"Good Companies in Japan" (Article No. 1): Valuing Employee Happiness and Trust

JFS Newsletter No.184 (December 2017)

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The April 2017 edition of the JFS newsletter introduced Kamakura Management Investment Co. through an interview with Kazuhiro Arai, director and asset manager of this Japanese investment company that is striving to build a better society by investing in what it refers to as "ii kaisha" ("good companies").

Supporting 'Good Companies' that Create Future Society
https://www.japanfs.org/en/news/archives/news_id035814.html

In his book "Jizoku Kano-na Shihon Shugi" ("Sustainable Capitalism," published in 2017 by Discover 21, in Japanese), Arai wrote about the world economy after the financial global crisis of 2007 and 2008, criticism in Japan and overseas of the existing model of capitalism, and the limits of efficiency-first and the pursuit of profit above all.

Through his past experience and a deep realization of the limitations of the conventional financial system, Arai made up his mind to develop a new system to make long-term investments only in "good companies." This is the investment style Kamakura Management has adopted. They define "good companies" as companies that are accountable both economically and socially, the kinds of companies that are needed for the future of society.

What kinds of " good companies" already exist in Japan? With Arai's permission, JFS will introduce "good companies" covered in his book. In this article, the first of a series, the JFS Newsletter introduces companies that value worker happiness.

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Trust in Workers Fosters Motivation: Mirai Industry Co .

Mirai Industry Co. is a manufacturer and distributor of installation equipment for electricity, water, and gas, with its head office located in Gifu Prefecture. Mirai Industry is a "good company" that not only pays employees good salaries but also develops a feeling of enthusiasm among employees by trusting them, and connecting this to growing the business.

Mirai Industry does not have a system to supervise or control its employees, and does not compel them to do anything. The company has done away with "reports, progress updates, and asking for advice from the boss," which are typical business practices elsewhere and strongly encouraged in the Japanese corporate world. It never imposes quotas, directions, or orders on its employees. In Mirai Industry, employees are not controlled by supervisors but are fully trusted to do their job. The finance department does not even verify reported expenses when reimbursing employees for business trips, or keep track of the number of times an employee uses of the company cafeteria. The extent of the company's commitment to this approach is revealed in numbers. Just over ten management staff work in this company of more than 800 employees.

Mirai Industry encourages its employees always to think, instead of managing and controlling them. That's the basic philosophy of the company. For example, the company has a reward system that pays at least 500 yen (about U.S. 55 cents) for any proposal from employees. Employees were told they could return to conventional systems if this approach didn't work out, but as a testament to how profoundly the new values had spread, employees fearlessly proposed a mountain of new ideas that led to the creation of new products, and more than 3,000 patents, new uses, and designs.

Mirai Industry does not promote overtime work, which is a controversial issue in Japan these days. Employees who do not work overtime are regarded as good employees. The company returns the money saved from not working overtime to the employees as a subsidy for lunch money, so they make an effort to be efficient and avoid overtime work. With the company's stance to avoid seeing personnel expenses as a cost, every employee is hired as a regular employee, not as non-regular such as part-time or temporary staff. Retirement age is set at 70 years of age. The company's salaries are among of the top level in Gifu Prefecture.

Mirai Industry continues making high profits under the company's philosophy of trusting employees and offering a pleasant and highly motivating work environment. The recurring profit margin in the last three years shows 10 percent growth year on year.

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The 'Annual Growth Ring' Approach to Corporate Management: Ina Food Industry Co.

Ina Food Industry in Ina city, Nagano Prefecture, is a manufacturer of powdered agar, a traditional gelatin product derived from seaweed. It shares its own definition of what it means to be a good company.

High profit is not a prerequisite of a good company. A good company is one that every stakeholder recognizes as a good company in general conversation. A good company makes everyone happy, including we who work here. This is the true meaning of being a good company.

