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The Role of the Senior HR Executive in Japan and the United States: Employment Relations, Corporate Governance, and Values

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Based on an original survey of senior human resources (HR) executives, this paper provides empirical data for a comparison of HR management structures and practices in Japan and the United States. In both countries, the headquarters HR function has shrunk and employment decisions have become more decentralized in recent years. However, because the pace of change has been more rapid in the United States, the gap with Japan has widened. Significant differences persist in other areas, such as the HR executive's role in strategic decisions, perceived power of the HR function, executive values, and the consequences of these values for organizational outcomes and corporate governance.
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, Vol. 44, No. 2 (April 2005). © 2005 Regents of the University of California
Published by Blackwell Publishing, Inc., 350 Main Street, Malden, MA 02148, USA, and 9600 Garsington
Road, Oxford, OX4 2DQ, UK.
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Blackwell Publishing, Ltd.Oxford, UKIRELIndustrial Relations0019-8676© 2005 Regents of the University of California Published by Blackwell Publishing, Inc.April 2005442Original ArticleHR in Japan and the U.S.
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The Role of the Senior HR Executive in Japan
and the United States: Employment Relations,
Corporate Governance, and Values
SANFORD M. JACOBY,* EMILY M. NASON,
and KAZURO SAGUCHI
Based on an original survey of senior human resources (HR) executives, this
paper provides empirical data for a comparison of HR management structures
and practices in Japan and the United States. In both countries, the head-
quarters HR function has shrunk and employment decisions have become
more decentralized in recent years. However, because the pace of change has
been more rapid in the United States, the gap with Japan has widened. Signi-
ficant differences persist in other areas, such as the HR executive’s role in
strategic decisions, perceived power of the HR function, executive values, and
the consequences of these values for organizational outcomes and corporate
governance.
Introduction
Today, capitalist nations vary along multiple dimensions (Hall and Soskice
2001). There are different national approaches to structuring the business–
government relationship, everything from competition laws to systems for
innovation. Nations also differ in how they protect their citizens against
risk—including unemployment, sickness, and old age. Of recent interest are
variations in the internal organization of corporations and in modes of
*Sanford M. Jacoby, The Anderson School, UCLA, Los Angeles, CA 90095; Emily M. Nason,
Ph.D. candidate in Management, The Anderson School, UCLA; Kazuro Saguchi, Professor, Economics
Department, University of Tokyo, Bunkyo-ku, Tokyo, Japan.
The generosity of many persons made this project possible, including Jenna Allen, Takashi Araki,
Frank Baldwin, Chris Erickson, Eve Fielder, Andrew Gordon, Takeshi Inagami, Kenichi Ito, Mariko
Kishi, Keiju Minatani, Donald Morrison, Keisuke Nakamura, Yoshifumi Nakata, Michio Nitta, Hiroki
Sato, Teiichi Sekiguchi, Fujikazu Suzuki, Yoshiji Suzuki, Kazuo Takada, Masayasu Takahashi, Satoshi
Takata, Yoshihiko Wakumoto, Lai-Yong Wong, and Yoshiaki Yamaguchi.
Financial support came from the Abe Fellowship Program of the Center for Global Partnership, the
UCLA Center for International Business Education & Research, the U.C. Institute for Labor and Employ-
ment, and the University of Tokyo Center for International Research on the Japanese Economy (CIRJE).
208 / S
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corporate governance. One finds shareholder-oriented governance in the
United States and the United Kingdom, statutory stakeholder governance
in Europe, and voluntary stakeholder governance in Japan and other parts
of East Asia (Dore 2000).
Interactions between these various national subsystems yield divergent
macroeconomic results. Hence, the “varieties of capitalism” literature
suggests that there are different roads to prosperity, each with its own set
of costs and benefits. The force of this claim was undercut by the stellar
performance of the U.S. economy in the 1990s as compared to its main rivals
in Germany and Japan. By the end of the decade, the focus had shifted
from analyzing institutional variety to predicting how quickly U.S. patterns
of regulation, risk-sharing, and governance would take hold around the
world.
Nowhere was the shift more noticeable than in Japan, a country that
served as a model for a struggling U.S. economy in the 1980s and then, in
the 1990s, became a model of how
not
to run a modern economy. In
addition to high levels of coordination between business and government,
Japan distinguished itself for having a mode of corporate governance that
balanced different stakeholders—shareholders, customers, banks, and
employees—rather than, as in the United States, giving exclusivity to share-
holders. The employee-as-stakeholder model derived from—and contributed
to—such Japanese practices as intensive training and long-term employ-
ment; the willingness to shelter employees from downturns; and ubiquitous
enterprise unions that cooperated with management.
A key element in the Japanese system was the headquarters HR depart-
ment, which administered employment and labor relations. Among its
myriad duties, the HR department was in charge of rotating managers around
the company and winnowing out people for senior positions. Managers
viewed HR as a beneficial posting since it was a place to network with other
managers and a good springboard for top corporate positions. HR was
linked to corporate governance indirectly—by grooming people for the
board of directors, comprised of management insiders—and directly
through the board membership of the senior HR executive. On the com-
pany board, the HR executive voiced employee concerns to other executives
and served as the advocate of the
seishain
—the career employees—in stra-
tegic decision-making.
In the United States, by contrast, the senior HR executive traditionally
was low man—or woman—in the managerial hierarchy. The HR function’s
low status was reflected by a relatively high proportion of women and
HR in Japan and the U.S.
/ 209
minorities in HR positions and by relatively low pay for HR executives.
1
For
the past 40 to 50 years, the powerhouse function of the U.S. corporation
has been finance (Fligstein 1987).
At various times, however, HR did have its day in the sun. During the 1940s,
HR (then called “personnel”) was temporarily elevated in status as U.S. com-
panies accommodated to the rise of unions or sought ways to avoid them.
In some nonunion companies, the HR executive functioned as an employee
advocate, being the two-way transmission point between employees and
management. In the 1960s and 1970s, new regulations put HR in the position
of having to develop systems for complying with the law on affirmative action,
occupational safety, and other issues. As for corporate governance, companies
at least gave lip service to the notion that the corporation was a social
institution with responsibilities not only to shareholders but to employees,
customers, and communities (Jacoby 1985; Dobbin and Sutton 1998).
In the 1990s, however, large public companies became increasingly finan-
cialized, undiversified, and oriented to shareholder concerns. Ties between
employees and companies grew weaker, and HR executives in these com-
panies adapted, or were forced to adapt, to the status quo. They focused on
flexibility and on treating employees as costs to be minimized. Some U.S.
companies, however, sought competitive advantage not in market power
but in having inimitable resources such as intellectual and organizational
capital. Here, HR managers took a different approach, giving rise to Japanese-
style emphases on participation and culture (Barney 1991; Ulrich, Losey,
and Lake 1997).
Currently, there is pressure on Japanese companies to conform to U.S.-style
corporate governance and to adopt market-oriented employment practices
that would weaken the corporate HR function (Inagami 2001). Studying the
role of the senior HR executive provides a window on the process of insti-
tutional adjustment in Japan and allows us to see whether there has been
adoption of U.S. practices. Is it, in fact, the case that HR is losing its high
standing inside the Japanese corporation and is becoming more like the
U.S. system?
1
In 1999, women made up 49 percent of all managers but 60 percent of all personnel and labor-
relations managers; for blacks, the figures are 8 percent of managers but 11 percent of personnel man-
agers (U.S. Bureau of Labor Statistics,
ftp://ftp.bls.gov/pub/special.requests/lf/aat11.txt
). Among those
in 10 primary management occupations, HR managers ranked eighth in average annual earnings, slightly
above those in purchasing and transportation but well below information systems, marketing,
finance, and operations (Bureau of Labor Statistics, Occupational Employment Statistics,
http://
stats.bls.gov/news.release/ocwage.t01.htm
).
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As for the United States, despite a huge prescriptive literature on HR, we
know relatively little about what is happening to HR at the top of U.S.
companies and how this is related to recent changes in corporate gover-
nance and other factors. Are HR executives losing influence as the focus
shifts to labor-cost minimization? Or is HR on the ascendant, either
through an emphasis on Japanese-style resource-based business strategies or
through a market-oriented alignment with shareholder interests? To date,
there has been little research linking the role of the HR executive to orga-
nizational variables such as employment practices, the relative power of
different headquarters functions, business strategy, and corporate gover-
nance. Nor have there been any recent Japan–U.S. comparisons that com-
bine these variables in comparative analysis.
In this paper, we present findings from a unique data set derived from
surveys of senior executives in Japan and the United States. The surveys
covered a wide range of organizational issues and were carefully designed
for cross-country comparability. The data are largely cross-sectional, so we
cannot rigorously test for cross-national convergence. We did, however, ask
respondents about changes over the past 5 years. We also replicated
questions from surveys conducted by others at earlier dates. These two
approaches give us some historical perspective. Moreover, enough is known
about the Japanese and U.S. systems in the 1980s to create a set of stylized
facts to which current patterns can be compared. Thus, we are able to make
some inferences about longitudinal change. The main contribution of the
paper, however, is to analyze what is happening to the headquarters HR
function in Japan and the United States, to calibrate the present “distance”
between the two countries, and to see whether any differences between them
are significant. Our paper contains data on a range of variables that affect
HR’s role, including business strategy and corporate governance.
