[ Nippon Keidanren ] [ Policy ]

Summary of Position Paper 2006
on Management and Human Resources

-- Employers, Be Righteous and Strong --

December 13, 2005

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

Part 1. The Changing Environment for Business

1. Japan's Economy Today

The economic expansion that began in January 2002 has been led by export demand to the United States and Asian countries, mainly in the manufacturing sector, further supplemented recently by stronger domestic demand such as private consumption and capital investment. The current revival of the economy is the fruit of the diligent efforts of enterprises fighting for survival, and of employers and employees working together toward that goal. Nevertheless, the recovery remains uneven, with disparities evident between regions, industries, or smaller and larger companies. Higher prices for raw materials are a factor that could have a negative impact on Japan's future economic growth.

Enterprises must follow an aggressive management strategy of selection and concentration, identifying growth areas, pouring resources into sectors where they excel, and reevaluating unprofitable businesses.

2. Response to Structural Change

Within the market economy framework centering mainly on industrial countries, new economies, notably the 'BRICs' (Brazil, Russia, India, China), have begun growing strongly and the market economy has become the de facto global system. This has generated stronger competition on a global scale. The free trade system is essential to economic globalization and Japan must actively contribute to the system.

Japan needs to move confidently to become more competitive and play a central role in world markets. To this end, Japan must make an all-out effort to boost its international competitiveness, using its technology and capital to create wealth around the world and marshalling goods, money, technology, information and people from within and outside the country to invigorate the domestic economy and nurture world-class industries and enterprises. The efforts of Japan and its enterprises to become more internationally competitive in a globalized environment will make it a world leader in science and technology. This is the path that Japan should follow from now on.

Improving the quality of our human resources is vital for economic growth and winning out against international competition. The most important step in this direction is to raise the standard of domestic education. But enterprises should also take the initiative to attract talented individuals from all over the world and work hard with and learn from them.

3. SMEs and Their Role in Invigorating Regional Economies

Small and medium-sized enterprises (SMEs) continue to face a difficult situation. Furthermore, some regions are doing better than others in terms of revitalization. Local SMEs hold the key to real economic recovery in their home areas. A framework for providing appropriate support, including financial one, is necessary to help SMEs in order that they can enter into tie-ups with other smaller businesses, make productive use of various areas' resources, and train personnel who can, on their own, create technology that can be the base for competitiveness.

4. Addressing Social Security Issues

It is important to reposition the social security system with self-help as the basic principle. From this perspective, tax and fiscal reforms, and comprehensive reforms of the pension, health care and nursing care systems, should be undertaken predicated on raising the consumption tax. The system needs to be overhauled to create a new, sustainable system balanced with economic growth.

The contribution rate for the Employees Pension should be capped at 15% and alternative measures to the macroeconomic sliding scale, which is scheduled to be phased out in 2023, taken to respond appropriately to the decline in contributors after that time.

Integration of public pensions should start by combining the wage proportional portion of the Employees Pension for salaried employees and mutual aid pensions for public servants. As a future alternative, introducing an income-proportional pension for all citizens should be considered, after solutions are found to problems such as ensuring that incomes are declared fairly and so on.

The health care system should be reformed to control increases in national health care expenses, and targets for public health care outlays for five years from now, the maximum foreseeable period, should be set within a framework that extends to fiscal 2025. Health care costs should be brought into line by applying the Plan-Do-Check-Act cycle.

5. Corporate Contributions to Safety and Peace of Mind

Public safety is a prerequisite for carrying out social and economic activities with peace of mind. Everyone needs to be concerned with making communities safe and preventing crime. Government, enterprises and local communities must work together to create a society capable of withstanding natural and social calamities. Senior management executives should develop a crisis-awareness mentality and take the initiative to carefully oversee safety and health management, in order to prevent work-related accidents.

Over the past few years, enterprises have shown growing interest in business continuity planning which is aimed at allowing businesses to keep functioning as well as possible when a risk materializes. Every company should plan and prepare for unforeseen circumstances and take whatever measures it can. For example, enterprises should plan how to set up backup systems, duplicate networks and so on, if an emergency should occur.

