CHRO Radar: The View from Japan

Jun, how does the Japanese talent market differ from other markets?

I think there are a few things that make the Japanese labor market distinct. First, there’s a long tradition of lifelong employment here and a deeply ingrained respect for seniority. Historically, people have stayed with the same employer for their entire career. There are strict laws and regulations that make it difficult for companies to dismiss employees at will. And job-hopping is seen as a very negative thing. However, these things are starting to change. Companies are becoming less committed to offering a job for life. And the younger generation is more open to switching companies in order to further their career.

Another key difference is Japan’s population. Famously, we have an aging workforce and shrinking birth rate. Around 30% of the population is over 60 This creates an upside-down pyramid structure, where a small number of young people have to support a large number of elderly people. So there’s a shortage of young leadership talent, which not only leads to intense competition but also makes retention a struggle.

Finally, Japan is still lagging behind other developed countries when it comes to gender diversity. We need more women in the workforce, especially at the managerial level. And while the number of women executives is rising, they still tend to be in administrative areas like HR, Legal, and Finance rather than the more strategic, commercial functions within the business unit.

What impact does this have on the local CHRO market?

Our shrinking and aging population means that Japanese businesses have to expand globally to achieve the growth they’re looking for. So they need a CHRO who has that international business experience, rather than someone who’s only worked in or covered Japan.

At the same time, our labor laws mean that Japanese companies have to be smart about finding new ways to make use of their older employees—which could mean re-training them to take on new roles. For example, you may have someone who’s been a mechanical engineer for 30 years, but now you’ve stopped making mechanical products. You can’t let them go, because the law won’t allow it. So you need to train them in coding. We call this reskilling, and it’s a hot topic in HR circles in Japan right now.

Globally, companies seem to be choosing to retain experienced CHROs over first-timers. Is that true in Japan too?

Yes—but perhaps for different reasons than in other markets. RRA’s Global CHRO Turnover Index suggests that companies worldwide are choosing to retain their CHROs because they need a ‘steady hand in turbulent times.’ While that may also be true to some degree here, there’s also another factor at play, which is labor practice. If you want to replace someone who’s already working in your company with a new hire from outside the company, you have to give the existing employee a chance to do the job first.

That means hiring someone is really high cost. So if you already have a CHRO who already knows your company inside out and is doing a reasonable job, there’s less incentive to go through the cost and hassle of replacing them.

What are the big HR challenges for Japanese companies?

Diversity, Equity, and Inclusion is a challenge for both Japanese-headquartered companies and multinationals with Japanese operations. Due to the historically low percentage of women in the workforce, there’s a fundamental shortage of experienced female talent in the market, creating a resource gap for DE&I initiatives.

Aside from that, the challenges are different for domestic and foreign companies.

Okay, let’s start with domestic companies. What are the key challenges there?

The first one is corporate governance. Increasingly, publicly listed companies are required to disclose their policies and data on human capital to their shareholders. They also need to craft compelling narratives to attract investors, presenting new challenges for CHROs.

Another issue for domestic companies is that there’s often a disconnect between the HR function and the business leaders. So building a closer working relationship and ensuring that your HR strategy aligns with your business strategy is another priority.

As we’ve already mentioned, reskilling is another key issue. Since Japanese labor laws make it difficult to dismiss employees, they have to find new ways to make use of their existing talent, even in areas where they might lack the relevant experience.

Finally, compensation is another challenge. Foreign multinationals typically pay better than homegrown ones, making recruiting and retaining more difficult for domestic companies.

And how about foreign companies in Japan?

Typically, foreign multinationals have a Head of HR rather than a dedicated CHRO, whose job is to make sure the local company is following the HR policies that have been set by HQ in their home country. But because of our labor laws, foreign companies can’t use the same dynamic hiring and firing practices as they do back elsewhere.

So it’s up to the local HR managers to take those pre-set policies that from overseas and figure out how to apply them here in line with local regulations and cultural norms. But because they aren’t actually involved in setting the strategy, Japanese HR managers often find it hard to develop those strategic business-partnering skills that companies are looking for in a CHRO today.

I would like thank Keiko Shimada for her contributions to this article.