In what follows, we first present an overview of the senior HR executive’s
role in Japan and in the United States in the 1980s and earlier. Then we
present data from our two-country survey of large public companies, which was
conducted in 2001. We round up the paper with discussion and conclusions.
The Senior HR Executive in Japan: The Way it Was
Until recently, Japanese companies had sizeable headquarters HR units,
more than twice as large as their U.S. counterparts (staff per employee) and
with a reputation for being quite powerful (Inohara 1990: 7). One factor
responsible for the size and status of headquarters HR units is that large
Japanese companies were relatively organization-oriented—as opposed to
HR in Japan and the U.S.
/ 211
market-oriented—in their employment practices (Dore 1989). HR units
managed the training, development, and promotion of an employee’s “life-
time” career; they consulted with ubiquitous enterprise unions; and they
maintained centralized programs for employee welfare, including housing,
lunchrooms, and recreational facilities. Employment security and extensive
training supported a business strategy based on quality, employee flexibility,
and incremental process improvements (Koike 1997).
The power of the headquarters HR units also stemmed from the centra-
lized structure of Japanese corporations. In the 1980s, over three-fourths of
large U.S. companies had adopted the decentralized M-form structure but
the majority of large Japanese companies (around 55 to 60 percent) still had
a functional or U-form structure in which sales, purchasing, accounting,
planning, HR, and other staff responsibilities are centralized at headquarters
(Fruin 1994: 220). Even companies with the M-form structure had fewer
divisions and less unrelated diversification than comparable M-form companies
in the United States, and they were less than half as likely to have HR units
at the divisional level (Kagono, et al. 1985: 40). In Japanese companies, central
HR units were expected to achieve economies of scale and to create a unified
corporate entity. HR executives exerted strategic influence in part through
their membership on corporate boards, which were usually composed
entirely of incumbent managers.
The same factors that boosted the status of headquarters HR units also
made for weaker finance departments. Because corporate divisions were
closely related in terms of technology and markets, and because of long-
term employment and managerial rotation, senior Japanese executives
tended to be well rounded and did not depend heavily on financial criteria
for decision-making (Imai and Itami 1984). Also, corporations were not
seen as existing solely for the benefit of shareholders but instead were
viewed more like communities run by a board of insiders who balance the
interests of various stakeholders. Many of the shareholders were dedicated
bloc owners (banks,
keiretsu
members) who were not seeking short-run
share price gains. This permitted the company to make long-term commit-
ments to suppliers, customers, and employees (Schaede 1994).
Within Japanese companies, HR had the reputation of being a “kingmaker”
because of its control over managerial rotations and the selection of senior
executives (Itoh 1994). Japanese companies rotated managers around the
company during the first half of their careers and did not winnow out high-
performers until they were in their late 30s or early 40s. The majority of
rotations were decided jointly by the headquarters HR unit and the
employee’s department head; divisions rarely made these decisions on their
own (Okazaki-Ward 1993). An oft-cited symbol of HR’s power were the
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performance dossiers kept on every employee of the company, from the
president down to the lowest-ranking employee. Although decisions on who
would be promoted to the top strata of the company—including board
membership—were made by the company president, typically the president
consulted the senior HR executive when vetting individuals for these
positions. Thus, the kingmaking role was related to corporate governance:
by socializing managers to a company perspective and selecting the best
managers to govern the community, the HR unit insured that the company
would be in the hands of those who were broadly knowledgeable about
the company and had shown themselves to possess traits necessary for a
fiduciary role, such as honesty and commitment.
Japanese managers hoping to become board members viewed the head-
quarters HR unit as a beneficial posting. In 1981, the top unit for pro-
motion to a directorship was marketing, followed by HR, with finance and
accounting further down (Kono 1984: 33). A study done in the early 1990s
again found HR near the top of the list as a precursor to a top executive
posting, behind marketing and production but ahead of R&D, engineering,
and overseas positions (Tachibanaki 1998: 4). Spending time in the head-
quarters HR unit was held to be beneficial to one’s career because it was a
good place to meet managers from around the company. One-fifth of direc-
tors in manufacturing firms and a third of those outside manufacturing
reported having previous HR management experience (Inohara 1990: 12).
HR in Japan was not usually a professional specialty, however. Senior
HR executives spent only a third to a half of their careers in HR and the
rest of the time working in other functions. In fact, senior HR executives
were more likely than their counterparts in marketing to have been exposed
to accounting, finance, and planning, and more likely than their counter-
parts in finance to have worked in production and sales (Morishima 1998).
The forces that made for HR strength in the past have eroded since the
mid-1990s. Japanese companies are becoming more market-oriented, as
evidenced by greater reliance on performance-based pay and a greater
willingness to hire mid-career employees (Endo 1998). Employee training
and welfare expenditures, previously a justification for HR centralization,
are being cut. What remains unclear is the degree to which the “lifetime”
employment system is being dismantled; there is evidence of change as well
as stability.
2
Several Japanese HR executives told us during interviews that
2
A recent survey found that only 20 percent of Tokyo Stock Exchange companies planned to con-
tinue their lifetime employment systems (JIL 2002). However, data from large companies show little
change in employment tenure in the 1990s, a finding that is inconsistent with a decline in lifetime
employment (Kato 2001).
HR in Japan and the U.S.
/ 213
they admire U.S. companies that have restructured themselves—General
Electric was frequently held up as a model—and that Japanese firms need
to decentralize to become as nimble and profitable as their U.S. competi-
tors. These HR executives appear to be changing their personal values to fit
the new global business climate. Indeed, there is research indicating a shift
in executive values from stakeholder to shareholder concerns (Inagami 2000).
Corporate governance also is changing, partly in response to domestic
pressures—such as the unwinding of dedicated shares held by banks—and
partly in response to demands from foreign investors that Japanese compa-
nies adopt shareholder-oriented practices such as stock options and inde-
pendent directors. In the late 1990s, Sony, a bellwether company, created the
so-called corporate officer system, whereby it substantially shrank its board
of directors while adding outside directors. In most companies with the
corporate officer system, the HR executive no longer serves on the board.
At the same time there have been numerous legal changes to accommodate
a shareholder-oriented approach to corporate governance (Araki 2000).
The Senior HR Executive in the United States: The Way it Was
Generally speaking, senior HR executives have never been as powerful in
the United States as in Japan. But prior to the 1980s, there were interesting
similarities in the HR executive’s role in large Japanese and U.S. companies.
To understand this parallel—and subsequent trends—requires some his-
torical perspective.
At the end of the Second World War, around half of large U.S. companies
had created headquarters personnel departments responsible for setting
company-wide employment policy, for monitoring line management, and
for dealing with external entities like labor unions and government (Baron,
Dobbin, and Jennings 1986). Over the next 20 years, other large U.S.
companies created headquarters HR units to coordinate what were becom-
ing increasingly complex employment systems.
In these years, corporate governance in the United States—although
nominally a shareholder–sovereignty system—had elements of a stakeholder
approach, what has been called managerial capitalism. Executives saw
themselves having responsibilities not only to owners but also to consumers,
communities, and employees. The mindset of corporate America was “focused
on growth, diversification, and opportunity for the ‘corporate family’. As
career employees themselves, it was natural for managements to identify
with all constituents who were long-term investors in the enterprise and
to view shareholders in the same light.” (Donaldson 1994: 19) Although
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employee turnover was higher than in Japan, there was evidence of substan-
tial “lifetime” employment in the United States (Hall 1982).
The fact that employees—especially managers—spent much of their careers
in one company meant that corporations were willing to invest substantially
in employee development, training, planning, and promotion systems.
Along with labor relations, these were the core activities of headquarters
personnel units in the 1950s and 1960s (Janger 1977: 28). Personnel exe-
cutives often interpreted their role as being an employee advocate to other
senior executives and, in nonunion companies, as being a neutral entity or
third force between employees and line managers. This created tension
between personnel managers and line management. At the executive level it
sometimes gave personnel executives the image of being too “soft” and not
enough of a team player (Ritzer and Trice 1969).
The postwar years saw the institutionalization of the M-form model,
which facilitated corporate diversification and decentralization (Chandler
1962). The decentralized approach included the expansion of staff personnel
units at the plant and divisional levels. Coordinating these units created new
responsibilities for headquarters personnel executives, causing HR staff to
grow more rapidly than the company as a whole and boosting the function’s
organizational status (Janger 1977: 13, 16).
The M-form also brought to ascendance the corporate finance function,
which increasingly came into conflict with personnel. A growing number of
CEOs now came out of finance instead of production (Fligstein 1987).