Part 2. Management and Labor Issues

1. Demographic Change

Japan's population is rapidly aging. After peaking in 2006 at the latest, the population will start to decline. The issue of population decline must be examined from three perspectives. The first is what to do about this current social phenomenon. The second is the measures that enterprises need to take to deal with population decline. The third is what to do about long-term measures for stopping the decline in the birth rate. Appropriate action is needed, to ensure stable and sustainable growth as population decline begins.

Increasing focus is being placed on work-life balance, which refers to combining career and family life. The basic condition for achieving this is to allow flexibility in ways of working. Individual enterprises should offer and implement various alternatives in terms of work hours, work location, holidays and so on and achieve management based on diversity to make individuals to realize their talents to the fullest. Incorporating this thinking into corporate strategy will, over the long term, help nurture creative individuals and lay a firm foundation for strong corporate competitiveness.

Young people are the future of Japan and a precious resource. It is up to all of society to create a climate that helps them improve their abilities and continue to develop. The central and local governments, schools and industry must work together to improve employment prospects for young people. Enterprises should also be more active in offering jobs to talented and motivated young people and communicating to young people and schools what they are looking for in young employees.

The revised Law on Employment Stability for the Elderly will go into effect in April 2006. This law obligates employers to continue employing workers until they reach 65, through an extended employment system or other means. Systems suitable for individual companies should be designed, after discussion by management and labor. In 2007, the core of the baby boomer generation will begin retiring. This is bound to have a major impact on all industries and raises questions of how to ensure that retiring workers' skills, experience and know-how are passed on. Older workers are in a variety of situations, and they should take advantage not only of paid employment but also other alternatives for social participation.

Changes to the Law for Promoting Employment of Disabled Persons will go into effect. Individuals with mental disabilities will now be counted in each company's actual hiring ratio. But the fact is that there are already many employees on company payrolls with mental disabilities, and measures to administer their employment require considerable time and effort. This situation demands appropriate measures by the government.

Regarding foreign workers, it is important to allow, under certain criteria, non-Japanese workers capable of creating added value to work in Japan. In areas where needs are expected to be particularly pressing in the future due to social changes here, regulatory reform should be carried out to open Japan more widely to foreign workers. At the same time, making it easier for foreign students to take jobs in Japan continues to be important.

2. Personnel Strategies to Bolster Competitiveness

In the face of intensifying global competition, the key to competitive advantage for Japan is to create a system for developing high-quality products and services that meet market and social needs and to provide them in a timely manner. In order to exercise their strengths in these areas, enterprises need to develop organizational and personnel strategies based on people-centered management and management from the long-term perspective that can respond flexibly to a changing environment.

The future source of competitiveness will be the know-how and experience that allows workers alike to respond appropriately to a changing environment. Nurturing employees who have this ability requires a remuneration system that provides motivation and that correctly evaluates skill improvements. As "excellence in the field" implies, we should recognize once more that it is the people on the front lines who, sharing common goals with senior management and actualizing this vision through their own initiative in the field, generated numerous new technologies and know-how and contributed so much to Japanese enterprises. We need to identify the skills that should be maintained and give serious thought to how they can be passed on, as part of overall quality improvement of human resources.

To bring out the potential of a diverse labor force, reforming personnel systems that overemphasize age and length of service will be necessary. New systems should focus on evaluation of ability, role and performance as well as personnel training. It is important for enterprises to continue nurturing the upcoming generation of personnel and improve their competitiveness. Creating training-based personnel systems to enhance intellectual skills and other qualities is a means of boosting corporate competitiveness.

Mental well-being in the workplace is a matter of concern, and can become a major management problem. In response, employers are offering counseling and asking employees to reply to questionnaires at the time of regular health checks. These can be considered preemptive measures, but enterprises also need to institute programs to help employees who have taken sick leave return to the workplace.

