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Management & the Zaikai Community Overview

11, 01. 2004

Current State

We'll Have a Say, Too: Japan's Zaikai Big Business Community No Longer Willing to Just Provide Political Contributions

Foreign businessmen talking together in Marunouchi Area, a business center of Tokyo
Foreign businessmen talking together in Marunouchi Area, a business center of Tokyo

   On January 18, 2005, the Nippon Keidanren (Japan Business Federation), which had been reviewing the state of Japanese national security and diplomacy, published a policy recommendation report that included a section seeking a revision of Article 9 (Renunciation of War) Paragraph 2 of the Constitution of Japan which renounced the retention of forces. It stated that Paragraph 2 should be revised in order to clearly express the retention of self-defense forces in order to secure the right to self-defense, as well as the right to exercise collective self-defense.

The Keizai Doyukai (Japan Association of Corporate Executives) and The Japan Chamber of Commerce and Industry have also published policy proposals seeking a revision of Article 9, so the major Japanese economic organizations are now all in agreement on this point.
   Because Article 9 of the Japanese constitution renounces Japan's right to maintain military forces as well as the use of force to settle international disputes, scholars of constitutional law, opposition parties and others have indicated, since the time that the Japan Self-Defense Forces (SDF) were first established, that maintaining the SDF is unconstitutional. Meanwhile, based on the overseas dispatches of the SDF that have been occurring, the opinion that the Constitution of Japan should be revised is now becoming stronger, even among the governing Liberal Democratic Party (LDP) in addition to Japan's Zaikai business and financial circle.

Ratio of job offers to job seekers

   "Zaikai" is a collective term for the organizations of Japanese business leaders who wield influence over the economy and politics. Of late, the Zaikai has been active in making its voice heard, not only in relation to the aforementioned security issue but also regarding other issues.
   Beginning in 2004, the Nippon Keidanren launched a new system in which it began first evaluating political parties based on their position related to important political measures, such as those on taxation and financial administration, and then urging its member companies to make political contributions on the basis of the evaluations. The political parties that are the target of such donations are the ruling LDP, and opposition force, The Democratic Party of Japan (DPJ). A target figure for the contribution is established for each member company based its scale of operations. Although this mechanism has no coercive power, the Nippon Keidanren aims to achieve roughly 4 billion yen per year in political donations through this system.

Mediation of Political Contributions Resumed

   In 1993, the Japan Federation of Economic Organizations (Keidanren; precursor to the Nippon Keidanren formed through a merger in 2002) ceased its practice of mediating and allocating political contribution quotas to member companies and industrial organizations. It was left up to the company or organization to make autonomous decisions.
   Before then, the Keidanren had wielded enormous influence in politics as a de facto sponsor of the LDP. However, a series of bribery scandals involving politicians erupted from the late 1980s to the first part of the 1990s. They included the Recruit Scandal that developed into a major incident of corruption-insider trading that involved bureaucrats and politicians through the distribution of unlisted shares - and the Sagawa Kyubin Scandal, the covert donation incident that led to the exposure of tax evasion by a leading politician through the discovery of illegal funding of an organized crime syndicate.

Transition of corporate bankruptcies

   The Keidanren ceased its practice of mediating political donations in response to rising criticism that political contributions made by corporations were a breeding ground for political corruption. According to a Keidanren-member company source, the amount of donations made at the time was in excess of 10 billion yen.
   With the Keidanren's cessation of mediating corporate donations towards political parties, the amount contributed by member companies fell rapidly to approximately 1.9 billion yen in 2002. The visibility of the Zaikai in relation to politics waned, and there were those who began to advocate that there was no need for either the Keidanren or the Zaikai. The recent resurgence of political contributions and the promotion of the revision of the Constitution of Japan is a sign that the Zaikai has shifted to a policy to one of having a say in politics, too-not just to contribute political funds.


Four Economic Organizations That Wielded Strong Influence in the Past

   As economic organizations, or groups of corporate executives that come together for a specific purpose, four wielded great influence over politics and society since shortly after the end of World War II. They were: the Keidanren (Japan Federation of Economic Organizations), the Nikkeiren (Japan Federation of Employers' Associations), the Keizai Doyukai (Japan Association of Corporate Executives) and Nissho (Japan Chamber of Commerce and Industry). Each of these organizations had a different established role to play.
   The Keidanren formed relationships with politics primarily through political contributions. Nikkeiren, meanwhile, played a role as the Zaikai's "labor relations department" through measures related to labor unions, including wage increases and employment issues. The Keizai Doyukai made straightforward proposals concerning government policy changes from the standpoint of individual corporate executives. Nissho voiced the opinions of small- and medium-sized enterprises and tried to reflect it in government policies.