Financial criteria became more important for determining the internal allocation
of capital and the acquisition of business units. Lacking quantitative indicators
to demonstrate their contributions, personnel executives reported that they
had more conflict with finance departments than any other functional unit
(McFarland 1962: 63). From personnel’s perspective, the problem was that
in top management, about the only thing that counts is finance” (McFarland
1962: 63). However, from the perspective of other senior executives—including
finance—the problem was that personnel did little more than “the administration
of routine, maintenance, housekeeping tasks” (Ritzer and Trice 1969: 65).
Personnel executives were criticized for being narrow, lacking experience in
other facets of the business, and generally “not business oriented” (p. 66).
One way personnel executives sought to boost their status was through
professionalization, including the creation of professional organizations,
certification, and the like. Also, the spread of the behavioral sciences in
personnel administration—in selection, attitude surveys, management develop-
ment, and other areas—helped to raise personnel’s status by linking it to
university-based scientific research (Rush 1969). Finally, familiarity with the
details of government employment laws—which proliferated in the 1960s and
HR in Japan and the U.S.
/ 215
1970s—also helped legitimize the personnel function and boost its power
(Dobbin and Sutton 1998).
The 1980s marked a turning point for personnel (now more commonly
called HR). All of the factors that had previously bolstered HR in the United
States turned negative: government’s role shrank, unions became weaker,
unemployment rose, and corporate governance became more focused on
shareholder returns. With the rise of an active market for corporate control,
firms found themselves taking on greater risk to crank out higher returns
for assertive investors (Coffee 1988). Corporate strategy shifted to reducing
costs and improving flexibility, which meant permanent layoffs for blue-
collar workers and, later in the decade, for middle managers as well.
Companies that had once prided themselves on offering long-term jobs and
good benefits—Kodak, Digital, IBM—sacked thousands. In addition to
downsizing, companies decentralized their operations so as to put business
units closer to the market and reduce their dependence on, and the size of,
corporate headquarters (Kramer 1999).
These changes called into question the roles that HR departments tradi-
tionally had played: as provider of services to career employees, coordinator
of line management, and employee advocate. With the employment rela-
tionship becoming more market-oriented, there simply was less need for
internally-focused HR (Cappelli 1999). At the same time, headquarters HR
departments found themselves a primary target of efforts to outsource and
get rid of headquarters “bureaucracy.” The net result was a shrinkage in
HR staffs and in the ratio of HR staff to employees (Mitchell 2003).
HR executives struggled to redefine their values and organizational role.
Some rejected operational responsibilities in favor of focusing on executive and
strategic issues. This required either outsourcing HR activities or giving greater
responsibilities to line managers. The result was a smaller headquarters HR
unit. Advocacy and organization-oriented employment policies were rejected
in favor of a greater autonomy for line managers and more market-oriented
employment practices (Ulrich 1997). The so-called business partner role meant
no longer “pacifying disgruntled employees [but] consulting with internal
customers” (Csoka 1995: 31). HR executives today are trying to align them-
selves with the new shareholder ethos. But continued harsh criticism of
HR as a bloated bureaucracy (e.g. Stewart 1996) gives the impression that,
despite efforts to become a business partner, the HR executive’s power and
influence have slipped as compared to the era of managerial capitalism.
Other HR executives sought an alternative role for HR by tying it to high-
commitment employment practices and resource-based business strategies that
were emerging in the 1990s. For HR executives, the resource-based approach
means that employees—and the HR function itself—can be construed
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not as cost burdens but as sources of competitive advantage (Pfeffer
1998). Headquarters HR is responsible for creating a corporate culture that
encourages employee commitment; for monitoring line management to
insure that employees are being fairly treated; and for developing HR
policies to support the business strategy, as in the link between customer
satisfaction and employee retention.
There are similarities between this approach and the tenets of traditional
Japanese HR. In fact, Japanese scholars developed an early version of
resource-based theory to explain how Japans focused organizations used human
capital to build core competencies. These ideas moved to the West during
the years when Japan served as a model for the United States (Itami 1987).
To sum up, Japan and the United States headed into the 1990s pursuing
different approaches to employment, management, and corporate gover-
nance. Since the 1990s, there has been pressure on Japan to conform more
closely to the relatively market- and shareholder-oriented U.S. system,
which raises the question of how far apart the countries presently stand.
But the United States has not remained motionless. The 1990s saw some
U.S. companies pulled even further in a market- and shareholder-oriented
direction, while others experienced countervailing pressures to treat
employees as stakeholders and to adopt organization-oriented practices
such as high-performance work systems. Thus, the question of where the
two countries stand relative to each other—as calibrated through the role
of the senior HR executive—is an interesting and timely issue to consider.
Overview of the Respondents
Our window on these processes is a unique data set based on a mail
survey of senior HR executives in large public U.S. and Japanese compa-
nies. We asked about various issues including the company’s HR structure,
the involvement of headquarters in operating and strategic decisions, and
relations between HR and other corporate functions. We also surveyed
CFOs (chief financial officers) in the United States. Out of around 1000 sur-
veys sent out in each country, we had usable responses from 229 Japanese
firms and from 145 U.S firms. (see Appendix) While the response rate
may seem low,
3
bear in mind that this is an elite survey—of senior corporate
executives—in which response rates typically are modest. The advantage of
3
The United States and Japan response rates were 17 and 23 percent respectively. HR questionnaires from
103 U.S. firms were returned as undeliverable, usually because the company had merged with another
or because it did not participate in surveys. One Japanese survey was discarded because of incomplete data.
HR in Japan and the U.S.
/ 217
surveying senior executives is that these individuals have the best infor-
mation on strategic matters and on company-wide policies. Also, our instru-
ment was quite detailed, containing 124 items. There is the possibility of
response bias, although we did not find any difference in the industry and
size distributions of the U.S. respondents and nonrespondents. For the CFO
survey, the number of respondents was very low—only 81—but that was
because, due to limited funds, we conducted but a single survey round for
the CFOs. Of the 81 replies, 23 were from companies where the HR execu-
tive also replied, allowing for some interesting comparisons.
One important caveat has to do with macroeconomic conditions. When
the surveys were conducted in 2001, each country was at a different stage
of the business cycle: the United States was at the tail end of a boom, with
very low unemployment, precisely the conditions for HR to flourish. Japan
was entering its second “lost decade,” during which employment, revenues,
and profits grew slowly, or, in many instances, contracted.
In the United States, two-thirds of our respondents reported to the CEO.
In Japan, we did not ask about reporting to the CEO but instead asked for
the respondent’s rank. Japanese companies use standardized nomenclature
for the hierarchy of senior management positions. About a fifth of the
respondents were directors, meaning they served on the board of directors.
Nearly three-fifths were general managers of the headquarters HR unit, the
highest nonboard rank. The remainder held some lower rank. Managing
directors were not different in terms of espoused values than respondents
who held lower rank.
In the United States, HR continues to be a specialty more open to women
than other executive functions. Thirty-three percent of the HR respondents
were female versus 11 percent for the CFOs. In Japan on the other hand,
senior management is still an all-male preserve; none of our Japanese
respondents was female.
Career patterns also are different. In the United States, HR executives are
specialized professionals who, on average, have spent 77 percent of their
careers in the HR field. On the other hand, they are quite mobile. Mean
tenure with the current employer is 9 years. In Japan, the HR executives are
a blend of specialists and generalists, with specialists predominating in manu-
facturing. Because of lifetime hiring, average tenure with current employer
for a senior HR executive in Japan is 26 years, almost triple the U.S. figure.
Consistent with weak professionalism is the fact that few Japanese exe-
cutives (9 percent) planned a career in HR while still in college, whereas
28 percent of U.S. executives had thought about a career in HR while in
school, which is only a tad below the proportion reported 30 years ago
(Ritzer and Trice 1969: 35).
218 / S

M. J

, E

M. N

,

K

S

One striking difference has to do with labor relations. Sixty-five percent
of employees in the surveyed Japanese companies are union members versus
only 16 percent at the U.S. companies (Keep in mind that enterprise unions
in Japanese companies extend up through the middle-management ranks.).
Managers in both nations reported a decline in union membership from
5 years ago. Although the U.S. companies are lightly unionized, senior
managers remain concerned about unions. Thirty-percent of the U.S. exe-
cutives said that they are spending
more
time on union issues now than
5 years ago. These companies are more likely to make labor relations
decisions at headquarters—rather than at the operating level—than is true
of companies spending less time on labor relations. Presumably the U.S.
companies are concerned about maintaining their nonunion status, not
usually an issue for large Japanese companies.
Trends and Comparisons
The following section examines recent trends in Japan and the United
States, comparing the two countries along six dimensions: (1) resources
flowing to the HR function, (2) operating authority of headquarters HR
units, (3) HR’s strategic influence, (4) employment practices, (5) corporate
governance and executive power, and (6) executive values.
