The Most Unlikely Client Becomes a Close Client Including a Landmark Trip Together to the Horses Mouth — the Tax Qualified Pension Section of the National Tax Agency to Cut-back a Retirement Benefit
The expat boss who had everything in good shape, and who was pretty sure an outside consultant, especially a foreign one, would be of no value. Is change best done by employees or does it need to come from the outside? What should be, or can be the role of a consultant? An interplay with skill providing/personal growth training seminars.
We first made contact with each other, visual and oral, at a speech I made. I thought it was a Swiss Chamber of Commerce speech, which would have been at the Silver Room of the Capital Tokyu Hotel on June 18, 1993. If so it was titled “Are You and Your Human Resources Sitting on a Stable Three-Legged Stool?” The three legs were:
- Personnel Policies and Practices
- Search and Selection of Management Talent
- Training and Development Program
Unless there was another Swiss speech between then and May 30, 1995, the first time I really met the client, it might not have been the Swiss Chamber, because I definitely do not think it took as long as two years to get together. But then again, as we always say in Japan things take time. But even among gaijin? Incidentally, even for that comparatively lame speech title, there was a large turn out of largely European executive talent sitting on stable enough four legged chairs. Some of you may remember the day.
“Mr. Nevins, I Can See How You could Reduce Someone’s Pay, but I can’t Picture the Rest of Us Succeeding”
If it was not the Capital Tokyu venue, it may have been the Netherlands Chamber at the Aries Room at the New Otani on June 15, 1994, with a luncheon speech entitled “How to Downsize and Restructure with Reengineered Manpower that Leaves Your Company Finely Tuned for Future Performance.” This was also a warm sunny day, and I remember another expat boss (who never became a client) kind of beating up on me for offering programs and solutions that he felt could only be implemented and succeed if I did the talking and/or I were involved in the group based/standing-before-the-employee communication sessions. I remember him saying, “Mr. Nevins, I can see how you can pull off reducing someone’s pay, but if the rest of us tried it I just can’t see the response from the staff being ‘yes of course, that will be just fine.’ It looks to me like you make us dependent on you.”
It was hard for me to answer that one. I probably said that the proper messages, ample coaching of the client, and setting the right environment, tactics, systems, and interplay with other staff, win the day. I probably also was my usual self and said something like, “Well put me in the program, and on the scene, and let’s get some big things done.” That was good for a few laughs.
I usually don’t have two tough questioners in the same room, and it just may have taken two years for the Capital Tokyu, Three-Legged-Stool speech gentleman to come around and decide I might be of some value. He gave me pretty much the roughest time of anyone during the last 25 years of these kinds of speeches. But, afterall, he ended up being a very good man. He is an excellent, kind, brilliant and unusual man, and merely the kind of man who puts into words what so many others undoubtedly and understandably think.
Can such Pocketbook Impacting Changes be Made by Fellow Local Japanese Staff? Maybe, but He/She Will Feel like the On-site Leper.
His comment and question was something like, “Many of us have been in Japan a long time. We understand Japanese culture and how insular the Japanese can be. I hear you talk about all the successes you and your clients have, and you appear to be a frank and honest man. These changes you make effect people’s pocket books, and you are changing things that have existed for years, that people are familiar with and may depend on. I would think that at least these changes would be easier made by people in the company, and that they have a right to make the changes, and would want to make the changes themselves. I suppose your Japanese is very good, but I wonder just how much acceptance, an outsider, let alone a foreigner, could have. Very sorry for this long question, and it may be difficult for you to answer.”
I suppose I must have taken a deep breath, or sigh, and looked up at the ceiling for inspiration. I noticed on TMT’s 1987, three hour video “Strategic Tools for Managing Japanese Personnel — Local Practices, Policies and the Law” (19,000 Yen and still available!) I have a tendency to do that. Better to look up than down, as God and the crystal chandelier are more inspiring than the rug and the devil.
Actually I was pretty well prepared to answer, because from the early 90’s I was becoming more and more clear that especially for any cost saving elements of change that TMT introduces, it is an imposition on any in house manager, (especially a Japanese manager), to make those changes. First of all, where and why would he or she suddenly gain the insight, and notice what needs to change after all those years?
How Fair is it to Expect a Fellow Japanese Manager or Even a Japanese President to Conceive, Sell and Implement such Change?
