S02E12 - Japan: Navigating Employee Relations in a Unique Culture

S02E12 - Japan: Navigating Employee Relations in a Unique Culture

MAY 3, 2024 - This episode of the Wild Side podcast delves into the distinctive nuances of Japan and its unique approach to managing employee relations. With an astonishing 98% ethnic Japanese population, Japan's management landscape is intricate. Despite being an economic miracle in the post-World War II era, Japan has faced hurdles over the last three decades. Host Alan Wild explores the challenges of performance management and sheds light on the persisting gender equality challenges and the unique collective bargaining system. Discover how Japan's influential keiretsu, rooted in Shogun history, continues to wield global significance amid the country's evolving economic trajectory.

Key Takeaways:

• Exploring intrinsic business culture in Japan. [2:14]

• Economic and demographic data of Japan. [5:22]

• Japan’s unique employment relationship promise, trade unions, and collective bargaining structure. [7:23]

• Key issues for employee relation professionals are working hours and performance management. [12:35]

Transcript:

Hello. I’m Alan Wild and welcome to the Wild side podcast Managing employee relations in global and millennial times … 10 minutes at a time. Today is the second of our episodes containing country cameos.  The cameo series offers insights that enable the international practitioner to know enough to assess areas of risk and ask the right questions.  Today we look at Japan. Japan is unique as a culture and has a very distinctive approach to the management of employee relations.  The population of the country is remarkably 98% ethnic Japanese. Japan is one of the most difficult in the world for performance management; improving gender equality remains a major challenge; and the system of collective bargaining is unique in the world.  

Japan was the world’s economic miracle of post second world war growth, but over the last 30 years has bumped along in a far less impressive way.  That said, Japan’s big companies … the keiretsu that were historically born out of the Shoguns … still play a major role in the world. Toyota is Japan’s largest company, and has only recently been replaced as the biggest car company in the world by Volkswagen.  As an island state with a long history … the country had a policy of isolation from most of the world over the period 1639 to 1854. A short period of aggressive Japanese regional imperialism ended with the second world war.   History gave birth to systems of doing business, working and the employment relationship, and the conduct of employee relations that is quite distinctive in the world …. and that is what this episode is all about …

More of all that in a moment …   … as you know, I’m Alan Wild, senior adviser on global employee relations for the HR policy Association … the leading voice of CHRO’s today. 

My wife, Motoko, is Japanese and her father, until he passed a couple of years ago, ran a multigeneration medium sized Japanese company – so let’s start with a couple of stories that could have been in the movie “Lost in Translation” to explain a bit about doing business in Japan.  

First, Aritake-san senior took me aside and said I really don’t understand you Americans ...   I’m English by the way … you can’t do business with people you are close to.  You don’t go to each-other’s homes, take vacations together, exchange gifts and genuinely get to know each other … to do business with someone you know well personally is frowned upon.  For us Japanese, we would never do serious business with anyone that we did not know well, had spent a lot of time with and trust. 

Second … and understand that my wife has lived outside of Japan for more than 30 years in the US, East Africa, Switzerland and the UK … one day – when we had just moved to the US as a family - I said  “you know I was thinking about for your birthday we could go to Manhattan for the weekend … we could see a show, grab a meal and Sunday afternoon we could maybe go out to the Bronx and watch the Yankees.”   She replied “hmmm maybe”.   … Most Western men would see that as an opening to press home the deal … a couple more sweeteners and we’d be at the ballgame.   That “hmm maybe” actually means “you are kidding me, that is probably the worst idea you have ever had and, if you had any sense, you would drop it right now”

Remember in a business meeting in Japan and you make a fantastic presentation and your host says “That’s very interesting, let me think about it” … that means … that it was certainly NOT interesting and he (you have a 90% chance of a senior manager being a he) has absolutely no intention of thinking about it.  Underlying every conversation between a Japanese and Western manager are layers of culture.
Let me remind you of the Podcast when I talked about Harvard Professor Erin Meyer’s work on negotiations across cultures.  Japan was the poster child for very low emotion and very high conflict avoidance.    Now I’ve probably labored this … but it is important.  If you are an American in Japan and want a crash course on culture difference, just go to a baseball game.  Baseball is both countries’ national sport … and there much of the similarity ends.  Take a look on youtube for an old documentary called “America game, Japanese rules” … … it’s both powerful and funny.

Some economics ….

In nominal GDP terms Japans is the world’s third largest economy and the Nikkei 225 is the world’s third largest stock exchange. Services make up more than two thirds of GDP, but Japan is also famed for manufacture of high tech and precision goods.  Agriculture is minimal at 1.1% of GDP.  Japan has a very high ratio of public debt to GDP … but unlike other countries, the debt is mostly owned by Japanese nationals.  Japan’s largest export partners are China and the US at 21% and 18% respectively. They are also the country’s largest import partners. Japan has a history of low unemployment and very low inflation.  Of a population of close to 124 million, 68.6 million works.  It is both ageing and shrinking. The low employment rate is driven by women not coming back to the workforce after having children and this is a major priority for Japan’s government today.  It also contributes to the very poor representation of women in senior management and the highest gender-based pay difference in the developed world with the typical woman earning 40% less than the typical male. 