4
Resource Allocation.
Large Japanese companies are cutting their HR
units and decentralizing responsibility for employment management. Our
survey shows that the average number of employees in headquarters HR
units fell by 22 percent over the past 5 years, with deeper cuts occurring in
large firms. Headquarters staff has fallen more steeply than total employ-
ment, so that there are fewer headquarters staff per employee than 5 years
ago; the current figure is 1/129 employees (versus 1/106 5 years ago).
As for the United States—where firm size is larger than Japans and
where most firms experienced employment
growth
from 1997 to 2001—the
average number of staff in headquarters HR units increased by 4 percent.
5
But if we calculate staff per employee, we find that U.S. companies failed to
add staff as quickly as they added employees. Hence, the ratio of staff to
employees fell from 1/140 in 1997 to 1/185 in 2001, much leaner than in
Japan. In fact, the staffing gap
widened
between the two countries.
4
Note that some of the data shown here draws on research reported in Jacoby (2005).
5
This reverses a trend from earlier years: average headquarters HR size fell 13 percent between 1990
and 1995 (Mohrman, Lawler and McMahan 1996).
HR in Japan and the U.S.
/ 219
One reason for staff cuts is outsourcing. We asked about outsourcing of
HR activities such as benefits (including welfare programs), training,
recruitment, pay systems, and HR information systems. In Japan, the greatest
outsourcing is of welfare services and training. However, a common type
of “outsourcing” in Japan is when companies spin off welfare or training
activities and then purchase them from the formerly in-house units—a way
of cutting costs, making headcount look smaller, and boosting the parent
company’s financial performance. This kind of outsourcing is really more
akin to the U.S. practice of an internal chargeback for use of HR services
by internal clients. Nevertheless in Japan there is also outsourcing to
entirely independent third parties, partly to get expertise and partly to shift
funding from capital investments to operating expenses. Both domestic and
foreign companies are active in this market in Japan, with the result that
internal HR staff is shrinking and HR practices are becoming more generic.
In general, U.S. outsourcing levels are slightly lower than in Japan, which
is odd, since experts in the field indicate that the outsourcing market is newer
in Japan (Dash 2001). What appears to be the case is that Japanese companies
are achieving functional convergence with U.S. companies by relying both
on conventional outsourcing and spin-offs of welfare and training units.
Centralization of Operating Authority.
Another reason for headquarters
shrinkage is decentralization of decision-making. We asked respondents to
tell us how the involvement of line and operating managers had changed
over the previous 5 years (see Table 1).
In Japan, what were once core headquarters responsibilities—the assignment
and evaluation of managers—are undergoing decentralization in roughly a
TABLE 1
C  L I  F Y (P  F)
Increased Same Decreased N
χ2
Japan U.S. Japan U.S. Japan U.S. Japan U.S.
Introduce or modify
participation plans
23 44 66 52 11 4 213 132 19.38***
Develop policies
toward unions
18 15 75 76 6 9 212 102 1.27
Decisions on business
unit headcount
21 46 72 46 8 8 213 132 27.83***
Job assignment of
managers
29 40 63 52 8 7 213 132 5.11
Performance evaluation
of managers
39 53 57 43 4 4 213 132 6.42*
p < 0.10; *p < 0.05; ***p < 0.001.
220 / S M. J, E M. N,  K S
third of surveyed companies. Divisions and business units have now greater
control over the rotation and promotion of rank-and-file managers and there
is a greater scope for individual choice on assignments. Consistent with this
is the reduced role of headquarters in managerial evaluation. This is because
of the proliferation of individualized performance appraisal methods.
But while change is occurring in some companies, the central tendency is
stasis. In the majority of the companies, line involvement has remained the
same. While attention in the press is often riveted on change, most companies
have not changed. Headquarters HR units still hold substantial operating
power relative to line managers for initial hiring, career rotation, transfers,
and the like. Moreover, while performance-based pay is becoming more
important, it forms a smaller part of pay than in the United States. We asked
respondents to estimate what percentage of an average middle manager’s
annual salary was determined by the individual’s job performance versus other
factors such as job classification and seniority. Despite the increased emphasis
on performance in Japan, however, the Japanese mean for performance-
based pay was 30 percent; in the United States, it was 55 percent.
When it comes to decentralization, the United States is moving signifi-
cantly faster than Japan, which is surprising, given that the United States
in the 1980s already was relatively decentralized as compared to Japan.6
Change-rate gaps are especially wide when it comes to decisions over business
unit headcount. Line managers in the United States have much more free-
dom to make hiring and layoff decisions than their Japanese counterparts.
One recent development distinctive to the United States is the growing
number of senior HR executives who report to the CEO. As noted,
65 percent of senior HR executives now report to the CEO, which is a major
change since 1977, when only 30 percent of senior HR executives were CEO
reports (Janger 1977: 37). Reporting to the CEO may be a fad but it may
also be related to the decentralization process. Other studies find that an
increase in CEO reporting by line and staff managers is associated with
flatter organizational structures (Rajan and Wulf 2003). Having HR as part
of the executive team also boosts the company’s economic performance,
especially at smaller and fast-growing firms (Welbourne and Cyr 1999). Again,
as with the data on resource flows, the impression is that, despite change in
Japan, more rapid decentralization in the United States has caused the gap
between the two countries to remain the same or even to widen.
In the United States, reporting to the CEO has real consequences. A close
relationship to the CEO assimilates the HR manager more closely to the
6 In Table 1, four of the five chi-square tests of Japan versus the U.S. are significant, at least at the
0.1 level.
HR in Japan and the U.S. / 221
dominant (i.e., finance-driven) corporate mindset. Our survey found that
CEO reports are significantly less likely (r = 0.18, p < 0.05) than nonreports
to say that they care about safeguarding employee jobs. As for the structure
of HR, CEO reports are more likely to work in companies with lean head-
quarters HR departments and decentralized operations in which line managers
make relatively more operating decisions than headquarters. Reporting to
the CEO—being part of the senior management team—puts the HR exe-
cutive in a consultative rather than operational or advocacy role. CEO
reports are more likely than nonreports to say that they are involved in final
decision-making on senior appointments (93 percent versus 55 percent) and
on mergers and acquisitions (59 percent versus 22 percent). Not surpris-
ingly, CEO reports are more likely than nonreports to perceive that HR has
more power relative to other functions such as finance and marketing.
It is possible that some of the authority being given up by headquarters
HR is going to HR staff elsewhere in the organization. Therefore we asked
respondents to assign weights for the five activities previously mentioned—
with weights distributed across line managers, unit HR departments, divi-
sional HR departments, and headquarters HR departments—so that they
sum to 100. The results are shown in Table 2.7
Here, notice several points. First, despite decentralization, operating
decisions remain significantly more centralized in Japan than in the United
States.8 This is a key finding. Second, in neither country do subheadquarters
units have a substantial measure of operating authority; they are squeezed
between headquarters and line management. Third, in Japan, there is a strong
positive correlation between headquarters operating authority and HR staff
per employee. That is, centralization is associated (r = 0.21, p < 0.01) with
greater resources for headquarters, as one would expect. In the United States,
while the relationship is also positive, it is not statistically significant; that is,
there is no assurance of a payoff—in HR staff intensity—from centralization.
Strategic Influence. Senior management periodically makes strategic
decisions that affect the organization’s future. To assess the influence of the
headquarters HR department on these decisions, we asked respondents to
tell us at what stage(s) they were involved in five different business decisions
related to growth: mergers and acquisitions (M&A), investing in new locations,
7 Note that we create indices of the first and of the last columns in Table 2 that we refer to as “index
of line operating authority” and “index of headquarter operating authority,” shown in the last row of
Table 2. These indices are used in subsequent analyses.
8 We ran two-sample t-tests with unequal variances and found five of the six differences in the Japan–
U.S. means for headquarters operating authority (including the overall means) to be significant at the
0.0001 level.
222 / S M. J, E M. N,  K S
creating spin-offs, expanding sites, and closing sites. The stages—not mutu-
ally exclusive—include: drawing up the proposal, evaluating its financial
consequences, final decision-making, and implementation. Respondents
also indicated if they were never involved or if the event did not occur.9
Second, respondents told us what part they played in two other strategic
decisions that are more closely related to HR concerns: the selection and
remuneration of senior managers and the allocation of payroll budgets
across corporate divisions. The choices—not mutually exclusive—were:
limited to the provision of information, regularly offering advice on the
basis of the information and regularly taking part in decisions, or no role.
For the United States only, we asked CFOs to tell us about HR’s role and
about their own role in these decisions.
The striking thing about Table 3 is the high involvement of U.S. HR
executives in strategic decisions as compared to their Japanese counterparts.
For the four types of involvement, U.S. participation is higher than
9 These stages originally were identified in Marginson et al. (1993).
TABLE 2
D  R  HR A, J  U S
(W S  100)a
Line
managers
Unit
HRD
Divisional
HRD
Headquarters
HRD N
Japan U.S. Japan U.S. Japan U.S. Japan U.S. t-test Japan U.S.