From the Ina Food Industry website (in Japanese) translated by JFS
https://www.kantenpp.co.jp/corpinfo/rinen/

The unique management of Ina Food Industry is seen in the company's philosophy of "annual growth ring management." Text below is translated from the company's website.

Trees grow every year, making an annual growth ring, and they never stop growing, although the width of the annual ring changes depending on environmental factors such as cold, heat, wind and snow. Trees consistently make an annual ring. This is the natural model for companies to aim for.

The annual rings are wide when trees are young and gradually narrow when trees grow to a certain level of size. This is the natural providence. The growth rate of trees is smaller with narrowing rings, but the absolute quantity is larger as the circumference and inner volume of trees grow every year. If companies try to increase the sales by focusing only on temporary sales figures, other elements related to the business may fail to keep up, generating an inner cavity.

We do not have a numerical target for growth. We think sales and profit figures are the results of our natural style of business with "annual ring management," so we don't think it is important to have target numbers. Rather than aiming to increase sales, we aim at making our employees fully use their abilities and develop in various ways.

From the Ina Food Industry website (in Japanese) translated by JFS
https://www.kantenpp.co.jp/corpinfo/rinen/01.html

One of its main products, powdered agar, became a big boom item among consumers at one point, and employees were excited to receive a rush of orders. Seeing the situation from the perspective of annual growth ring management, company chairman Hiroshi Tsukakoshi was alone in feeling some concern that this boom might lead to a crisis for the company. He avoided chasing after the temporary boom by making an excessive investment in equipment, even though production was behind in filling orders, but sought instead to have more modest but steady growth in natural manner. As the result, the company has successfully achieved increased revenues and profits for the 48 straight years since it was established.

In order to make all stakeholders happy, including themselves, Ina Food clearly states in its philosophy that it will build a company in which employees feel happy.

Nowadays, we see too many business managers and companies who have lost their vision of how things should be. Such a condition might cause a worldwide economic recession.

We believe that what business leaders should do is to make a company a happy place for employees and to contribute to society. Sales revenues and profits are merely means to achieve that.

It is easy to understand if we see a company as a family. Employees are family members. Even if we do not have enough food, we just can't drive some family members away so the rest can eat. A company should be similar. Just like we wish happiness for our family, it is important for management to wish for employees' happiness. Being so will keep bringing a positive cycle in business management.

From the Ina Food Industry website (in Japanese) translated by JFS
https://www.kantenpp.co.jp/corpinfo/rinen/04.html

To make employees happy, the company sees each employee's personal growth as being more important than its sales and profits. Employees are like family, so the company does not fire them for corporate downsizing, and it provides a place for employees to keep working even after the mandatory retirement age. Ina Food seems to be a company that employees are proud to work at. They voluntarily start cleaning the large head office grounds in the morning, ashamed if any litter appears there.

Ina Food sees serving local people as its main business -- local people are not only its customers but many of them also work for the company. Therefore, it participates regularly in cleaning the neighborhood and supports local events.

When the company employees commute by car, they avoid turning right across the oncoming traffic to enter the company's site (in Japan, cars travel on the left side of the road). This is because they will clog the road while waiting for the chance to turn. To avoid this, the employees will continue driving past to a point further ahead where they can turn around, and then come back to turn left and get to work.

In addition, Ina Food's employees voluntarily try to park their cars as far away from the entrance of local supermarkets as possible to leave parking spots closer to the entrance available for people who need them, such as expectant mothers and the elderly.

By consistently making small efforts like these, Ina Food has become a company that is very positively received by the local community. It nurtures feelings of pride and happiness within employees, which motivates them to contribute further to the company and community.

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In this article we have introduced two examples of companies that emphasize employees' happiness rather than corporate profits. Their practices generate motivation and voluntary actions by workers, which eventually lead to growth of the company. Future JFS articles will cover more Japanese "good companies" from a variety of viewpoints. Please stay tuned!

Edited by Noriko Sakamoto