The post World War Two economic miracle of 10% GDP growth in the 60’s; 5% in the 70’s  and 4% in the 80’s ground to an abrupt halt in the 90’s and Japan has bounced along at low leaves of growth for 30 years.  In an attempt to stimulate economic growth, the government ran up debt on public works projects.  This may have led to today’s high level of public debt but also left massive infrastructure projects in place like the Shinkansen high speed rail network. 

Moving to employee relations … Japan is a power play country … trade unions are strong where they have members who are prepared to support them.   It has that in common with the United States, but rules of representation and the conduct of collective bargaining are very different. 

Typical of the power play countries, union density is around 18.5% and collective bargaining coverage is similar at around 16%. Membership is reducing and is increasingly limited to the public sector and large manufacturing companies. Trade unions are organized at the company level and more than 43,000 company unions belong to union Federations.   Two Federations dominate … Rengo is by far the biggest and Zenroren, though significantly smaller is more left wing and militant.

Union recognition is a simple process and not related to majority support. Unions, even those with tiny membership, often insist on their rights to consultation and bargaining protocols when they have tiny membership. Outside of companies where there is high membership and influence, trade union members are often low performers that join the union for protection against sanctions and dismissals.  Unions with even the tiniest membership, insist on their rights to consultation and bargaining and are quick to report companies to the Ministry of Labor (MHLW). When your Japanese employee relations manager explains he or she has a collective bargaining meeting with the trade unions it will likely have nothing to do with negotiations on pay and conditions but is more likely to resolve separation terms for a poor performer. 

Collective bargaining over pay and conditions in Japan is highly structured and, as in many things, is unique to the country.  The annual Shunto (literally the Spring Offensive) is an orchestrated series of negotiations against the backcloth of a public campaign.   In theory all companies bargain at the same time, but in reality the unions first targets for settlement are those most able to pay … it has been Toyota recently.  In 2023 Toyota settled on day one of the Shunto with the highest pay increase for 20 years at around 5%, setting the tone for the country. Other firms and industries follow, attempting to get as close to the prime deal as possible … but not normally bettering it.  Until 2023, increases in base pay had become smaller and less frequent and non-consolidated annual and six-monthly bonuses are very important.


The way the employment relationship developed in Japan and the impact on it of recent poor economic performance needs to be understood.  Japan’s growth was built on two-way loyalty between companies and their employees.  Companies offered jobs for life and the famous Japanese “salaryman” emerged.  Companies promoted from within, typically on annual cycles and external professional hires were very much the exception.   Managers grew within the company and gained experience across functions.  It was normal for people to move from line management, to HR, to finance, to marketing, to logistics etc. If they reached their level of incompetence, they would transfer to in-company subsidiaries where lower standards of management were expected.   From the company point of view, they often offered housing, vacation resorts and access to schools through employment.  There were two main consequences of this.  First, dismissals for poor performance or redundancies due to organizational change are hard.  Someone is not just losing a job but is losing a lifestyle. The employment relationship promise is like the wedding vow … from this day forward, for better, for worse, for richer, for poorer, in sickness and in health (or very old age) … I took out the loving and cherishing bit. Cycles of redundancy to improve competitiveness are generally accomplished by voluntary means and are expensive.  Second, the days of the salaryman are limited … although you can be forgiven for questioning this on a Wednesday evening in the Tokyo district of Shinjuku where the stereotype is alive, well and drunk. Have a look for the Economist article “sayonara salaryman”.  New hires into Japanese companies have moved increasingly to short term contractors and on pay and conditions far lower than those applied to the longer serving “salarymen”.  The employment market is effectively two speed and two tier or what the academics call dualistic. 

For the employee relations professional with governance responsibility for Japan there are a few key issues to note;

First, Working hours … Japanese employees and particularly those working in offices  (salarymen) have a history of working extremely long hours.  As a result of health and safety concerns (at the extreme claims of Karoshi – literally death by hard work) and the need to get more women into the workforce the government has started to get tough on excessive hours working. Working hours have reduced considerably in recent years but you may still come across quasi mandatory social events after working hours.

Second, Performance Management – dismissal laws look deceptively straightforward in the law, but the practice of poor performance dismissal is possibly the most restrictive in the world.  The government and the courts have started to clamp down heavily on management tactics that aim to force people to leave a company by undermining their dignity at work.  Poor performers often join the union for either protection or to negotiate a severance payment for them. Terminations for cause and for economic reasons are a tiny fraction of those conducted by mutual agreement.

Third, gender pay gaps.  There are many factors that contribute to the low participation rate if women in the Japanese workforce. Although things are slowly improving, the gender pay gap in 2023 was 22.1% . This compares with a figure of 11.7% for all OECD countries.  

So that is Japan … I hope you enjoyed my insights into the entwined issues of Japanese culture and employee relations.   If you want to learn more about what we do, participate in one of our formal programs or have a question on an issue we have, or have not yet, covered … you can get me on [email protected] or on Linked In.

I’m Alan Wild and you have been listening to “a walk on the wild side”.