, strong survival instinct and risk aversion. This manifests as:

Extreme Risk Aversion: Japanese companies, especially in traditional industries, are very cautious in decision-making. They prefer to earn less rather than easily venture into unfamiliar, high-risk areas. Simply put, it's "survive first, thrive later."
Cash is King: Looking at the financial reports of many large Japanese companies, you'll find huge cash reserves sitting on their books. This is often called "internal reserves" (内部留保 - Naibu Ryūho). Why hoard so much cash? To prepare for contingencies like economic crises or natural disasters, ensuring the company has enough "lifeblood" to survive and avoid easy bankruptcy.
Pursuit of "Century-Old Businesses": The goal of executives isn't to inflate the stock price short-term and cash out, but to see the company endure like a great tree, operating for decades or even centuries. This long-term perspective leads to more stable development, emphasizing long-term relationships with employees, customers, and suppliers.

The Rigid Side (Disadvantages)

However, everything has a cost. This intense fear of failure also brings significant negative consequences:

Lack of Innovation: Innovation inherently involves risk and failure. If society has an extremely low tolerance for failure, who dares to try boldly? The mindset of "if you don't do it, you won't make a mistake" is very common in many large companies, causing them to react sluggishly and miss opportunities during industrial shifts (e.g., the collective lag of Japanese companies in the internet and smartphone eras).
Proliferation of "Zombie Companies": Because bankruptcy is so shameful, many companies that should be eliminated by the market will try every means to "stay alive." Banks (especially the main bank - 主銀行 - Shū Ginkō) also don't want their clients' bankruptcies affecting their own performance, so they continue to "infuse capital" into these struggling businesses. This creates many "zombie companies" – businesses that are clearly failing but kept barely alive by bank loans and government subsidies, consuming vast amounts of social resources.
Covering Up Problems: Due to the immense pressure of admitting failure, some companies' first reaction to problems is to cover them up, not solve them. This is why Japan periodically sees scandals involving years-long financial or data falsification at major corporations. Because exposure means the president must bow and resign, and the company's reputation is ruined, they prefer to take the risk of concealment.

Times are Changing, and So are Attitudes

Finally, it's important to add that the above mostly describes traditional attitudes. Today, the situation is gradually changing.

The Younger Generation: Among young people, especially in the startup scene, the idea that "failure is the mother of success" is beginning to gain acceptance. Seeing Silicon Valley's culture of encouraging experimentation and tolerating failure has prompted reflection.
Government and Capital: The Japanese government also recognizes the dangers of excessive conservatism and has introduced many policies to encourage entrepreneurship and "re-challenge," providing opportunities for failed entrepreneurs to start again. The rise of venture capital (VC) also provides funding for high-risk innovation projects.

To Summarize

Traditionally, company bankruptcy in Japan is considered extremely shameful because it violates the social norm of "not causing trouble" and signifies the executive's failure of responsibility towards employees, partners, and society.
This culture shaped a stable, conservative management style, with the advantages of low risk and a long-term focus, but the disadvantages of insufficient innovation and slow responsiveness.
Today, this mindset is loosening, especially among the younger generation and in the entrepreneurial field, where tolerance for failure is increasing.

Therefore, when observing Japanese businesses, you'll find this clash between old and new attitudes quite fascinating. There are both century-old firms sitting on massive cash reserves, steady as a rock, and a growing number of emerging forces daring to challenge the status quo and embrace change.