Introduce or
modify
participation
plans
52 45 11 12 13 17 25 27 0.529 203 125
Develop policies
toward unions
11 17 7 9 9 16 73 58 3.589*** 209 103
Decisions on
business
unit headcount
19 50 12 9 18 14 50 28 6.693*** 220 140
Job assignment of
managers
23 62 5 9 16 14 57 16 15.771*** 220 140
Performance
evaluation
of managers
41 65 5 8 15 12 38 15 8.589*** 221 140
Operating
Authority
Index Valueb
28.9 50.5 48.9 26.6 10.262*** 221 140
aRespondents were asked to apportion responsibility for various HR activities across the four different levels such that
the weights summed to 100.
bThe index is the mean of the items in the column above it.
***p < 0.001.
HR in Japan and the U.S. / 223
TABLE 3
R  HR  S B D  J   U.S. P-C S (N  P)
Draw up
proposal
Evaluate
financial
consequences
Final
decision-
making Implementation HR not involved Event did not occura
Japan U.S. Japan U.S. Japan U.S. Japan U.S. Japan U.S. χ2Japan U.S. χ2
Merger or
acquisition
10 32 7 61 14 47 41 85 38
(29)
3
(115)
29.46*** 66
(85)
18
(141)
51.63***
Creation of
spin-off
43 42 14 56 7 46 48 72 24
(58)
11
(57)
3.7132
(85)
58
(137)
14.90***
Invest in
new site
933 84511 38 34 62 47
(53)
22
(110)
10.93*** 37
(84)
21
(140)
6.35*
Expand
existing site
14 27 12 43 11 36 38 64 42
(65)
18
(117)
11.97*** 24
(85)
18
(143)
0.95
Closure of
existing site
42 48 16 56 10 55 54 77 16
(67)
3
(116)
9.49** 22
(86)
19
(143)
0.35
a“Did not occur” is given as percentage of all respondents. N shown in the last column is all respondents. Other columns show the percentages for those companies where the
event occurred. N shown in column 5 is the number of companies indicating that the event occurred. Respondents could check more than one stage if the event occurred. Note
that, because of an error in the original survey, we had to resurvey the Japanese companies on this question. Hence, the Japanese total available sample size is 86 for this
question versus 143 for the United States.
p < 0.10; *p < 0.05; **p < 0.01; ***p < 0.001.
224 / S M. J, E M. N,  K S
Japanese participation in every cell but one. Conversely, as shown in column five,
a quarter to nearly a half of Japanese HR executives are not involved at any
stage, whereas noninvolvement rates for U.S. executives average only around
10 percent. These are sizeable and statistically significant gaps, as indicated
by the chi-squared results.
One explanation is that some of these issues are less salient in Japan, where,
as shown in column six, there is less M&A activity and less new-site investment
than in the United States. On these two issues, the involvement gap is wide,
especially at the earliest and most strategic stage of drawing up a proposal.
Perhaps as an issue becomes more prevalent and routine, HR is more likely
to be involved. Conversely, the rate of site closures was about the same in the
two countries, while spin-offs were more prevalent in Japan. On these two issues,
the involvement gap is smaller, again, especially at the earliest stage of
drawing up a proposal, although U.S. executives still wield more influence.
Despite these national differences, U.S. and Japanese executives are both
less involved in the “decisional” parts of these events—drawing up a pro-
posal and making final decisions about it—than they are in its implemen-
tation. Also (data not shown), U.S. executives who report to the CEO are
more involved in these decisions, just as Japanese respondents who held the
rank of managing director report higher levels of involvement. However,
there remains an involvement gap between CEO reports in the United
States and managing directors in Japan.
Another class of strategic decisions lies in the domain where HR strategy meets
business strategy. These decisions include the selection and remuneration of
senior executives—which affect the future management of the organization—
and the allocation of payroll budgets across divisions—which determines
how quickly divisions will grow. Again, we asked respondents to tell us what
role they played in these decisions (see Table 4). Here, however, the involve-
ment gaps between Japan and the United States are smaller. In fact,
Japanese involvement significantly surpasses U.S. involvement in more than
half of the table’s cells. Part of the explanation for this has to do with cen-
tralization of career planning and payroll decisions in Japan, which boosts
involvement of the headquarters unit. Another explanation is that there are
national differences in corporate structure: Japanese companies are less
divisionalized and so they are more likely to make budgetary decisions at
the headquarters level. Finally, in the United States, budgets and executive
compensation are sometimes preempted by the finance function, which, as
we will see, is comparatively weak in Japan.
In short, there are multiple dimensions of strategic influence. HR executives
in Japan and the United States both play strategic roles in executive decision-
making, although the roles are expressed differently in each country.
HR in Japan and the U.S. / 225
TABLE 4
R  HR  S P D (P C R)
Provide
information
Offer advice based
on information
Take part in
final decisions Not involved N
Japan U.S. χ2Japan U.S. χ2Japan U.S. χ2Japan U.S. χ2Japan U.S.
Selecting and remunerating
senior managers
15 8 4.27* 62 25 49.15*** 67 80 6.44* 1 7 8.41** 227 142
Determining size and
allocation of payroll
budgets across divisions
10 20 6.44* 32 33 0.01 74 45 30.74*** 8 16 5.1* 214 141
*p < 0.05; **p < 0.01; ***p < 0.001.
226 / S M. J, E M. N,  K S
Employment Practices. A striking commonality between Japan and the
United States is the proportion of full-time employees in the workforce of
large corporations. In both countries, it stands at around 85 percent, with
part-time and temporary employees making up the remainder. Yet these
figures conceal significantly different approaches to structuring internal
labor markets.10 When asked how they would fill vacancies for either man-
agerial or nonsupervisory employees, the Japanese companies showed a
strong preference for internal candidates, whereas U.S. companies were
inclined to give more consideration to external candidates (Table 5). Note
the startling fact that barely any U.S. employers give strong preference to
internal candidates, whereas in Japan, around a third of companies do so.
Also, in Japan there are only very slight differences in hiring preferences for
managerial and nonmanagerial employees, reflecting the persistence of
single-status employment policies. But in the United States, not only there
is a cleavage between managerial and nonmanagerial employees, it is the
managerial positions that receive fewer benefits from incumbency, which is
consistent with reports that, in large U.S. companies, recent downsizing has
been concentrated among salaried rather than hourly employees (Baumol,
Blinder, and Wolff 2003: 47– 48).
10 See the chi-squared tests of national difference shown in Table 5, all four of which are significant at
the 0.001 level.
TABLE 5
P M  F V (P  F)
Managers
Nonsupervisory
employees
Japan U.S. Japan U.S.
Only consider internal candidates 35 0 30 1
First priority to internal; recruit
outside only when needed
54 41 54 59
Consider both internal and external
candidates
11 59 15 40
Prefer recruiting external candidates 0 1 1 0
χ2122.52*** 64.27***
Mean ILM index valuea1.238 0.392 1.121 0.604
t-test 13.819*** 8.066***
N227 143 223 144
aConsideration of internal candidates is coded as 2; giving first priority to internal candidates and recruit outside only
when needed is coded as 1; consider both internal and external candidates is coded as 0; and prefer recruiting
external candidates is coded as 2, for both managerial and nonsupervisory positions. Coding the latter as 1 does
not affect the relative differences.
***p < 0.001.
HR in Japan and the U.S. / 227
In Japan, the strength of a firm’s internal labor market is related to the
structure of its headquarters HR function. We found that headquarters
operating authority (as defined in Table 2) is positively associated with
strong internal labor markets for managerial employees (r = 0.17, p < 0.01).
Where incumbent managers are employed “for life,” headquarters is more
likely to be involved with managerial rotations and pay decisions. Internal
labor markets for nonsupervisory employees are also associated with HR
centralization, but the relationship is weaker than for managerial employees.
Finally, Japanese companies with the strongest internal labor markets and
greatest HR centralization are also the companies with the most intensive
staffing levels (HR staff per employee).
When we turn to the United States, patterns are less evident. Few of the
internal labor market measures are significantly related to HR variables
such as centralization or staff intensity. The one exception—and it is telling—
has to do with corporate governance. As the number of persons on the
board who have HR backgrounds increases, so does the strength of internal
labor markets (r = 0.20, p < 0.05).
Corporate Governance and Executive Power. An HR-relevant change in
Japanese corporate governance is the advent of Sony-style corporate officer
systems (shikkyo yakuin), which have caught up in the last 5 years. This
system creates a small U.S.-style executive board comprised of insiders and
an occasional outsider, while relegating operating managers—who used to
comprise the main board—to a managing committee. Twenty-eight percent
of respondents said their firms had adopted the system, a figure that jibes
with other surveys (Ahmadjian 2001). Because of this change, and because
of investor pressure to reduce board size, Japanese boards are smaller, on
average, than in past years. Respondents report a mean board size of 15
persons: 11 for companies with the corporate officer system and 16 for
other firms. Ten years ago, some boards had 50 or more persons and the
mean was around 30 (Schaede 1994).