And then, how fair is it to expect a fellow Japanese manager, staff or even President to formulate, sell, and implement those changes? The local Japanese employees have to really live, work, and interact together. A gaijin expat boss, in a sense, lives a bit distanced from, and in a bit of a different world than fellow Japanese colleagues. The expat executive is usually in and out of the country in just a few years, has ones own private office, doesn’t have to often drink and have lunch together, and doesn’t have an antenna that would pick up all the subtle scuttlebutt, and currents of warm and chilly air that flow through the office.
Japanese employees also know and expect that a gaijin boss’s mindset is, should, and must be different. He is on a different career path and is subject to different pressures from the home office. He or she is judged by ROI (Return on Investment), and profit standards compared to other regions and countries. The expat also must compete with other national operations for investment capital, other resources, and the attention of the home office.
Outside Pressures that Can’t be Refused. These are Critical Roles for the Home Office — and Also for Gaijin Bosses.
The prevalent thinking that a local operation should be solely run by locals is flawed, insofar as local management has enough problems managing local issues, let alone managing, influencing, pleasing and keeping away regional or home offices. Co-CEO’s, a Chairman and a President, one Japanese and the other expat, is something that could be tried more often.
When difficult changes or adjustments are made in a company, it helps if there is nothing personal about the changes. This is the advantage of tried and true recipes, and systematic changes that have been made at a large number of companies, (TMT’s hundreds of clients) rather than one-off changes that people feel are targeted against particular individuals or departments within a single (my) company. Enters the largely boilerplate, with minor customization approach. Enters the “gaiatsu” outside pressure coming from an outside consultant who clearly didn’t invent this approach just to solve a given client’s (our) problem. Other companies or people in them have had the same problem, and the same simple solutions do work surprisingly well. These solutions don’t have to have anything to do with corporate policies, special favors, brown nosing, or even the particular ideas of one colleague who is prevailing on this one. The other colleagues don’t like to see this happen, and it’s not fair to make a bad guy out of a particular colleague.
There’s an Advantage to Using Outside Tried and True Policies and Processes. There are no Personal Agendas and Nothing Personal.
At about this time in the early 90’s I had already been in business with some of the same clients for 15 years. I also saw that I was more times than not out surviving even their Japanese Personnel Managers and Presidents. My notes, files and historical perspective were often exceeding that of my clients. Sometimes TMT’s institutional memory was better. I was the one who was always at the same address and just a phone call way. In my way I actually was able to, and was accepting more responsibility for my work and my systems, than the companies whose newly hired Personnel Manager, or President was.
So many of the client’s Japanese executives would come in, surround themselves with their own people, replicate something in the only image they really knew, leading to a lot of (sometimes) better incumbent people quitting. They were upsetting the apple cart in all kinds of ways, but wouldn’t even be around long enough to pick up the fallen fruit, sow new seeds, and wait for the plants to grow and bare more fruit.
A Salaried Executive Can Come in, Replicate Something in the Only Image he Knows, Leave, or be Fired. Who Picks Up the Pieces?
I think of a number of managers, Japanese, or expat, who have questioned why or how an outside consultant can have so much influence on a consulting intervention including its implementation in front of employees. But guess what? Most of them are gone, no longer there. Instead it is me at TMT who is always here, or can come in at 3 or 5, or 10 year intervals as needed. Obviously I and TMT can do nothing alone, and on our own. But from the early 90’s I was learning that we can do more than offer the concepts, systems and structures. We can be a catalyst, role up our sleeves, get in and in front of staff, and communicate, and provide (in principle usually five years) ongoing coaching and support as part of a fixed project fee.
I didn’t answer that expat President’s question that completely. Frankly I remember his question but not my answer. I suppose I answered it fairly well because he ended up doing business with us, but then again it looks like it took two years. I remember he called me on the phone about a week or two after the June ’93 speech and asked me how I learned Japanese. He was already pretty good, and wanted to get better. He identified himself as the man who asked the tough question at the speech, and reminded me that he, with internal resources, had everything under control and wouldn’t need my help. I nonetheless spent about 30 minutes with him in trying to impart all the secrets I had in quickly learning to speak and read Japanese.
