[ Nippon Keidanren ] [ Policy ]

Summary of Position Paper 2005
on Management and Human Resources

Management and Labor Working Together
to Promote Further Reforms

December 14, 2004

Committee on Management and Labor Policy
Nippon Keidanren
(Japan Business Federation)

Part 1. Current Business Environment

1. Boosting Competitiveness through Business Reforms

Making Japan competitive in a climate of globalized economic activity means Japanese companies must actively concentrate available management resources in promising growth sectors. This is proactive restructuring. To achieve these goals Japan must be promoted as a true trading nation and a world leader in science and technology, and further develop the human resources to support those activities. Employers need to clarify the type of personnel they want and take active steps to create an environment encouraging employees to improve their personal and professional qualities through corporate activities. Farther-reaching regulatory reform should be carried out, to create an environment conducive to drawing out the private sector's creativity and ingenuity. This will allow enterprises to implement proactive restructuring, create new industries and develop new technologies.

Japan is a country very vulnerable to the forces of nature. To create a society able to withstand natural calamities, coordination among government, enterprises, NPOs and other bodies should be encouraged and conditions improved so that each can demonstrate its proven strengths at the national and local levels. In the last few years there has been mounting concern over public safety. Maintaining public safety is basically the responsibility of the central and local governments, but all segments of society-local communities, schools, industry and enterprises, need to work together to establish a cooperative system.

2. Promoting Economic Partnerships with Asia

With the spread of economic globalization, it is important for Japan, which follows a national policy of free trade, to lay the foundations for a system allowing borderless economic activity, which includes trade and investment, to be carried out freely and smoothly among the countries of the world. To achieve this, mutual dependency through trade and also closer political dialogue should be encouraged, and more exchanges at various levels, for example sightseeing, culture and academic interchanges, promoted.

To improve its competitiveness, Japan should take the initiative to promote economic partnerships, working in particular to establish an East Asian economic zone that would include Japan, Korea, China and the ASEAN countries. Coordination among the former three countries is essential for establishing such economic zone, and in this sense as well, they should make renewed efforts to establish and further develop friendly relations.

3. Managing Demographic Change

To Japan, which has few resources except for human capital, measures for dealing with the falling birthrate should be a priority. The government should make its stand on the issue clear and take decisive steps by providing public funds and promoting regulatory reform. Measures by enterprises to support child-rearing can make it easier for them to attract workers and ease the burden on their employees. Adopting various employment types is also very likely to help boost employee motivation and productivity and improve business performance. Creating a climate where people can reevaluate how they work and that allows individuals and families more leeway in combining work and family life is important.

In economic terms, the public should also be aware that population aging can cause some industries to wither away due to changes in the demand structure, and that a drop in the savings rate means fewer funds for future development. With the demand structure changing, it is important to create new businesses. The needs of the huge senior segment, in particular, are very diverse and present many business opportunities targeting this market. To offset the drop in the savings rate it will be important to improve the productivity of capital and channel more capital from the world into Japan by attracting foreign direct investment.

4. Creating a Sustainable Social Security System

Unified reforms, of social security as well as taxation and government finances, should be carried out to present a picture of burdens and benefits that citizens can accept. To ensure the viability of the social security system, expenses, including outlays for social security, will have to be reined in over the long term and the consumption tax increased.

Three main issues should be addressed when reevaluating the social security system. First, contributions must be set at levels allowing economic vitality to be maintained. Total public expenditures should be thoroughly reviewed at both the national and local levels, in order to hold the total national burden (percentage of national income accounted for by the government deficit, taxes and social security contributions) at the 50% level. Second, the scope of public benefits should be rationalized. Pensions should be intended to cover the basic needs of the elderly, such as food and housing. Other public benefits, such as duplicated benefits for food and housing paid to pension recipients under the health and nursing care systems, should be scaled back. Third, the social security system must be fair. Nippon Keidanren proposes adopting a system of social security numbers and personal accounts, to eliminate the disparity between benefits and burden.

Part 2. Management and Labor Issues

1. Human Resources Key to Corporate Growth

Enterprises are the entities that generate wealth for society; management and labor support corporate activities. Both sides should recognize their role as a stabilizing force in society, and act autonomously to play a role in promoting corporate growth and improving the working environment, including related policies and systems.

The environment for management and labor is undergoing major changes and giving rise to many issues which they should address. One of the most important is how, in the face of demographic change, enterprises can best motivate their workers and take advantage of their talents, and how to create effective systems to accomplish these goals. The basic element involved is developing qualified personnel, and enterprises should adopt management approaches using diversified work forces.

2. Personnel Strategies for Improving Competitiveness

The principal aim of enterprise personnel administration in the twenty-first century is to develop a diverse, adaptable organization. This is a goal that company management should strive toward. Diversity in employment and working patterns is also important not only for creating and expanding employment opportunities and making labor cost administration more efficient, but also for creating a corporate culture rich in creativity to ensure enterprise survival and growth.

