I spent part of the day today in court. I was defending myself against the landlord of a friend of mine who has been unable to pay rent. I am the guarantor on the lease and the landlord has decided to come after me for the money. This is probably the fifth time that I've had debt collectors of various sorts come after me because of guarantees that I've made. I'm sure people wonder why the hell I keep guaranteeing things. The odd thing is that it is so common in Japan. It is as good as required for any significant transaction such as renting an apartment or borrowing money from a bank. Even government affiliated loans require personal guarantees by people other than the principles.
My first experience with these guarantees was back when I was just starting to work in Japan over 15 years ago. I signed a document that listed a transaction breakdown between two affiliated companies. I thought I was a witness. Later, when one of the companies closed down, the other company (owned by the same parent company) came after me as the guarantor of the transaction. I quickly learned what "to guarantee" means and ended up having to pay.
Since then, briefly as the headmaster of a small school, as the CEO of various companies and the friend of people starting companies, I've been asked to and have signed as guarantors for various contracts. The really horrible thing about this Meiji era practice is that it is so common. People seem to think nothing of asking for it and without it it is almost impossible to function. I've spoken with various people in government and business about the damage that this system causes and most people agree. However, I don't see any changes.
When Digital Garage was still not public, the bank required the two founders including myself to guarantee all loans. At one point I had millions of dollars of guarantees outstanding. The crazy thing was that the bank made me sign a "and all lines of credit in the future" form. Even after I left Digital Garage to be chairman of Infoseek Japan, I was still a guarantor for Digital Garage and was only released at the IPO.
One of my portfolio companies failed several years ago. As the lead investor, I went around to the other investors and explained the situation. Two of the other investors asked me to PERSONALLY cover their loss. Both of these companies were public Japanese companies. I didn't pay of course, but they seemed to think that it would have been nifty if I had. I've never heard of such a thing happening in the US.
As I blogged before, this is a major source of suicides since bankruptcies cause a cascading serious of bankruptcies to friends and family. The shame often drives entrepreneurs to suicide. It is no wonder that entrepreneurship isn't very popular in Japan.
Anyway, I was reflecting on this and remembered that this was on my list of "one of the things we need to change here" as I sat before the judge trying to defend a case that I know I have no chance of winning.