It Took Two Years After My Speech, a Reading of My Books, and Multiple Good References Before He Called for Reassurance
I believe his next move was to read Labor Pains and the Gaijin Boss (1984) and Taking Charge in Japan (1990). He is a speed-reader, so he didn’t need two years to do that. I suppose he started to really check me out and talk with multiple clients that had used TMT.
The first time we met, and exchanged business cards was at TMT on May 30, 1995. I imagine we started with the normal “Getting Started with TMT,” which involves getting a client’s human resource documentation (such as ROE, Salary, Contracts and Retirement policies), and evaluating it with margin notes prior to the meeting. At this point there is a small fee for the verbal report and perhaps a little follow up.
He was confident I wouldn’t find much, but he liked this “Doctor’s check” concept and felt better because he would be leaving Japan in March 1996, and would turn the operation over to his assistant, a much younger expat. He wanted everything to be right for his assistant. As a good mentor, I think he also wanted his junior to have a person to turn to if he ran into trouble as the operation grew.
He Just Wanted a Doctor’s Check and a Clean Bill of Health, Before Passing the Reins to His Number 2 — also a Gaijin
Maybe the May 30, 1995 meeting was one or maybe four hours, but for some reason I had no notes. Perhaps it was because he was still making it so clear he didn’t need any help. Maybe he asked me not to take notes. But I guess as we met, talked, and I showed him alternate TMT policy language, and approaches, what I discovered made sense, because on June 13, 1995, just two weeks later he brought along his expat assistant. From then on I tended to work with both of them together.
Some time ago I weeded out, and discarded their old ROE from my files and probably never had to write an evaluation report, so I’m not sure what their hot buttons were. I know we increased their 7 hour workday to 7 hours and 45 minutes, carved-out 5 months of bonus where there used to be only 2 months (keeping annual income the same, thus reducing monthly take home pay), and greatly cut back the retirement benefit except in cases of reaching the retirement age. There must have been about the “17 or 18″* other changes that TMT usually makes. (*That’s usually about what it comes to and what I say.) Anyway, after a two year wait, that first afternoon at our June 13 meeting, with the three of us together, we shook hands on “a 5,000,000 Yen payment within this year, and the remaining payment of 6,440,000 Yen 6 months later in January, 1996, right in line with our TMT headcount tariff.”
The Company was Growing Fast, in the Black, but Still had Me Increase the Work Day 45 minutes, “Carve Out” 3 More Months Bonus, and Greatly Restructure and Reduce the Retirement Benefit
This company was growing fast, in the black, and would have to pay corporate tax at the 50% or 60% rate. Maybe they realized 11.44 Yen was really only 5 or 6 million Yen, but there are lots of other ways to waste money if you want to reduce taxes, so I believe they saw value in the TMT policies and system’s investment. (Except for two one-offs, there was no talk of, or need of a staff reduction.)
For example, I’m sure they saw that the change in the retirement benefit alone, based on the staff who quit just that year, would pay for the TMT fee. They were sharp European businessman who may come from a country with a deeper social safety net than, say, my U.S. clients, but they were eager to keep the people they trained, and needed them to think twice about quitting to go and work for a competitor or “even to return and help out at the wife’s sister’s husband’s, second cousin twice removed, father’s family business in Niigata.” How many times do we hear that, especially just after the mid-June, or mid-December bonus is paid?
She Could Job Interview in English, but Her English Disappeared Once She Got the Job
At that June 13 meeting, one part of my notes still gets a chuckle. They hired a bilingual woman to help an older Japanese personnel manager who had virtually no English. They met her three times and her English was good. But after she was hired it literally disappeared. She could or would no longer speak English. It was an absolute mystery to them too.
Early on as I began working with the senior Japanese personnel man and this female assistant, the senior man who had grown close to her, asked me to help him get her to either quit, or figure out where her English went. She also didn’t know, so although it was painful, we had to let her go. Luckily she found her English again, and within two weeks got another job in another foreign company. The only answer we can come up with is that she needs the adrenaline of job interviews to get her English out, but she said “No!” (in English) when I entertained this hypothesis with her in Japanese. (If any readers have any possible answers to this puzzle please call me.)
Things got more interesting after that. In the last two years this company had increased from 50 to 90 people. People often worked until 10:00 or 12:00 midnight, but on Wednesdays, so everyone could get at least one good night’s sleep in the middle of the week, the older expat would personally throw-out everybody and lock up the office at 6:00 p.m. They complained, but I think they also loved him for that.