Transition of wage increases classified by the size of companies

   However, the once firm grip that the LDP had over control of the government began to wane in the 1990s, and the foundation that supported the raison d'etre of the Zaikai, especially the Keidanren, began to come loose. At the same time, criticism towards the adhesion between organized big business and the LDP become intense. This became one of the factors that led to the Keidanren's suspension of mediating political donations.
   Meanwhile, the Nikkeiren's foundation also began to sink. The annual spring wage-increase offensive, once a fiery face-off between management and labor, had become less intense. For such reasons, the Keidanren and Nikkeiren merged in May 2002 to become the Nippon Keidanren (Japan Business Federation). Today, there are three economic organizations of influence in Japan: the Nippon Keidanren, the Keizai Doyukai and Nissho.

Brief Overview of the Nippon Keidanren (Japan Business Federation)

   In its heyday, the Keidanren, which was established in 1946, was at the pinnacle of Japan's Zaikai and wielded great influence. Its chairman was referred to as the "prime minister of the business world." Nikkeiren, meanwhile, was originally established in 1948 when regional employers' associations came together as a national organization to counter labor unions. Nippon Keidanren, formed by the amalgamation of these two organizations, is composed of industrial organizations from a wide range of fields including financial services, manufacturing, and trade, as well as companies. As of May 2004, its membership numbered 1,623 companies and organizations. Virtually every major Japanese company is a member of Nippon Keidanren. It organizes the opinions of the Zaikai on such themes as trade friction, international issues and the domestic administration of political measures, and it makes recommendations to the Japanese government.

Profile of the Chairman of the Nippon Keidanren

Hiroshi Okuda (Chairman, Toyota Motor Corporation)
Born in 1932. Joined Toyota Automobile Sales - the sales arm of the Toyota Motor Corporation - in 1955 after graduating from Hitotsubashi University.

Hiroshi Okuda, Chairman of Japan Business Federation and Toyota Motor Corp.
Hiroshi Okuda, Chairman of Japan Business Federation and Toyota Motor Corp.

   After working in sales and finance, Okuda was posted to Manila, Philippines in 1972, a move that was seen at the time as a career setback by others in the company. However, Okuda's work there was recognized by Shoichiro Toyoda (now honorary chairman of Toyota), a member of the Toyoda clan that had founded the company. Okuda continued on and cut a good figure in sales and overseas planning divisions. He was named president of Toyota in 1995. In May 1999, Okuda was named Nikkeiren Chairman, and was appointed chairman of Toyota in June the same year. By greatly expanding sales volume and profits, Okuda developed Toyota into a global automobile manufacturer that ranked alongside the Big Three auto manufacturers of the U.S. He became Chairman of the Nippon Keidanren in May 2002.

Brief Overview of the Keizai Doyukai (Japan Association of Corporate Executives)

   The Keizai Doyukai was formed in 1946, not long after the end of World War II, by up-and-coming business leaders for the purpose of reconstructing the Japanese economy.
   Its predominant feature is that business leaders participate in the association as an individual, and goes beyond the interests of individual companies and specific industries to provide recommendations on policy measures, etc. from a broad perspective. However, because the companies and organizations to which the members belong are not obliged in any way through such recommendations made by the Keizai Doyukai, there exists a strong possibility that such recommendations end up as just that-recommendations that are just made and not followed through into action. There was a time in the past when this association was ridiculed as being inactive. The Keizai Doyukai requires individual members with strong character in order for it to be able to wield influence. As of January 2005, membership numbered 1,388 individuals.

Profile of the Chairman of the Keizai Doyukai

Kakutaro Kitashiro (Chairman, IBM Japan, Ltd.)
Born in 1944. Joined IBM Japan in 1967 after graduating from Keio University. Well-versed in technology, Kitashiro served as a systems engineer until his mid-thirties. Has also worked as an administrative assistant to the chairman of IBM at IBM headquarters in the U.S.

Kakutaro Kitashiro, chaiman of the Japan Association of Corporate Executives
Kakutaro Kitashiro, chaiman of the Japan Association of Corporate Executives

   Upon being named President of IBM Japan in 1993, Kitashiro strove to revitalize the company's performance which was declining due to the spread of personal computers. He developed measures that responded to the industry trend to shift from hardware to software, and his capabilities were highly recognized. He was appointed to his current post as Chairman of IBM Japan in 1999.
   At Keizai Doyukai, Kitashiro was named Vice Chairman in 2000, and was appointed Chairman in March 2003. Under the banner, "realization of a nation of new businesses," Kitashiro is focusing on the nurturing of venture firms. He is one of the business leaders of an international caliber who represents the Japanese economic circle.