These changes have not diminished HR’s influence, however. We found
no difference between companies with and without the corporate officer
system in the perceived power of the headquarters HR unit or in its influ-
ence over strategic decisions. The implication is that the corporate officer
system has not yet changed power relations inside the Japanese company.
Even where the corporate officer system is in place, Japanese boards
continue to have members who have backgrounds in HR. We asked respon-
dents to tell us how many board members had executive experience in the
HR area: 58 percent said one or two; 19 percent said three or four; and
4 percent said five or more, giving a total of 80 percent on the board with
228 / S M. J, E M. N,  K S
HR executive experience. The enterprise union also plays a role in grooming
managers for the board. We asked how many board members previously
held a leadership position in the enterprise union: 25 percent said one or
two; 14 percent said three or four; and 6 percent said five or more, for a
total of 45 percent. While there may be some overlap here, half of the
companies with HR-experienced board members had zero board members
with a union background. Hence 85 percent of companies have at least one
person on their board with either HR and/or union leadership experience.
In contrast, the U.S. respondents reported far fewer members of their
boards who have experience in the HR area: only 34 percent. Moreover,
major U.S. companies rarely have their incumbent HR executive on the
board. Data from Korn/Ferry for the 900 largest U.S. companies show that
only six companies have their HR executive on the board. While one might
chalk this up to the tendency of U.S. boards to seek outside members, it is
interesting to note that 92 of the companies nevertheless gave a board seat
to their CFO.11 Moreover, within the same company, finance is more likely
to report to the CEO than is HR: 95 percent versus 72 percent. That is, in
nearly a quarter of the matched HR–CFO pairs, the CFO reports to the
CEO but the HR executive does not.
We asked HR executives to tell us what was the power of different head-
quarters departments to influence strategic decisions (Table 6). While we did
not define power, the results suggest that respondents understood the mean-
ing of the word and gave consistent replies (Perrow 1970). Rated on a scale
of 1 to 10, with 10 being “most influential,” the top department in the U.S.
11 Korn/Ferry data as of February 2002, courtesy of Caroline Nahas and Jeremy Lawrence. Assuming
that the non-shikko yakuin companies have an HR director on the board, the contrast is sharp: 70
percent of large Japanese firms versus 0.6 percent of U.S. firms have the HR executive on their board.
TABLE 6
P P  H F*
Japan HR U.S. HR
[rank] N[rank] N
Finance 5.7 [3] 215 8.4 [1] 139
Human resources 5.7 [3] 218 6.1 [5] 139
Marketing/sales 6.7 [2] 216 7.1 [2] 124
Planning/strategy 8.2 [1] 205 6.3 [4] 94
Production/operations 5.2 [5] 179 6.4 [3] 91
R&D 5.4 [4] 159 5.4 [6] 67
*Spearman’s rank correlation = 0.203 ( p = 0.6998).
HR in Japan and the U.S. / 229
was finance, followed by marketing, production, planning or strategy, and
HR. The only department rated lower than HR was R&D. When CFOs
were asked to answer this question, they gave similar rankings: finance
was rated as the top department and rated HR as the weakest, even weaker
than R&D. These were precisely the same findings for the matched-pair
companies: both CFOs and HR executives rated finance as the most
powerful function, and, again, finance rated HR as being much weaker than
HR rated itself.
However, when asked which departments have gained or lost power to
influence strategic decisions over the past 5 years, U.S. HR executives
rated the HR function as the biggest relative gainer. Seventy-five percent of
the HR respondents said that HR has gained power, with finance coming
in second at 50 percent. But this view is not shared by CFOs, 70 percent of
whom say finance has gained power, followed by planning (45 percent), and
HR (26 percent). Of great interest is the finding that, in the United States,
the perceived power of the finance function is moderated by having direc-
tors with an HR background. As the number of these directors increases,
the perceived power of finance goes down (r = 0.29, p < 0.01).
In general, HR and finance executives agree that finance rules the roost.
This hardly comes as a surprise, given the prevalence of the M-form type
of corporate organization, the pace of M&A activity, and the meteoric rise
of stock options and equity prices during the study period. HR and finance
do not agree on HR’s status, however. The CFOs see HR as gaining and
holding less power than the HR executives think is the case. Unfortunately,
there is no way of judging whose perception is correct. But it seems plausi-
ble that HR—the underdog—has greater reason to pump itself up and to
overstate its influence than finance has to understate it.
The internal decision-making process of Japanese companies is different
from U.S. firms. When asked about power, Japanese respondents said the
top department was planning, which typically is a small unit attached to the
president’s office that handles major issues of organizational design, such as
spin-offs (Table 6). Marketing came in second, and finance and HR were
third while production and R&D were farther down. Thus, even if Japanese
and U.S. HR managers are equally prone to hubris, it is still the case that
Japanese HR managers rank themselves ahead of their U.S. counterparts;
the rankings in the two countries are dissimilar, as indicated by the insig-
nificance of the Spearman’s rank correlation shown in Table 6.
However, when Japanese executives were asked which departments had
gained or lost influence during the past 5 years, they were less likely than
their American counterparts to say the gainer was HR: only 40 percent said
HR had gained power. The big gainer in Japan was the planning department,
230 / S M. J, E M. N,  K S
with 54 percent saying it had gained power. Only 37 percent said finance
had gained power.
Thus, finance is not the top function in Japan, nor does it dominate HR.
Rather, it is the planning department—which specializes in corporate orga-
nization from a strategic rather than a financial perspective—which holds
power and is gaining more of it. There is no observable trend toward the
financialization of strategic decision-making in Japan. Stock options—a key
mechanism in the United States for aligning management decision-making
to shareholder interests—remain uncommon. Only 19 percent of the com-
panies said that they used options, while an additional 10 percent said that
they were considering them. Other studies have found that, when Japanese
companies do offer stock options, they account for a trivial portion of total
compensation. In the United States, however, options are used by nearly all
companies (97 percent), although the majority (62 percent) of firms pay
them only to their managerial employees and then usually only to senior
and divisional executives, the upper crust of management. There is a link
between this kind of shareholder-oriented compensation and the structure
of HR decision-making: the greater a company’s reliance on stock options
and other market-oriented forms of compensation, the more decentralized
are its HR activities (r = 0.23, p < 0.01).
The perceived power of the headquarters HR function does have con-
sequences: for the unit’s strategic influence, for its role in the organization,
and for the strength of its internal labor markets. Table 7 identifies Japanese
and U.S. companies in the lower and upper quartiles of perceived HR
power, with a firm’s HR power score normalized on the mean score for all
functions in the firm (We call this “relative power.”).12 In both Japan and
the United States, high relative HR power is associated with stronger
internal labor markets for managers; greater centralization of operating
decisions; and greater influence over executive career decisions, budgetary
allocations, and strategic business decisions. While HR power is associated
with larger staffs, it is not associated with higher staffing ratios (staff per
employee). Perhaps power is related to the sheer number of employees—
which makes HR more salient—while staffing ratios are affected by eco-
nomies of scale. However, although most of these relationships have the
expected signs, they are not significantly related to power, with the excep-
tion of our two measures of strategic influence.
Values. One would expect—and studies have found—Japanese and U.S.
managers to hold different values because of national differences in culture,
12 Respondents rated the various functions on a scale from 1 to 10, with 10 being most powerful.
HR in Japan and the U.S. / 231
career patterns, and corporate governance (Hofstede 2001). Table 8 presents
data from surveys asking how important were various issues and concerns
to the manager. It includes data from a 1993 survey of Japanese corporate
directors, which gives some perspective on changes in Japan during the 1990s.
We expect this group to be less inclined to hold traditional HR values, even
in 1993, so any gap between this group and current HR executives is probably
an understatement of changes in executive values since 1993.
First, as regards Japan over the period 1993–2001, what is striking is how
executive attitudes have changed: share price value has become slightly
more important and market share and dividends less important. Part of this
may be related to cyclical economic factors rather than secular trends.