They Asked Us to Find a New Personnel Manager. I Offered to Give that News to the Incumbent I had Accomplished So Much With.
In July we had an executive search, recruiting briefing and ended up placing a number of people including the personnel manager who is still there, and doing very well as of today, over five years later. Unfortunately I offered to break the news to the incumbent senior personnel manager, the man I had worked with, that he had to go. He was well liked by his peers and staff, but had a hard time taking initiative and getting things done. I was satisfied with him insofar as our job together was so successful. We also coached him up so he could score and get a job somewhere. He was a nice, loyal man who always got right what I asked him to do. I guess they were serious about needing English.
We decided to create a 10-person task force of the key managers, and three or four younger, key informal leaders. The first meeting was in the conference room outside my office at 11:30 a.m. on August 22, 1995. We mostly showed them TMT’s 81-person capacity seminar room, and Career (Outplacement) Center. I then hosted a lunch at a room in the Chinese restaurant at the nearby Diamond Hotel directly behind the British Embassy. It was mostly for good feelings, but we also made our points, asked for support, had some fun, and a couple guys got plastered (rather drunk for some of you non-native English readers).
There was No Resistance to Increasing Working Hours, because Those Who Left at 5:00 had been Resented
The next task force meeting of the 10 managers and staff, expat managers, and myself was at their place on September 5, about two weeks later. There was understandable resistance to the bonus carve-out issue, and the cut back on retirement for any reason except reaching the retirement age. Most of these hardworking key people welcomed a day from 9:00 to 5:45, instead of the current 9:00 to 5:00. They wanted their people around, didn’t like the few who left at 5:00, and wanted to even out the workload among staff, for the sake of fairness.
On the bonus, if you divide 5,000,000 Yen by 14 (2 months bonus/current practice) you get 357,143 Yen per month. If you divide by 17, it’s only 294,118 Yen or a difference of 63,025 Yen per month, or a 17.6% reduction in monthly pay (63,025 Yen÷ 357,143 Yen =17.6%).
Not only was there this reduction, but we were honestly communicating that there would also be more performance rating on bonus than in the past. I think my earlier books and this one give a lot of reasons as to why we do this and how we can get people to cheerfully go along with this. Anyway, before this piece gets too long, I want to get to the cut back in lump sum retirement discussion, and the National Tax Agency experience.
Carving Out the 3 Months More Bonus Resulted in Monthly Pay Coming Down by 17.6%, but it was the Retirement Benefit that caused the Biggest Wrinkle
According to my notes the last and final ten-member task force meeting was on October 13, 1995. There were still some misgivings and apprehensions, also because the retirement benefit was reduced a bit even for those who reached retirement age. That is because the new TMT Salary System had all pay components calculated into the retirement benefit. Since in the past, some allowances were not calculated in the retirement benefit, and on average throughout Japan about 30% of monthly pay is not calculated in retirement, we probably defined in the ROE a percentage, perhaps 20% or 25% of monthly pay as not calculated into the retirement benefit.
About a week before this final October 13, 1995 task force meeting, on Saturday, October 7, 1995, we did a day of training seminars, Module 12 on “Time Management” and Module 16 on “… Becoming a More Effective Staff or Manager.” At the beginning of the day we told the 77 people in the room about the negative changes that would be coming.
For this client we also did Module 2 “Delegating, Coaching, Supervising, Appraising (and being supervised)” and Module 3 “Creativity and Imagination” on Saturday, March 9, 1996. And then finally on Saturday, September 7, 1996 we did Module 5 “How to Sell Products and Ideas,” and Module 11 “Negotiating, Persuading and Reaching Agreement.” The new ROE, Salary and Retirement systems had already been implemented, although the negative change to the Tax Qualified Pension Plan is an interesting saga in itself.
If You Believed What the TQPP Funders Say, You Would Never be Able to Cut Back Your Retirement Liability
On November 2, 1995 three people came to the client from the insurance company that was funding the Tax Qualified Pension Plan (TQPP). Everyone knows and believes that it is supposed to be (1) difficult to cut back these benefits, (2) the Company is supposed to be in the red, (3) other cost saving or negative changes are to be made, it is supposed to (4) require the approval of the effected staff, and (5) it “must be approved by the National Tax Agency.” The insurance companies and trust banks are obviously not interested in having the premiums paid to them become smaller, and they are not excited about having to recalculate and do troublesome new paper work to accommodate the negative change.
