Japan Lags in Efforts to Gain Value from Human Resources; Govt Working to Increase Usage

The Yomiuri Shimbun

The large gap between Japan and the United States in terms of total market capitalization is said to stem from Japan’s slow efforts to extract value from its human resources by treating them as capital.

Japan’s total market capitalization lags far behind that of the United States, even though stock prices in both countries have reached all-time highs.

The government has mandated that listed companies disclose information related to human capital and aims to spread the requirements.

Understanding diversity

Hitachi, Ltd. will introduce in April a system for about 50,000 employees in the information technology division to reflect how much the workers have promoted diversity in the organization in its performance evaluations and salaries.

Aspects of a worker’s performance will include whether they have responded positively to others’ comments, or whether they have gathered members together at meetings regardless of position and listened to their opinions, giving priority to younger employees.

Hitachi plans to implement this system because its overseas branches account for more than half of its sales and employees, and understanding diversity is essential in dealing with a variety of customers.

Nomura Holdings, Inc. introduced a system last year to positively evaluate employees who contribute to creating a comfortable workplace.

Nomura offers incentives to employees who take parental leave because they are seen as being proactive. The securities firm was once known for its male-dominated, enthusiastic sales force, but now Yukiko Ozaki, the chief human resources officer, says that “recognizing diversity is linked to profitability.”

About 90% of companies have promoted diversity initiatives in the past year, according to a survey of corporate human resources managers conducted last September by the Japanese arm of staffing giant Adecco Group AG.

Investment in human resources

Management that emphasizes human resources is based on measures that recognize diversity in an organization, human resource management linked to management’s strategy and reskilling, among others.

Increasing intangible assets such as intellectual property and brand power through each employee’s ability will lead to an increase in corporate value.

Japanese companies have lagged in investment in human resources.

According to data from the Cabinet Secretariat, the ratio of human resources to gross domestic product decreased to 0.1% in the five years from 2010, compared to an average of 0.41% in the five years from 1995. In the United States, the figure remained at 2% during this period after the collapse of the U.S. investment bank Lehman Brothers.

“In the ‘30 lost years’ after the bubble economy, Japanese companies have viewed people as cost-cutting measures, not as capital,” said Masahiro Fukuhara, cochairman of the industry-academia-led Human Capital and Corporate Value, and an adjunct professor at Hitotsubashi Business School.

The government has required companies to disclose information related to human capital as a disclosure element starting with annual securities reports for the fiscal year ending March 31, 2023.

According to the Japan Productivity Center, 60% of companies provided human capital disclosures of less than 2,000 words, an amount that cannot be considered sufficient for disclosure.