TABLE 7
R P   HR F  C O (N  P)
Japan United States
Lower
quartile,
relative HR
powera
Upper
quartile,
relative
HR power
Correlation
with
relative HR
power
Lower
quartile,
relative
HR power
Upper
quartile,
relative
HR power
Correlation
with relative
HR power
Index, internal
hiring,
managerial
employeesb
1.21 (52) 1.25 (63) 0.00 0.31 (35) 0.44 (39) 0.15
Index, internal
hiring,
nonsupervisory
employees
0.96 (52) 1.15 (61) 0.06 0.66 (35) 0.56 (39) 0.02
Number of
headquarters staff
18 (52) 23 (65) 0.04 25 (35) 75 (40) 0.10
Staff per employee 1/121 (52) 1/140 (60) 0.02 1/212 (35) 1/211 (40) 0.04
Operating
authority
index valuec
47.4 (52) 50.3 (61) 0.03 24.5 (34) 26.5 (38) 0.02
Strategic influence:d
Senior executives
& payroll
allocation
5.85 (46) 6.38 (61) 0.03 4.47 (34) 5.73 (37) 0.27**
Other business
decisions
1.44 (18) 2.39 (23) 0.193.13 (34) 4.80 (38) 0.26**
aRelative power is the power value for the HR function in a firm divided by the mean power value for all other functions
in the firm.
bThis is the same index shown in Table 5, only here we break out managerial versus nonmanagerial employees.
cSee Table 2.
dStrategic influence: “senior executives and payroll allocation” is the sum of the cells in Table 3, where 1 point is given
for each instance of providing information; 2 points for offering advice; 3 points for being involved in the final
decision, for a total maximum of 12 points. For “other business decisions” it is the mean across rows (events) in Table
4, where 3 points is given for drawing up the proposal and final decision making; 2 points for evaluating financial
consequences; and 1 point for implementation, for a maximum of 9 points for each event.
p < 0.10; **p < 0.01.
232 / S M. J, E M. N,  K S
Japanese managers might stress dividends and market share less now than
in 1993 because their markets are shrinking and profits (to pay dividends) are
thin or nonexistent, while in the United States, the opposite situation pre-
vails (or did until 2001). However, the uptick in the importance accorded
share price value is probably a secular change, reflecting the advent of a
shareholder-value ethos in Japan.
There remains a sizeable, significant difference in the emphasis placed on
stock prices in Japan and in the United States, however. For U.S. HR exe-
cutives, share price ranks second in importance (after fair treatment), while
in Japan share price comes in at seventh place. And when we look at CFOs
in the United States who are closer to the executive mainstream than HR,
we find share price being given more importance than anything else.13
Conversely, Japanese HR managers give heavier weight to safeguarding
employees’ jobs, ranked as the second most important concern, much
13 However, what is also interesting is that on two key values—maximizing share price and safeguard-
ing employee jobs—U.S. CFOs look more like U.S. HR executives than the latter look like Japanese HR
executives.
TABLE 8
E Va (N  P)
1993
Japanese
directorsb
Japanese HR
executives
U.S . HR
executives
U.S .
CFOs
t-test
Japanese vs. U.S.
HR executives
Raising dividends 2.6 2.2 (225) 2.6 (139) 1.7 3.328***
Share price 2.0 2.3 (225) 3.3 (141) 3.6 11.873***
Market share 2.9 2.2 (225) 2.9 (142) 2.7 6.564***
Diversify & expand
into new markets
2.9 2.5 (226) 2.4 (144) 2.5 1.079
Improve employee morale NA 3.6 (226) 3.3 (143) 2.7 5.013***
Insure employees
are treated fairly
NA 3.0 (225) 3.4 (144) 2.7 5.557***
Safeguard
employees’ jobs
3.3 3.2 (225) 2.1 (142) 1.8 12.662***
Increase number of
management positions
1.3 1.2 (224) 1.2 (144) 1.1 0.491
Increase my
department’s budget
1.5 1.4 (225) 1.3 (144) 1.1 1.585
Coordinate with
other departments
2.4 2.8 (226) 3.2 (144) NA 4.101***
Make contribution to society 2.6 2.5 (225) 2.4 (144) 2.2 1.641
a“What is important to you in your job?” 1 = not important, 4 = most important.
b1993 data courtesy of Fujikazu Suzuki, RENGO Research Institute for Advancement of Living Standards (RIALS),
Tok yo . N = 2246.
***p < 0.001.
HR in Japan and the U.S. / 233
higher than is the case for their U.S. counterparts. But when it comes to
internal management issues (increasing management positions and depart-
ment budgets), the differences between Japanese and U.S. executives are not
significant. In short, there are large national differences on the values that
form the core of corporate governance—share prices and job security—and
smaller differences on other issues.
Are these values related to organizational variables such as HR power?
Table 9 examines two key values—maximizing share price and safeguarding
employee jobs. For each country and each value, we identify those who rate
the value as being of low or high importance (i.e., we dichtotomize responses)
and display the mean values of other variables associated with each category.
For the United States, we hypothesized that executives with strong HR
career backgrounds would show weaker support for shareholders and
stronger support for employees’ jobs than those having less professional
backgrounds. The first but not the second hypothesis is supported by the data
in Table 9. (For Japan, variations in the percent of career spent in HR do not
have the same meaning as in the United States.). We also expected that a strong
union presence would affect an HR manager’s values in a fashion similar to
professionalism, but there is no relationship between a firm’s unionization
level and its manager’s values, neither in Japan nor in the United States.
However, there is a relationship between relative power and manager
values. In both countries, HR executives who hold “shareholder” values (either
to maximize share prices or to put a low value on safeguarding employees’
jobs) rate their headquarters HR unit as being relatively powerful. (The
relative size of this group is larger in the United States than in Japan, and
the relationships are significant only for the United States.). Recall also our
earlier finding that, in the United States, CEO reports are more likely to
hold shareholder values and to rate their departments as relatively power-
ful. It is tempting to think that, in the United States at least, the causality
runs from values to power: Those executives who put shareholders ahead of
employees gain power for their units and for themselves by demonstrating
allegiance to the dominant mindset of senior management.
It may well be that a similar mindset is starting to develop inside Japanese
corporations and that those HR managers who align themselves with it are
able to boost their influence. However, the power differential associated with
shareholder values is smaller than in the United States—and not statistically
significant—so that there is less of an incentive for Japanese HR executives
to adopt shareholder values as a strategy for maximizing their status.
As regards strategic influence, again the U.S. pattern is for HR managers
who hold shareholder values to have significantly more influence than managers
with stakeholder values. In Japan there is little evidence of this effect. In
234 / S M. J, E M. N,  K S
TABLE 9
C  HR E Va
(N  P)
Maximize Share Price Safeguard Employees’ Jobs
Japan U.S. Japan U.S.
Low
importance
High
importance
Low
importance
High
importance
Low
importance
High
importance
Low
importance
High
importance
Percent career
in HR
43 (137) 36 (88) 82 (20) 76 (117) 41 (36) 40 (189) 78 (99) 72 (39)
r = 0.07 r = 0.15r = 0.01 r = 0.02
Percent union 64 (127) 66 (83) 15 (19) 16 (114) 58 (34) 66 (177) 17 (94) 12 (39)
r = 0.03 r = 0.02 r = 0.10 r = 0.07
Relative 0.92 (131) 0.95 (84) 0.80 (19) 0.90 (118) 1.03 (35) 0.92 (180) 0.94 (97) 0.77 (41)
HR power r = 0.06 r = 0.17* r = 0.09 r = 0.27*
Influence
in business
strategy
1.8 (57) 2.0 (22) 3.2 (18) 4.3 (119) 1.7 (15) 1.9 (63) 4.3 (97) 3.8 (41)
r = 0.17 r = 0.15r = 0.07 r = 0.15
a“Low importance”: respondent rated the value as not important or somewhat important; “high importance”: respondent rated the value as very important or most important.
p < 0.10; *p < 0.05.
HR in Japan and the U.S. / 235
fact, those executives who care most about safeguarding employee jobs tend
to have greater influence, although the relationship is not significant. Again,
there is less incentive for Japanese HR executives to adopt shareholder values.
Discussion
The data clearly show the persistence of distinctive Japanese and American
approaches to HR decision-making. In Japan, there is greater centrali-
zation and more intensive use of central HR staff. Centralization and staff
intensity are related to the fact that headquarters continues to administer
internal labor markets for managerial and nonsupervisory employees. The
HR function ranks relatively high in the corporate hierarchy and influences
strategic decisions related to executive careers and payroll allocation. HR
executives have participation on company boards, both directly and indi-
rectly (by board members with an HR background). The majority of HR
executives espouse “stakeholder” rather than “shareholder” values. Hence
two of the three Japanese pillars—enterprise, unions and employment secu-
rity—remain in place in large companies. As for seniority—the third pillar—
it is of declining relative importance, although the share of pay based on
individual performance remains well below U.S. levels, as reported earlier.
Change is occurring in Japan, however, as evidenced by cutbacks in HR
staff, outsourcing of HR activities, and leaner staffing ratios during the
period 1996–2001. While some of this is just belt tightening, there are signs
that HR is being singled out, especially in very large companies. Although
headquarters HR departments are in charge of implementing the transition to
performance-based pay, the shift entails decentralization of operating authority.
Corporate governance is also changing, with nearly a third of companies
utilizing the corporate officer system. Although the effects of this system are
modest, and although stock options remain rare, nevertheless a beachhead
has been established for shareholder values. A minority of Japanese HR
executives currently espouse these values and, given the finding that such values
are associated with HR executive power, they could become more widespread
in the future. In other words, HR executives may have to choose between
loyalty to shareholders and loyalty to the shain, creating the potential for
future shifts in values and practices. In short, Japan is moving—albeit
gradually—toward the market pole on the market–organization continuum,
although there are fewer incentives for this to occur than in the United States.