So these funding institutions want their customers to back off and give up in making the changes. They will use the five reasons in above paragraph to varying extents ad nauseam. Also depending on the personalities or branch policies there are large discrepancies as to how accommodating the various institutions are. All my clients want to say is “wait a minute, I’m not interested in cheating the tax agency out of tax dollars, whose company is it any way?, two wrongs don’t make a right, and we want to change something that weakens us, is out of wack, and is strategically flawed before we lose money.” Some things are clear. The money already in the fund cannot go back to the company. It must be paid to the employee. The institutions tend to be more willing to simply cancel and close out plans (especially in recent years), than they are in accommodating negative changes. When plans are so terminated the money is supposed to be paid to individual employees, (although I know of cases in smaller Japanese firms where owners or management with power have managed to not disperse the funds, and employees have not insisted in getting the moneys due them and put aside under their individual names in company managed/overseen bank accounts.)
I have been cutting back Tax Qualified Pension Plans for years, sometimes with grandfathering, and sometimes retroactively. This topic alone could be the subject of a stand alone book. Some cases have been easier than others, with very accommodating funding institutions. If working with you I can give the names of more accommodating people at certain institutions. We have also switched plans from one funder to another. (The new funder doesn’t see it as a negative change as much as he does a new client.) Since the former 5.5% “guaranteed return” is now down to 1.5%, and most clients don’t understand or trust their funding institutions, in a word my advice is often to make sure it’s designed right, and don’t do a TQPP. It also seems that in recent years Japanese funding institutions are not as excited about this business, especially if you have less than 100 headcount. In the press on a weekly basis we read about Japanese firms that are massively cutting back their retirement benefits. There is also all the talk and work being done on switching to or introducing defined contribution plans, in comparison to the traditional defined benefit plans that this client had.
On a Weekly Basis We Now Read about Japanese Firms Cutting Back Their Defined Benefit Plans — But Less so in 1995
Well I made a big mistake at the November 2, 1995 meeting. Being 45 years old, and starting to and trying to mellow, I let these, three representatives of one of Japan’s largest insurers start-off and lead the discussion. In the past I would usually clarify some things up front; i.e. “we know all about the five above cliche-like guidelines, I’ve made these negative changes tens of times before, we are determined to do it, (so don’t even “get started!”) and please help us, and we are very sorry for all the extra work and headaches.”
Instead of getting that across I let them “get started.” They painted a picture of the impossibility of doing it, and even lied saying none of their customers had so cut back the benefit.
I took it slow and soft, but had to point out that I had already done it with their very own insurance company, of course a different branch (“so you wouldn’t know this”), and obviously different people. I gave them and would give them more details if they wanted.
A couple of the two prided themselves on their English, and maybe also didn’t appreciate, and like to face that we had to switch into Japanese to really communicate. Embarrassment, loss of face, you can imagine. The senior of the three wasn’t big enough to either apologize, admit that he learned something, or even just gracefully lick his wounds.
As Far as the Employees were Concerned the Retirement Cut-back was Finished Business and Already Accepted and Implemented at the LSO
Meanwhile on December 13, 1995, I went with the client to the Labor Standards Office (LSO) having jurisdiction over them. We already had the legally required IKENSHO, “statement of opinion” from the “majority representative” of the employees. We probably worked out his selection at the October 7, 1995 seminar held at TMT. The new TMT (basically) boilerplate ROE, and TMT Salary System were checked, approved and filed by the LSO right there on the spot. We already had the new TMT recommended retirement plan built into the ROE and employees considered it also implemented.
Sometime on the week of December 11, 1995 I introduced the client to a Member of the House of Representatives. He had been a Ministry of Finance career bureaucrat. Since the insurance company was saying the National Tax Agency would not approve the negative change, I asked the Diet Member if he could help us identify who at the National Tax Agency was in charge of such approvals. He already knew and called his KOHAI (junior).
We Got Introduced to the Man Who Helped Create the Tax Qualified Pension Law (TQPP). He Passed the Baton to the Only Two Reviewers at MOF.
