Leadership change at Keidanren

Keidanren (Japan Business Federation) has selected a new leader just as its clout declines and it faces challenges to its role as the nation’s most powerful business lobby. When he replaces the current leader, Hiromasa Yonekura, in June, Sadayuki Sakakibara, the Toray Industries Inc. chairman, will need to deal with issues affecting the nation’s economy, businesses that don’t belong to Keidanren and the people at large — not just issues related to established Keidanren members.

Keidanren lobbies the government to have opinions put together by the business community reflected in policy decisions. With roughly 1,300 leading Japanese firms as members, the federation served as a channel for business donations to the long-ruling Liberal Democratic Party up to the 1990s. Due to Keidanren’s strong political influence, its chairman used to be called the “prime minister of the business community.”

In more recent years, Keidanren has been criticized for not catching up with the structural changes needed in the Japanese economy because of its focus on heavy industrial sectors such as automobiles, chemical and steel. When online retailer Rakuten Inc. left the federation in 2011, company president Hiroshi Mikitani said Keidanren had become too conservative to pursue the kind of drastic economic reform that could shake-up Japan’s business establishment. Mikitani went on to lead a new organization, the Japan Association of New Economy, which comprises more than 700 firms mainly from the information-technology sector.

Meanwhile, relations between Keidanren and the government are said to have soured after Yonekura, who has been at the federation’s helm since 2010, questioned the bold monetary steps proposed by Shinzo Abe in 2012 before he became prime minister. Unlike many of his predecessors, Yonekura does not sit on any major government councils under Abe. By contrast, Mikitani is a private-sector member of the Industrial Competitiveness Council.

There is hope that Sakakibara, who is acquainted with Abe and is a member of the council, can repair Keidanren’s ties and communication with the government. As the top executive of Toray, Sakakibara is credited with expanding its business in carbon fiber, which is used in aircraft fuselages and automobiles, and with making the company a global leader in the sector. His challenge now will be how to lead the nation’s top business organization — many of whose members are much bigger in size than his firm.

The change in Keidanren leadership comes at a crucial juncture for Japan’s economy, where more private-sector initiatives are needed to sustain the recovery trend that has been largely driven by public-sector initiatives such as the Bank of Japan’s radical monetary policy operation and the government’s fiscal stimuli.

As the economy faces the risk of a downturn when the consumption tax is raised in April, the transition to self-sustained growth will require a virtuous cycle of higher corporate profits translated into higher wages and consumer spending, encouraging more private-sector investments.

In a turnaround from its past calls for wage restraint, Keidanren this year is urging members to turn improved earnings into employee pay raises and stepped-up pay scales. The policy shift follows unusual pressure from the Abe administration since last year for boosts in worker pay to shore up private consumption.

The key to success of Abe’s growth strategy — following the monetary and fiscal steps — will be structural reforms of the economy involving the reform of certain sectors that have been shielded by vested interests. That’s where Keidanren’s leadership under the new chairman will be tested.