As for large U.S. companies, while there is internal hiring and attention
to organizational factors, employment and pay are more market-oriented
than in Japan. Hence HR decision-making is a line responsibility and
236 / S M. J, E M. N,  K S
headquarters HR stands at low rank in the corporate hierarchy. While both
countries are decentralizing and cutting headquarters staff, the process is
occurring more rapidly in the United States, even though the United States
started from a more market-oriented position back in the 1980s. Thus, on
the organization–market continuum, the gap between the United States and
Japan is widening, not narrowing.
The same divergence is occurring in corporate governance. Ten years ago,
U.S. corporations already were more finance-oriented than Japanese firms.
Since then, the United States has financialized more rapidly than Japan, so
that finance is the powerhouse in the executive suite (Fraser 2001). Its logic
dominates other functions and drives the marketization of employment.
U.S. boards are shareholder-oriented and some even have CFOs serving on
them. HR, on the other hand, is almost never represented—directly or
indirectly—on corporate boards. HR’s modest effect on corporate gover-
nance is partly because of its weak power base and low standing in the eyes
of pivotal figures like CFOs. It is also the result of HR executives lacking a
distinctive orientation. HR executives espouse the same values as CFOs
when it comes to job security and share prices. The small number of HR
executives who buck convention pay a price by being less powerful than
their peers. While American HR executives do care about issues like equity
and fairness, they have not succeeded in persuading other managers to
share their concerns. To put it another way, in the United States, finance
has influenced HR much more than the other way around. The result is that
in corporate governance, too, the relative positions of Japan and the United
States have widened, not narrowed, over the last 10 years.14
While the low status of U.S. HR is an old story, what is new is the
growing number of HR executives who report to their CEO, espouse share-
holder values, and consider themselves part of the senior management
team. In this new constellation, HR’s role is to work closely with the CEO
on strategic decisions such as mergers and acquisitions and to help with
executive hiring, the importance of which has grown in recent years as both
executive pay and turnover have risen. Thus, the shift to the market in the
United States is enhancing some of the senior HR executive’s responsibilities.
In addition, headquarters oversees the outsourcing process and designs
companywide systems for benefits and other pay processes. Yet despite these
shifts, HR is still considered less powerful than other corporate functions.
14 We replicated a question recently asked of Japanese directors (RIALS 2000: 105) and posed it to
the U.S. CFOs: “Do you agree that corporations are the property of shareholders and employees merely
one factor of production?” In Japan, 9 percent of directors agreed with this question; in the U.S., 67
percent of CFOs agreed. The split is striking.
HR in Japan and the U.S. / 237
Another gap that we observed between the United States and Japan had
to do with the senior executive’s role in strategic restructuring. U.S. executives,
especially those who report to the CEO, are more involved in these decisions
than their Japanese counterparts. Interestingly, those U.S. executives who
hold shareholder values are more involved in these strategic decisions, whereas
the relationship is statistically insignificant in Japan, reducing the payoff to
Japanese HR executives from switching to shareholder values.
There is a much smaller involvement gap between Japan and the United
States when it comes to strategic decisions about executive pay, careers, and
divisional budgets. Here, Japanese executives are as much or more involved
than their U.S. counterparts. It is possible that the differences between the
United States and Japan here are due, in part, to differences in the meaning of
strategy.” For Japanese companies, the key strategic decisions are related to
building the company’s core competencies while reallocating employees to
meet those needs. Corporate divisions are given less autonomy and unrelated
units are regularly spun off. For a U.S. company, growth is more likely to occur
through acquisitions and divestments, that is, through financially determined
criteria for restructuring, and there is more unrelated diversification.
Summary
Executive decision-making, employment practices, and corporate gover-
nance are a totality of interrelated parts that situate companies on an
organization–market continuum. Aggregating across large companies within
a country, we get a distribution that includes national means and variances.
Despite the shift to the market in recent years, the central tendency in Japan
remains some distance from the central tendency in the United States.
Moreover, in some dimensions the distance between the national means
has widened as the United States has moved more rapidly to the market-
oriented end of the continuum. This could account for the fact that Japanese
observers are impressed with the changes that have occurred in Japan in
recent years—because their comparison point is the Japanese past—while
those visiting from the United States see a system that is transforming very
slowly, because their comparison point is the United States.
HR executives in U.S. companies have carved out distinctive niches for
themselves; they are hardly impotent or unimportant. Their power base is
situated at the margin between the market and the organization, and they
focus heavily on executive, rather than operating, issues. Despite higher
levels of HR professionalism, U.S. HR executives are more inclined to see
employees as means to an end—the end being higher share prices—than as
238 / S M. J, E M. N,  K S
corporate assets or resources necessary for competitive advantage. In Japan,
the HR function’s power rests inside the organization: on career employ-
ment practices, the centralization of operating decisions, and on dealings
with the enterprise union. Executives are somewhat more inclined to see
employees as ends, that is, as stakeholders or as competitive resources. In
short, we have a paradox: both Japanese and U.S. firms are becoming more
market-oriented yet national differences persist and may even be widening.
Our study provides evidence for both sides in the convergence debate—
those who contend that “varieties of capitalism” remain distinctive and
those who see an erosion of national systems. The significant disparities in
national variable means support the “varieties of capitalism” thesis. On the
other hand, there are numerous cross-national similarities. We see common
movements towards the market in both countries—such as the decentrali-
zation of decision-making and the growth of outsourcing—and in Japan
there is today greater emphasis on share price.
Corporate governance plays a key role in determining the HR executive’s
role and the balance of power between the corporation’s various stakeholders.
In the United States—as our study shows—finance remains dominant as does
a shareholder ethos. Japanese companies, however, have not financialized
their internal decision-making to the same extent nor have they elevated finance
to a dominant position. Japanese corporate boards are much more likely than
their American counterparts to include an incumbent HR executive, or other
individuals with an HR background, or both. In the future this may change,
however, as recent revisions of the Commercial Code are intended to facilitate
the placement of outsiders on corporate boards (JIL 2003).
Finally, our research demonstrates the utility of tying organizational out-
comes to the distribution of power among different executive functions and
between shareholders and other stakeholders. Corporate organization is the
result not only of efficiency considerations but also of contests over the
distribution of resources. Functional units inside the firm—such as finance,
operations, and HR—vie for power for themselves and/or as representatives
of different groups, such as customers, employees, and shareholders (Freeland
2001). It is worth emphasizing the finding that, in the United States, having
more corporate board members with an HR background is associated with
less power for the finance function and stronger career-type employment
practices. Hence, current efforts by U.S. unions and shareholder groups to
make it easier to nominate independent directors might, if successful, result
in more than cosmetic changes to U.S. corporations (Plitch 2003).
Paying greater attention to power is important for understanding the
varieties of capitalism debate. National models are due, in part, to different
allocations of power and these distributions generate distinctive organizational
HR in Japan and the U.S. / 239
arrangements. Seeing things from a power perspective sensitizes us to the
possibility that debates over the relative efficacy of different HR models are,
at a latent level, really disputes over distributional outcomes. We urge other
researchers to give more consideration to how the HR function—and other
aspects of management—are affected by power contests within corporations
and the societies in which they are embedded.
R
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Appendix: Survey Methodology and Sample Characteristics
Questionnaires were mailed in early 2001 to the senior HR executives of
companies listed on the New York Stock Exchange and on the major Japanese
exchanges (Tokyo, Osaka, Nagoya, Fukuoka, and Sapporo). The Japan
sample, drawn from a database published by Diamond, comprised all
major-exchange companies for which the name of the senior HR executive
was available. The initial sample comprised 1007 companies. The U.S. com-
panies came from a database called Reference-USA. We selected all firms listed
in the database that were on the NYSE and which gave names for both their
senior HR and finance executives. The initial sample size was 977. The
questionnaires—in English in the United States and in Japanese in Japan—
were carefully constructed for linguistic and organizational comparability.
In Japan, a second set of questionnaires was mailed 3 months after the
first mailing. In the United States, reminders were sent 1 month after the initial
mailing, followed by a second questionnaire-mailing 3 months after the first
mailing. In the United States, the second mailing was followed up with direct
phone calls to all nonrespondents, reminding them to return questionnaires.
In the United States only, a single set of questionnaires was mailed to the
CFOs of the same 977 companies included in the initial sample. Funding
was not available for a second mailing.
Measured by employment, mean (median) firm size in Japan was 5083
(2215); in the United States it was 18,259 (5200). The dominant 1-digit
sector was manufacturing, which provided 41 percent of respondents in the
United States vs. 59 percent in Japan. Average age of the respondents in
Japan was 52 vs. 48 in the United States. As noted, none of the Japanese
respondents was female vs. 33 percent in the United States.
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