On December 15, 1995, we asked the insurance company representatives to join us at a 10:00 a.m. meeting with the man who helped create the Tax Qualified Pension Plans (TQPP) system law when he was a young man at “homuka” the legal affairs section. He in turn introduced us to one of only two officials at the National Tax Agency responsible for approving all new and any changes in TQPP. And that was just one of their jobs.
With tens of thousands of TQPP plans in Japan, how much approval of new plans, or their changes can these gentlemen be involved in? Obviously very little. As I always knew, and they said, they have to depend on the funding institution to follow the guidelines, hold the line, or approve the plans and changes. You can also bet that after a second visit from us the National Tax Agency officials were not pleased with the prideful and stubborn people in charge of my client’s account at that funding institution.
I’m quite sure the government official pulled the insurance people aside, or put in a call to their bosses, because after a few months of a face saving buffer cushion, on June 18, 1996 I attended a final meeting with two new people in charge of the account at the funding institution. As I recall we were also playing along and helping the funder by waiting for the annual reshuffle of posts from April 1 at the funding institution.
The National Tax Agency Visits Probably Contributed to Getting the Stubborn Insurance People Replaced
The June 18, 1996 meeting with the new insurance people was totally different, and was a cordial meeting confirming and celebrating the changes that were made. My notes show that earlier on, January 29, 1996, after the meeting with the tax authorities, things were already moving even with the first team from the funding firm. Since the TQPP was fully funded, the negative change would mean it is overfunded, so the overfunded portion should be returned to the individual staff. I’m not sure if that was done, because there are also cases where premium payments are instead temporarily suspended.
Apparently the changes we were making were going to move the monthly premiums paid from 1,900,000 Yen per month to 720,000 Yen per month. But much more importantly, during the last five years, the changes have greatly reduced turnover of people. Staff and managers think twice about quitting, and the next company won’t offer a salary, or signing bonus high enough to make up for the loss that comes with voluntary resignation. We also pay only the lower of the two retirement table scales when we have to “fire” someone (get their resignation). We may have to add on a special severance, but the starting point of the “negotiation” is lower.
We Avoided the Pressure to Get Individual Employee Signatures of Approval for the Negative Changes in the Retirement Benefit
Even though the ROE, Salary and Retirement benefit changes were accepted by employees and the LSO by mid-December 1995, the insurance funder and National Tax Agency official (by default) were pressuring us to get individual signatures of approval from all effected staff some 6 months later when we were finalizing the TQPP cut-backs. This sometimes happens, but I have always been able to get around this and avoid it for my clients.
At the worst, it would be like rubbing salt into old wounds. At the best, staff that are busy with their work and lives would scratch their heads and wonder why now, why the fuss, why the overkill. What if some of them refused to sign? Wouldn’t that open up unnecessary problems and damage their careers? But the bureaucrats at the government agencies, or insurance companies don’t care, because afterall it isn’t their problem or their financial burden and responsibility.
These are the Situations Where a Client Believes that Compliance to Something is Required, or the Something Can’t be Done. I See it Often.
These are the situations where if I were not confident, determined, and pig-headedly representing my client’s interests and fighting for him, the client would think that compliance is required. Unfortunately most law firms or other consultants don’t know, or care, or try hard enough for their clients.
I am quite sure the client would feel he or she has no choice but to go along with the guideline or rule. In fact I have been cutting back TQPP for about 20 years and have been able to avoid collecting individual signatures. Since only a majority need sign, maybe it’s O.K. to get into this. Certainly a majority would sign. But what about the way those who don’t sign feel or are looked at? Anyway by not rolling over and giving in, I got the National Tax Agency official to agree to accept a statement signed by the same person who was “the majority representative” who signed the IKENSHO/statement of opinion for the LSO Rules of Employment submission.
As of this writing the younger expat who became the boss is still in Japan. He got a lot of credit, and benefited from the cost savings, and stronger corporate foundation. He now runs not only Japan, but the Asian region. The company is growing strong, has 120 happy and motivated staff, and has saved or made millions of dollars over the last five years based on the work we did together. The senior former expat President, the tough question man, who was pretty sure things couldn’t be better, stays in touch with me “retired” (but busier than ever) from Europe.
(Based on a three part article appearing in Tokyo Weekender in January and February 2004 — www.weekender.co.jp)