Japan: Firm roots or a brief flowering?

Nick Aldridge, Director of Strategy, and Filippo Addarii, Head of the International Programme, acevo undertook a week?s research project in Tokyo with the support of the Daiwa Foundation in April 2007.

Japanese third sector leaders tend to close our discussions with a few remarks on the beauty of spring in Japan, characterised by the brief appearance of the delicate sakura, pink and white cherry blossoms decorating trees across the country. A flowering of the third sector in Japan has occurred only recently, but some fear it may prove no more substantial than the famous blossoms.

For Hideko Katsumata, Managing Director of the Japan Centre for International Exchange, spring has not yet arrived. "The third sector in Japan is still in the middle of a long winter," she explains. "The environment, both legal and social, remains extremely unfavourable to the sector, and organisational finances are still very tight. Everything is decided by bureaucratic decree, or left to market forces, leaving little space for the sector to grow and develop. Until this changes, it will be difficult for the Japanese sector to play its proper role on the global stage."

Her lack of confidence in the sector?s strength and capability is shared by other leaders. They point to its severe lack of financial resources, and a corresponding failure to recruit and retain effective staff. The average salary for third sector staff in Japan stands at around £12,000 – not a living wage in Tokyo – and most organisations rely heavily on volunteers and part-time or temporary workers. As a result, many suffer from a lack of institutional memory and capacity. Yoshio Okubo, Executive Vice-President of the Japan Foundation, an executive agency of the Foreign Ministry, remarks that officials look almost exclusively to the private sector for examples of excellence in leadership.
Despite their pessimism about its financial and human resources, leaders agree that the third sector has enjoyed unprecedented interest and support from government and the public over the past decade. For Takashiro Furuhata, Executive Director of the International House of Japan, and Executive Director of the Kansai NPO Alliance, the sector?s flowering began in 1995, almost 20 years after he first joined it.

?In 1995, we experienced two major events which triggered the development of NPOs in Japan and which made the Japanese people more aware of non-profit, public-interest activities. These two events were the Great Hanshin Earthquake which killed more than 6,000 people, and the release of Windows 95.

?During the aftermath of the earthquake, many NPOs and citizens participated in relief activities, and the wide media coverage of these activities touched the hearts of many Japanese people. The post-earthquake relief activities led to the enactment of the NPO Law (the Law to Promote Specified Nonprofit Activities) of 1998. This is how the NPOs became widely recognized and popular in Japanese society.

?The release and spread of Windows 95 and the expansion of the Internet that followed enabled NPOs in Japan to have more direct, timely and close communications with other NPOs and citizens groups around the world.?

For many Japanese citizens, the role of aid organisations in the relief effort compared favourably with that of the government. At the time, Prime Minister Hashimoto held to the principle that "victims of natural disasters should deal with the damage from their own resources", meaning that financial aid for the victims came exclusively from private sources.

Yoshida Shin?ichi, writing in 1999, pointed out that "Nearly three years after the disaster, 9,563 families still lived in temporary shelters hastily built in the aftermath of the quake". Only a concerted campaign by citizens? groups resulted in a new law to ensure state aid for disaster victims. Meanwhile, the government spent ¥680bn ($5bn) bailing out the irrecoverable debts of seven housing loan companies, arousing "vehement protest from the media and general public".

These and other scandals dented the image of the Japanese bureaucracy, which had long been regarded as the sole authority on, and arbiter of, the public good. Politicians also began to take a closer interest in the third sector, and many were personally involved in drafting the NPO Law – unusual in a country were legislation is drafted almost exclusively by civil servants.

This celebrated law provided the first means of incorporation for independent non-profit organisations in Japan. Prior to 1998, over 26,000 "Public Benefit Corporations" had been registered, but these operate under the guidance and supervision of relevant ministries. Although many PBCs have achieved a considerable degree of operational independence, commentators regard the Specified Non-Profit Corporations (SNPCs) of 1998 onwards as the sector?s first genuinely citizen-led organisations.

Normally, PBCs have greater resources than SNPCs. Ministries ? where PBCs have to be registered ? have required that PBCs must have an endowment of more than ¥300m (about £1.3m), and an annual income of ¥30m (about £130,000). They receive considerable subsidies from government, supplemented through specific grants and contracts. Yet although PBC registration is a complex and slow process, often lasting more than one year, only one in thirty qualify for tax relief on public donations. Even this low figure compares well with SNPCs, of which only 0.2% qualify for the Japanese equivalent of Gift Aid.

This unfavourable regime may explain why donations account for only 9% of PBCs? income, and 1% of SNPCs?. Umbrella organisations such as the Japan Association of Charitable Associations (JACO) and the Coalition for Legislation to Support Citizens? Organisations (C?s) are lobbying hard for reforms that will widen these tax reliefs.
At present, the Japanese sector lacks a developed fundraising industry, and the public culture of giving remains fragile. Only a few leading organisations can be regarded as an exception to this rule. International NGOs currently account for 90% of public donations. The Japanese Red Cross Society, which was recognised in a specific 1952 law and lists the Empress as Honorary President, has over 15 million individual members and operates a highly effective fundraising scheme through its local branches. Even within such a well-established organisation, leaders such as Otohiko Hori, Director of Planning and Public Relations, worry that there is still much work to do in inculcating a giving culture in young people.