Brief Overview of the Japan Chamber of Commerce and Industry

   The Japan Chamber of Commerce and Industry is the central organization to which 524 local chambers of commerce located nationwide in major cities such as Tokyo, Osaka and elsewhere belong. As of January 2005, the nationwide organization had 1.54 million members. The first chambers of commerce and industry in Japan were established in 1878 in Tokyo, Osaka and Kobe. Although it later went through various transformations, including organizational and name changes, the Chambers of Commerce and Industry Law was established in 1954, and the Japan Chamber of Commerce and Industry became a public-interest corporation with a legal basis.
   One of its characteristics is that is represents the interest of small- and medium-sized enterprises. It promotes political measures and activities from this standpoint, and also supports the activities of local chambers of commerce, provides consultations as well as management guidance, and also offers trade skills tests.

Profile of the Chairman of the Japan Chamber of Commerce and Industry

Nobuo Yamaguchi, chairman of the Japan Chamber of Commerce and Indusry
Nobuo Yamaguchi , chairman of the Japan Chamber of Commerce and Indusry

Nobuo Yamaguchi
Born 1924. Interned in a Russian POW camp after World War II and spent three years as a prisoner of war. Enrolled in Hitotsubashi University after returning to Japan. Joined Asahi Chemical Industry Co, Ltd. (today's Asahi Kasei Corporation) in 1952. Was placed in charge of the company's housing business as Asahi Chemical Industry was advancing diversification. Developed this division into the company's largest revenue stream. Those around him say Yamaguchi has a good sense of balance and is skilled at managing people. Yamaguchi became Chairman of Asahi Chemical Industry in 1992. Named Chairman of the Japan Chamber of Commerce and Industry in July 2001.

Three Key Points towards the Future

Point 1
How Will Japanese-style Management Methods Be Evaluated?

Questionnaire about the acceptance of foreign workers to Japan

Question: Japanese government set forth the policy to move more aggressively about the acceptance of foreign workers engaged in specialized or technical occupations, with the object of revitalization and more internationalization of her economy. About 180,000 foreigners are employed in these fields as of 2002.
On the other hand, there is another view that Japanese specialists and engineers should be trained as much as possible. What do you think about the governmental policy?

Questionnaire about the acceptance of foreign workers to Japan

Surveyed are 4917 persons registered in Japan Institute for Social and Economic Affairs
The number of effective replies
Period of survey: from July 15th to 29th, 2004

 As the economic bubble collapsed and the recession escalated in Japan during the 1990s, there was a rapid increase in the number of Japanese companies that adopted the American-style merit-based wage system. Japanese-style management was deemed be the culprit that brought about the recession, becoming, at the same time, a byword that represented ineptness in executive management. Japanese-style management methods quickly began to lose ground.
   Although the definition of what Japanese-style management actually is differs according to scholar or specialist, its pillar is generally said to be "lifetime employment" and "wages and promotions based on seniority."
   Since around 2004, when the economy started showing recovery, corporate executives once again started to recognize the worth of the Japanese style of management. There have even been companies that have abolished their merit-based wage system for the reason that the system produces no positive effects and only brings about harmful results. The analysis is that the essential part of Japanese-style management is that it is a system in which the reward is not the pay; rather it is the content of the next job that individuals will be performing within the organization, and so long as the wages are not so low as to make it difficult for a person to make a living, people will work because they find their job interesting.
   Just as the Nikkeiren was established in the past, there are more than a few corporate executives that point out that the re-recognition of Japanese-style management is an issue that needs to be urgently addressed by the Zaikai.

Point 2
Can the Dynamism of Venture Firms Be Pulled In?

   The commotion that took place in the autumn of 2004 regarding the admission of new teams to Japan's professional baseball league symbolized the future structure of the Japanese economy. Three companies made bids to manage professional baseball teams. They were: Internet service providers Rakuten, Inc. and Livedoor Co., Ltd., and Softbank Corp., an information telecommunications major. Of them, Softbank successfully acquired a baseball team, while Rakuten was authorized to start up a new team. Such IT firms are showing vitality in today's Japan where that is seeing an increasing sense of stagnation. Many such venture companies, however, have turned their back to the so-called Zaikai. How their robust dynamism can be pulled in is a new issue facing the Zaikai.

The presumed ratio of organized labor of private enterprises with more than 1000 employees

Point 3
Can Think Tank Functions Be Strengthened?

   What is the raison d'etre of an economic organization? Every time the reason for their existence comes into question, people scream out of the need for the reinforcement of their functions as think tanks. Although slogans such as, "from now on, it is wisdom, not money" is heard every time, this is something that has yet to be realized. It is critical that, with the Nippon Keidanren at the center, big business organizations go further and make proposals related to fundamental issues faced by Japan, undertake a reassessment of the value of Japanese-style management, and fortify its function as a "brain."
   Keidanren and Nikkeiren merged to become the Nippon Keidanren, but the reason for this was that an end had come to the role played by Nikkeiren. Unless think-tank functions are strengthened, there is a strong likelihood that economic organizations will be forced to further consolidate or restructure themselves.

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