Enterprises need to create systems where people with different values and ideas can choose the employment patterns that suit them best and that remunerates them according to their contributions. In other words, they should be respected as individuals rather than treated uniformly as members of a group. Companies should realize that considering a variety of working patterns suitable for their particular circumstances, establishing systems to make the best use of their employees' energies, and operating those systems the most effectively will help strengthen their competitiveness. The employees should also demonstrate willingness to further develop their capabilities.

3. Utilizing a Diversified Work Force

In order for diverse employment and work patterns to work smoothly, information about jobs within the labor market needs to be improved, so that job-seekers can find jobs that fit their needs, and a system established that facilitates job-switching. Further regulatory reform of the labor market, for example, relaxing regulation under the Worker Dispatching Law and allowing private sector firms to operate job referral services, needs to be given serious thought. For their part, workers must make their own efforts to improve their skills and employability throughout their working lives and map out their future careers.

To address youth employment issues, families, schools, enterprises and young people themselves need to take steps, before leaving school, through family and school life, to ensure a smooth transition from school to workplace, and once in employment, so that they stay in their jobs and improve their work skills. Schools should concentrate on boosting basic academic skills, offering a well-balanced combination of scholastic, moral and physical education, and also teach children the value of working and encourage them to think of what they would like to do when they grow up. To promote youth employment, enterprises must provide more meaningful job opportunities for young workers and organize an intake system.

To help rein in rising social security costs and other outlays associated with population aging, seniors who are able and willing should be encouraged to work and also to remain part of broader society. Enterprises should try to offer their older employees jobs that suit them and that meet their requirements, taking into account individual differences in ability, motivation and physical health.

From now on, in the workplace, steps must be taken to create an atmosphere where individuals can carry out fulfilling work based on their abilities and motivation, rather than assigning jobs and roles based on gender. In today's society, the key to workers, particularly women, being able to demonstrate their abilities is a system that supports harmonious integration of work and family life.

Regarding foreign workers, Nippon Keidanren proposed three guiding principles for accepting non-Japanese workers: well-organized acceptance procedures to ensure sufficient control over quality and quantity of those accepted; respect for the human rights and dignity of the workers accepted; and benefit for the workers' countries of origin.

Work is very important for ensuring the social independence of disabled individuals. Enterprises must make efforts to fulfill their social responsibilities regarding normalization -ensuring full participation and equality by creating an environment so that persons with disabilities can, as much as possible, live in the same way as those without disabilities.

4. Future Personnel and Wage Systems

The main issue where future personnel and wage systems are concerned is establishing the best type of multi-track remuneration system, in line with management policies, that fairly reflects evaluation of individual abilities, performance and contributions to the organization, taking into consideration personnel development from the medium- to long-term viewpoint. The following four points indicate directions for wage systems: flexible labor cost administration reflecting business performance; wage levels appropriate for maintaining international competitiveness; wage systems reflecting the abilities, performance and contributions made by individual employees; and multi-track wage administration.

There are many points to bear in mind, however, in order to appropriately administer merit-based remuneration systems. First, when designing the system, it is important to set appropriate differences according to rational and objective evaluation criteria. When setting evaluation criteria or administering the management by objective system, it is important to give sufficient weight to work that involves long-term issues, attempts to take on difficult projects, jobs that are vital but that attract little attention, and training of younger employees. Creating a proper environment is equally important, since employee motivation will only improve once when the right components are in place. These include disclosing evaluation criteria and results, going over evaluation results with individual employees, providing better training and career development, ceding authority, clarifying roles, adopting awards systems and so on. Management and labor in each enterprise, building on past experience, should discuss the issues thoroughly and ensure that they understand each other when they adopt and implement a system appropriate for their own company.

5. Restoring Excellence in the Field

In last year's Position Paper, concern was expressed at the decline in field ability and experience. To restore strength in the field, senior management must show more interest and involvement, while front-line workers should demonstrate more commitment to their duties.

It is front line employees who sustain the competitiveness of Japanese enterprises. Workers, be they blue- or white-collar, improve their skills and capabilities through experience in the field. Their craftsman-like knowledge, difficult to quantify or describe in a manual, is behind such skills acquired in the field. In creating these skills it is important to develop and improve abilities and provide appropriate rewards for employees' contributions. Taking the field-oriented ability and experience of individual workers and channeling this into competitiveness is the strength of an organization. It is up to on-site leaders and managers to make individuals better workers and to improve productivity as an organization. The most important management issue today is improving the abilities of company managers.

