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«14 CSR White Paper Economy ESG Investing as an e Unchanging Face of Japanese Antidote to Myopic Employment Management International A airs Japanese ...»

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Figure 3. Weather Index Insurance for Farmers in Northeast Thailand though, their income drops, and they do not have enough to pay back their debt.

To hedge against such risks, banks are wont to raise interest rates, but this only makes things more different for the farmers; uncertainty over harvest volume is a serious problem for farmers and banks alike.

A reasonably priced insurance product to cover the risks associated with climate change was thus of great value to the local community. With infrastructure for accurate meteorological measurements already in place, weather index insurance was ready for launch. The product was offered as a package with a loan agreement, with payments designed to cover the amount borrowed.

Sompo Japan developed a local risk finance mechanism and partnered with the Bank for Agriculture and Agricultural Cooperatives of Thailand (BAAC) to offer the product to local farmers (Figure 3).

In developing this product, the company tapped its expertise in risk evaluation and financial instruments-based risk finance. It also listened carefully to the views of local famers unfamiliar with insurance to design a simple and easy-to-understand product.

Sales of weather index insurance began in Khon Kaen Province in 2010 and expanded to five provinces the following year and to nine in 2012. The insurance’s benefits were soon recognized when farmers who had purchased the product were able to avoid a loss of income despite a drought in some areas in 2012.

Visualizing and Quantifying CSR Targets

Sompo’s CSR initiatives are characterized not only by the time-consuming process through which the material issues are identified but also for quantified targets that are set for implementing each of the five issues, which in turn generate ideas for future action through a PDCA (plan, do, check, act) cycle.

86 CSR White PaPeR

Quantification and visualization are essential components of implementing kaizen improvements in the workplace, which many Japanese companies apply to their manufacturing and sales processes. But quantification has largely remained elusive in the field of CSR. Such efforts tend to be more advanced at CSR-savvy foreign firms, with their nonfinancial reports providing not just qualitative descriptions but also quantitative data so that readers— that is, stakeholders—can have a better idea of the impact and scale of the Hideto Kawakita, left, and Junko Edahiro offer their comments on Sompo’s CSR initiatives.


Why has the effort at quantification been slow in Japan? Certainly it is not because Japanese companies do not have such skills, for they are more than capable of keeping detailed track of their manufacturing activities. The real reason might well be that most companies still think that quantification is unnecessary in CSR.

Sompo, though, is an exception. Through dialogue with experts, it is setting up

key performance indicators for its CSR initiatives, as can be gleaned from the following comments published in NKSJ Holdings’ Corporate Responsibility Communication 2013:

In my view, KPIs represent future outcomes that are desirable and that should be emphasized. The first key point for identifying your KPIs is to take a back casting approach and define your ideal future. You don’t need to pay attention to—or at least shouldn’t be bound by—whether this is something that can be measured or openly disclosed. The second key point is to continue to elaborate the KPIs. You may not be able to get everything fully prepared at the beginning because you don’t know how to obtain the data. But this is fine. All you need to do is to make sure that the KPIs will continue to evolve. The third key point is to run the PDCA cycle for the KPIs themselves. Rather than simply being content with your current KPIs, you need to be both resilient and flexible enough to make sure that they will continue to live up to the societal expectations of the day. KPIs are not goals but means. (Junko Edahiro, environmental journalist and chief executive, Japan for Sustainability) KPIs are milestones in a long-term roadmap and should be set in such a way that they can be used as annual goals over a period of about five to seven years.

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Not all the annual results have to be publicly disclosed, but you should be sure to check whether the management indicators set as goals have been followed and to determine how close you were to achieving the goals and by when the goals will be accomplished. KPIs should be set high and determined by considering what impact you want to have on society through your CSR management policy. It is therefore important to set not just short-term goals but also mid- to long-term goals from a sufficiently broad and deep perspective. (Hideto Kawakita, CEO, International Institute for Human, Organization, and the Earth)

The company’s replies to these comments were as follows:

Setting our KPIs and visualizing our performance will become the engine that drives such evolution. It became very clear to me how important it is to ensure that the KPIs are designed in such a way that they will lead to increased trust and dialogue with stakeholders.” (Takaya Isogai, senior managing executive officer, Sompo Japan Nipponkoa) Consideration about KPIs means profound thoughts on the NKSJ Group’s social responsibility. This makes it a starting point for the discussion on CSR aimed at exploring how we can maximize our positive impact on society and what goals we should set to achieve this maximization. We will advance our plan to realize the KPIs based on the advice of the two experts.” (Masao Seki, senior advisor on CSR, Sompo Japan Nipponkoa) Creating KPIs for CSR is not an easy task, but Sompo has given it priority, no doubt considering it important in clarifying its relations to society, identifying what it can do to address social issues, ascertaining its rightful role in society, and offering fresh insights into what a private business can offer to its stakeholders.

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July 16, 2015 The Unchanging Face of Japanese Employment ryo Kambayashi The employment practices for which Japanese business gained fame—and later notoriety—are alive and well according to economist Ryo Kambayashi, who uses statistical analysis to challenge some widespread assumptions about the Japanese labor market.

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1. Introduction Once hailed for their flexibility and economic rationality, the Japanese Employment System in the post–World War II era came under attack in the 1990s as a cause of economic stagnation. Opinion leaders began publicly advocating an overhaul of the legal and social institutions supporting Japan’s labor market, and virtually every government or think-tank report dealing with labor and employment gave lip service to the idea of labor market reform.