3. Regulatory Reform and Full Participation by the Private Sector in the Labor Field

Regulatory reform of labor laws is essential for promoting diverse ways of working and strengthening Japan's international competitiveness. First, concerning setting up an infrastructure suitable for today's diverse employment and work patterns, it is important to greatly expand consultation and information functions so that workers can change jobs smoothly, if and when they wish to do so. The second area is regulatory reform of work hours. A comprehensive review of laws governing work hours such as introducing the white-collar exemption system, where eligible white-collar workers are exempt from regulation of working hours, must be carried out. The third issue concerns the labor contract system. The new legislation on the labor contract system currently under consideration should respect to the fullest autonomous decision-making by labor and management and the principle of freedom to enter into contracts. Last is the issue of the minimum wage system. A regional minimum wage system now applies to all workers, and the industry-based minimum wage system is redundant and unnecessary and should be abolished promptly.

4. Upcoming Negotiations and Consultations with Labor

The Japanese economy is back on the path to recovery. But the business climate requires constant vigilance, and enterprises must make unceasing efforts to improve their ability to compete. Now conditions are right for enterprises to start taking a more aggressive stance. To take advantage of this opportunity, management and labor must work together even more closely than in the past, and changes to working conditions need to be made judiciously to boost workers' motivation without impairing corporate competitiveness.

The following five points are important in upcoming negotiations with labor. One, following the basic principle of setting wages in accordance with companies' ability to pay. Two, controlling total labor costs. Three, making management decisions from the long-term perspective. Four, reflecting short-term business results in bonuses. Five, discussing broad-ranging issues within the company.

Across-the-board base wage increases not supported by productivity are responsible not only for Japan's high cost structure, they also sap enterprise competitiveness. Wages at each company should be determined by management and labor in accordance with that company's circumstances. In every company, the two sides are free to decide as they wish, but in the end many of them have reached the conclusion that raising wages, already high by international standards, any further is not a realistic option, given tough international competition and uncertain prospects for future business performance.

In the upcoming talks, reviewing the annual wage increment system will once again be an important topic. Comprehensive reforms should be made to the system soon, to reflect capabilities, role and performance and move away from the system where everyone is given an automatic wage raise. In preparation for mass retirement of their baby-boomer employees, companies also need to review their systems for retirement benefits, corporate annuities, extended employment and remuneration for such employees, and implement them flexibly.

Yearly spring talks between management and labor play a valuable role, allowing the two sides to share information and exchange views. 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 and enterprise management.

"Struggle"-oriented negotiations, aimed at winning across-the-board wage increases, are a thing of the past, and we are hopeful that more discussion-centered meetings will take place and continue.

Part 3. Management in the Future

1. Corporate Ethics

Enterprises are economic entities pursuing profit through fair competition, but they must also be socially useful. Regrettably, corporate scandals continue to occur, and the public's distrust of enterprises is growing. Corporate scandal threatens the affected enterprise's existence and tarnishes the entire business community. Employers must be aware that the attitudes of their senior management executives are the key to preventing scandals, and that it is their responsibility to monitor operations continuously and establish corporate ethical standards.

2. The Century of the Environment

Today, rapid progress in technology and the globalization of economic activity allows many countries to participate in the market economy and is raising questions about the potential for sustainable growth for the world as a whole. Availability of energy, resources and food, together with environmental issues, are factors that could impede growth. Transnational solutions to these problems are needed. In the twenty-first century, employers have a responsibility to operate their businesses with due regard to the environment, which encompasses not just nature but all our surroundings -- including where we live and work.

3. A New Role for Regional Employers' Associations

Regional employers' associations in various parts of Japan, which will soon mark their respective 60th anniversaries, made a valuable contribution to the development of postwar corporate management, lending active support for settling labor disputes and so on. These organizations that can draw on the collective wisdom of employers continue to play an important role even in today. Regional employers' associations should play a leading role in contributing to regional growth in an environment that will become more decentralized in the future.

4. Employers' Leadership and Aspirations

The role of employers is to show the way to the future for their enterprises and meet the challenge of ongoing change head-on, so that a desirable future may come about. Today's employers need ideas for aggressive structural reform in the quest for new growth areas. They should demonstrate the entrepreneurial spirit that provides the motivation for proactive business activities that will make those ideas a reality.

The future of enterprises will be determined by the aspirations of employers to contribute to society as they work toward the goals of transmitting universal values, creating new values appropriate to the times, winning society's trust, and further invigorating society through business activities. They must find ways of contributing to society through enterprises' original role of value creation.

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