6. Labor Laws and Labor Administration

A comprehensive review of laws governing work hours should be carried out, given that work performance today no longer necessarily reflects length of work hours. Specifically, regulation under the discretionary work hours system should be greatly eased. And with more self-directed employees whose hours are difficult to supervise, Nippon Keidanren advocates adopting a white collar exemption system, where most white-collar workers are exempt from regulation of working hours.

Under the Worker Dispatching Law, the extension of the dispatch period now obliges employers to offer employment contracts to dispatched workers at the end of the period and in other cases. However, that the period of dispatch and switching to direct employment are matters best left to the parties involved and that these unnatural restrictions should be removed. The dispatch period for most occupations, currently three years, and of one year for manufacturing, should be extended at an early date. Where the minimum wage system is concerned, regional minimum wages apply to all workers in their respective regions, but an additional, unnecessary minimum wage by industry is also in effect. The minimum wage by industry should be eliminated.

Employers must, as a matter of course, comply with the laws. However, working conditions in enterprises should basically be decided through negotiation and consultation by labor and management acting autonomously. Recent trends in labor administration, however, are going counter to deregulation in labor-related laws and could interfere with labor-management autonomy and hamper efforts by enterprises to improve competitiveness. This is especially true concerning administrative oversight of work hours. The relevant laws should be interpreted and applied, taking into account actual conditions in enterprises relating to employment types and occupation content.

7. Upcoming Negotiations and Future Framework

At the enterprise level, it is important for companies to set wages in accordance with their ability to pay, taking the perspective of total labor costs into consideration. Enterprises will have to bear increasingly heavy outlays for social security expenses and so on, and wages must be determined within the framework of controlling total costs. In that sense, reviewing systems for the annual increment and retirement benefits is an important issue again this year. Enterprises which have not yet reviewed the annual wage increment system, where everyone is given a yearly raise, should do so without delay. Given tough international competition and uncertain prospects for business performance, raising wages, already high by international standards, any further is not a realistic option.

With wages increasingly being administered on an individual employee basis in enterprises, a base wage increase in the sense of a yearly uniform base wage increase on the wage curve for all employees no longer performs in any meaningful way. Naturally, some companies may offer higher wages in case of vastly improved productivity or to attract workers, but others may be forced to cut wages and these adjustments should be called "wage revisions."

Labor and management should in fact be discussing how to reflect short-term business performance in bonuses, but their negotiations should also cover employment, wages and personnel administration over the medium and long term, from the perspective of boosting international productivity.

Yearly negotiations between management and labor present a valuable opportunity for the two sides to meet regularly to share information and exchange opinions. In the future, they should meet to discuss wages and other working conditions and also to develop common ground in other areas, such as the economy or enterprise management. This will make the role of management-labor consultations even more important, regardless of whether a particular company has a labor union. Consultations allow labor and management to hold broad-ranging discussions on changing conditions and management issues. It is hoped that the negotiation style will shift from the "struggle" of the traditional "shunto" to more discussion-centered meetings.

Part 3. Leadership and Proactive Management

1. Corporate Social Responsibility

Corporate social responsibility is not merely about making donations for the good of society or sponsoring events and so on: it means managing a business with heightened concern for stakeholders' interests. This makes society more prosperous, which will ultimately result in improved productivity and profits.

Any corporate scandal that erupts threatens that enterprise's existence and tarnishes the entire business community. Senior management executives' attitudes are the key to preventing scandals, and it is their responsibility to constantly monitor operations and establish ethical standards for enterprises. They should uphold and improve their enterprises' corporate governance functions, picking up on early warning signs of problems and proactively addressing them, to rectify corporate behavior.

2. SMEs and Regional Economies

Most regional economies, except in areas that are home to plants in the booming manufacturing industry, are not doing well, and there are large regional discrepancies in the pace of recovery. Local SMEs, which can create wealth through their own resourcefulness, hold the key to regional economic revival. SMEs should use this opportunity to shift to proactive management.

The most pressing problems of SMEs in terms of management are obtaining capital and personnel. Where capital is concerned, private sector financial institutions have introduced relationship banking since 2003 to build stronger ties with smaller enterprises, and this is a trend that should continue. In the area of human resources, SMEs also need to take steps to obtain personnel who can develop and improve technology or handle sales and marketing, and to attract and train employees who can eventually assume core management positions.

To promote tripartite cooperation among industry, government and academia, SMEs should actively approach universities or research centers throughout the country to work with them. To support such efforts, technology information from all over country and not just from locally-based universities or research centers should be available from a one-stop service center.

3. Employers in the Future

In addition to contributing to society through business activities, employers must be models for corporate behavior toward society by effectively presenting their management philosophy and a vision for the future. This management philosophy is believed to have stimulated sympathy not only among employees but also the general public and had a strong impact in every area. Employers in today's world should exert strong leadership, to realize their aspirations to pass on universal values, create new values appropriate to the times, earn trust and invigorate society through business activities.

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