Two decades on, it is difficult to point to any clear signs of progress. In recent years commentators have begun using the discouraging term “bedrock regulations” in reference to labor laws and regulations that have resisted reform due to the political influence of vested interests. But this interpretation assumes the existence of regulators and rules that are deliberately blocking change in the labor market. Instead, I would suggest that the Japanese labor market is not subject to any particular decision-making entity but an accumulated result of local agreements among multiple stakeholders.

In this paper I highlight the persistence of certain self-sustaining Japanese employment practices, despite regulatory reforms, summarizing two recent studies that I carried out in collaboration with a colleague. After providing an overview of Ryo Kambayashi Research Fellow, Tokyo Foundation; Associate Professor, Institute of Economic Research, Hitotsubashi University.

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the labor market since the 1990s in section 2, I turn my attention in section 3 to trends in long-term employment, the mainstay of the Japanese Employment System, calling into question the widespread assumption that long-term employment is in a steep decline in Japan.

But how can long-term employment be alive and well, given the off-cited rise in Japanese companies’ use of “nonstandard” employees? In section 4, citing the decline in the number of workers classified as “self-employed and others,” I explain why the increase in nonstandard employment is not synonymous with a decline in long-term employment. In section 5, I assess the persistence of another key feature of the Japanese Employment System, seniority-based wages. And in section 6, I conclude with a discussion of the deeply rooted Japanese tradition of local collective agreements as a key factor underlying the persistence of such practices.

2. Overview of the Labor Market since the 1990s

Let us start by looking at basic trends in the Japanese labor market over the past two decades or so, beginning with the unemployment rate. Figure 1 is based on unemployment figures compiled by the Organization for Economic Cooperation and Development, which are adjusted to enable a valid international comparison.

Figure 1. Unemployment Rate as a Percentage of the Civilian Labor Force by Country, 1956–2010 Source: OECD statistics.

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To illuminate long-term trends, I have included figures going back to the 1950s.

The shaded section represents the period following the collapse of Japan’s asset bubble in 1992.

As the graph indicates, Japan’s unemployment rate remained consistently low until the collapse of the bubble economy in 1992. After that, we see a marked upward trajectory that continues until 2002. The situation improved thereafter until the global recession precipitated by the 2007–8 financial crisis, at which point unemployment surged once again.

Still, while Japan experienced a marked rise in joblessness over the past two decades, it enjoyed both a lower rate of unemployment overall and far less dramatic fluctuation than the other major OECD countries. This suggests a disconnect between the performance of the Japanese labor market in an international context and the perception of that market within Japan.

This disconnect was particularly marked during the global recession. The graph below, also compiled from OECD figures, charts the shock caused by the financial crisis in the major OECD countries (as changes in real gross domestic product) and the reaction of the labor market to the crash (as changes in the unemployment rate).

In terms of GDP, the financial crisis and ensuing recession had a greater impact Figure 2. Impact of the Global Recession on GDP and Unemployment in Selected OECD Countries (change from peak to trough) Note: Peaks and troughs were determined using real GDP series in levels.

Source: OECD, Main Economic Indicators Database.

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on Japan than on Britain, France, Germany, Italy, or the United States. Yet the increase in unemployment was relatively small. In other words, while Japan experienced a bigger economic contraction than any of the other countries, the labor market was somehow cushioned from direct impact. This kind of cushion calls to mind one of the well-known mechanisms of the Japanese Employment System, in which companies rely on adjustments in pay and working hours, rather than workforce cuts, to adapt to business slowdowns. It suggests that, even in the face of the worst recession in a hundred years, this aspect of the Japanese labor market remained fundamentally unchanged.

3. The State of Long-Term Employment

This survey of the Japanese labor market through the fundamental macroeconomic lens of unemployment should be enough to call into question the widely held belief that the market has changed fundamentally since the 1990s. But it is not the only evidence contradicting that assumption. In 2012 Takao Kato and I published a working paper analyzing trends in long-term employment among Japanese companies. Using data from the Japanese government’s Employment Status Survey and

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Figure 4. Change in 10-Year Retention Rate for Employees with Less than 5 Years’ Initial Tenure, Japan and United States % 50.

0 1982–92 (81–91) 1987–97 45.0 1992–2002 (91–01) 40.0 1997–2007 (96–06) 35.0 30.0 25.0 20.0 15.0 10.0 5.0

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% 50.0 1982–92 (81–91) 1987–97 40.0 1992–2002 (91–01) 30.0 1997–2007 (96–06) 20.0 10.0

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Source: Kambayashi and Kato (2012), Figure 4 and Figure 7.

the US government’s Current Population Survey, we calculated the percentage of workers in various groups who remained with the same company for 10 years or more in both countries and called into question the assumption that long-term employment is declining in Japan.

Figure 3 charts the change in the 10-year job retention rate for core company employees, defined as employees aged 30–44 with at least five years’ tenure at the start of the observation period. We see that in Japan, more than 70% of employees

93 Economy

aged 30–34 with five years’ tenure as of 1982 were working at the same company 10 years later, in 1992. In the United States, the corresponding figure was just over 50%. At a glance we can see that the 10-year retention rate is much higher in Japan than the United States across the board, an indication of the value the Japanese place on long-term employment.

More surprisingly, the graph reveals that the trend away from long-term employment is considerably more pronounced in the United States than in Japan. In fact, during this time, Japan has seen little change in the 10-year retention rate for those employees traditionally regarded as the core of a company’s workforce.

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