Premium Friday – don’t discount other ways to change labour in Japan

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Premium Friday starts at 3pm today, an edict issued by the Ministry of Health, Labor & Welfare (MHLW) to encourage workers to go home at 3pm on the last Friday of every month to encourage better work-life balance. I am watching a TV program which has a camera on a company called USEN. A lot of the employees have been reluctant to leave the office as the bell tolled. Many seemed to sneak out hiding their faces as if being bundled into a police car on suspicion of committing a shocking crime.

Japan needs to invite flexible work practices period. Sadly, it took former Prime Minister Junichiro Koizumi to introduce ‘cool biz’ (wearing no necktie to work) to combat energy shortages and hot weather because companies wouldn’t be bold enough to make such common sensical steps for fear of the potential for backlash. Some companies like Calbee have already embraced working from home and other employee friendly policies, in part thanks to being a PepsiCo subsidiary. These are good examples.

I recall my first job in Sydney working for a Japanese company. As daylight savings dawned, the Japanese staff became somewhat despondent. To them, leaving before it got dark was somehow unfathomable. Sadly daylight savings in Sydney tended to mean it got dark around 8:30pm. So they’d twiddle thumbs and remain at their desk for little known effect. The gaijin staff used to encourage them to leave the office with them, whether a beer at the pub or a game of tennis to help them embrace better work-life balance but they wouldn’t have it, coming up with a litany of excuses to turn these gestures of goodwill down.

One Japanese company that I have huge respect for given it’s innovative thinking and unique business proposition is small, lean, pays its staff based on set formulas of success and has a very flat structure. Don’t kid yourself to think this is a cottage industry with a few mates. This is a serious TSE 1st section listed business which has posted stellar results and growth. I was drinking with two of them last night and one confessed working for this company is ‘heaven‘. This was a middle manager of a Japanese corporation who had just been handed a $250,000 (yes a quarter of a million US$) cheque for individual performance for hitting certain goals. Yet the MHLW had admonished the HR of this company for letting said individual work over a certain amount of hours (they have to check in and out everyday at work with an electronic pass). He said, “why should my company be given a ‘warning’ (no penalty mind you) when I alone choose to work hard to achieve my own goals. The company doesn’t care if I take long holidays or show up at 10am. As long as I bring results.”

Sadly, many Japanese companies are stuck in decades old work practices a where incentive pay is next to non existent. It is based on age, rank and tenure. Japanese are extremely well educated and committed but it is clear that many companies suffer from too many people not wanting to rock the boat. The idea is that by creating the least internal friction and managing one’s way to retirement is the risk free option.

I wondered at Toshiba’s recent plan to cut staff salaries and bonuses in a belt tightening strategy. Instead of trying to fix a problem, the idea is to hunker down and hold one’s breath. In some respects, I would imagine that proposals to improve inefficient business practices in the various divisions could save millions and be done simply by asking the underlings who usually keep quiet to speak of how they might improve process.

In my recent visit to the FSA I suggested that the next round of corporate governance code improvements be focused on staff incentivisation. To put that in perspective, C-level managers in a lot of Japanese firms have next to no skin in the game. Many look to steer their corporate supertanker in a relatively risk free way to ensure they leave with an unmarked (unremarkable?) period to get a healthy retirement package. Risk is rarely taken. The CEO of Sharp at the time of the Foxconn takeover had worked at Sharp for 36 years and accumulated $30,000 of stock. How could shareholders and staff benefit from a leader who had no big incentive to push for a bigger payout? If you were set to make an extra $1,000,000 on your shares or $10,000 which level would likely drive your decision to go into bat for shareholders? QED.

Premium Friday makes sense to help many old school corporates encourage work-life balance. It is vital. However the longer term solutions would be to encourage corporates to focus on motivational aspects. Working long hours is one thing but giving employees clear returns based pay formulae to make the long hours worth slogging then perhaps the psychological struggles of “death from over work” (Karoshi) would disappear.

Perhaps Premium Friday should focus on the old adage, “Love what you do and you’ll never work another day in your life!”

I’ve seen how amazing Japanese companies can be. Some investors used to take pot shots at Japanese exporter companies for sub-superior returns when the yen was super strong. I did a study looking at if exchange rates of a decade ago were applied that these companies aggressive dieting programmes meant that profiotability was 50% higher relative. To that end as much as Korean analysts were calling the demise of the Japanese industrial giant, I warned them that if the yen retreated that the Koreans were toast. If the Japanese could compete with Korean car makers at Y80/$ then they’d wipe the floor at Y100/$.

So the point is that the Japanese are highly intelligent, ingenious, inventive and flexible people but often the nudge that is needed has to come from the state. While I applaud the Premium Friday measure, might I suggest to the MHLW that encouraging ‘incetivisation’ could also be a wonderful way to drive the productivity that is much needed to offset a withering workforce. I have ample evidence that employees in many companies wants to drive Porsche Cayennes and Maserati Quattroportes like my mate who has just bagged a quarter mill for hard graft!

 

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