Hiroki Kato, Managing Director of the Toyota Foundation, refers to Chonaikai, a traditional form of communal fundraising popular in the Edo period (1600-1867). But these days Chonaikai raises a comparatively small amount of money, and has died out in the major cities. Ryoko Ikezawa, of the Tokyo Voluntary Action Centre, points out that Chonokai is dominated by senior male authority figures, limiting its appeal to women and younger people.
Older men, often retirees from the business sector or government, also dominate the ranks of third sector leadership. Nevertheless, women do better in the third sector than in government or business (only 7% of Senators and 8% of corporate directors are women), no doubt in part due to the lower salaries on offer.

Katsuji Imata, Co-Director of the Centre for Civil Society, thinks that very few of even the larger international non-profits ($1m-$5m income) are able to offer salaries that compare with equivalent roles in the public sector. Many senior executives take a pay cut of 50% or even 70% to move into the sector.

Third sector career paths are not yet developed. Takashiro Furuhata notes that many organisations are controlled by strong founders, with a highly individualistic approach to leadership. There is little interchange between sectors, and little attention to leadership development within the sector, meaning the pool of leaders remains small. In many cases, organisations are developed to fit their leaders, rather than vice versa.

?Generally speaking, senior executives in the non-profit sector in Japan have little opportunity for their own professional development. This is because most senior executives in the NPO sector in Japan are the first generation of their kind, meaning they are the founders of these NPOs. Networking of these executives is yet to develop. Most of these NPOs are like a small family business, and they have not yet been developed as organizations.?

Board members are often highly talented and successful individuals. In the case of SNPCs, they typically consist of professionals and academics, while PBCs tend towards ?the great and the good? and are closer to government. Board members typically select their first chief executive from among their own number: Seitarou Horiuchi, a former executive director of the Japan Foundation Centre, estimates that only 10% are recruited from outside the board.

Once selected, CEOs typically remain full members of their boards, making executive and non-executive roles less distinct than in the UK. A more real distinction can be drawn between senior leaders and more junior staff. Seitarou Horiuchi believes it is still highly unusual for young staff members to graduate to board level.

The narrowness of career paths into the sector may explain aspects of the leadership style typical of Japanese third sector executives. Compromise and negotiation tend to win out over protests and grandstanding, and engaging constructively in dialogue is of fundamental importance.

Takahiro Nanri of the Sasakawa Peace Foundation, has worked closely with European NGOs and believes that many Japanese leaders have learned from their example. But he has also been struck by the differences: "European leaders may be puzzled by their Japanese counterparts' apparently less rational approach to advocacy work, for example. Here most leaders believe that discussion and engagement is the right way of doing things, even if sometimes it's much less effective than a confrontation."

Joanna Burke, Director of the British Council in Japan, agrees that the notion of "acceptable behaviour" in Japan is powerful and can constrain advocacy work. Even the word "advocacy" is a relatively new concept, not widely understood within the Japanese sector. However, citizens' decreasing faith in bureaucrats has strengthened a growing tradition of left-wing protest, particularly on environmental and aid issues.

As in the UK, the financial relationship between third sector and government is fraught. Junko Kano, Deputy Director of the Daiwa Foundation, believes that many politicians equate the sector exclusively with volunteering, and are sceptical about salary costs. Yet local government is outsourcing an increasing range of services to the sector. Competitive tendering is almost universal in Japan, except for the very smallest of contracts. Prof Mariko Matsui, President of the Civic Institute for Civil Society, notes that this has plunged third sector organisations into direct competition with private corporations.

Perhaps surprisingly, given their universally recognised weaknesses, many third sector organisations are winning these competitions. Yukio Matsuno is Director of Voluntary Organisations at the Mie Prefectural Government. The very existence of his post suggests that Japan's prefectural authorities, numbering 47, are beginning to take the sector seriously. "It's true that price is usually the chief criterion within competitive tendering," he says, "but we also need to take service quality seriously. On this basis, non-profit organisations can come out in front of their private sector competitors."

Government funding is the most significant source of income for the third sector in Japan. It constitutes about 40% of PBCs' turnover, and over 33% of SNPCs? income. But the Japanese government's tight fiscal situation has meant cost-cutting is the norm, and many officials see the third sector as a promising route for making savings.
The concept of full cost recovery has received a warm welcome in Japan. Following acevo?s visit, Mariko Matsui has launched a research project with acevo to examine how the idea and approach might be applied within the Japanese context.

Matsubara Akira, Executive Director of C?s, believes acevo?s two-pronged strategy ? improving third sector financial management while seeking to influence government funding practice ? might also work well in Japan. He says that 70% of SNPCs have had financial problems since 1998: ?Even funding for our direct costs is inadequate, let alone overhead costs. We need government to recognise the reality: that non-profit organisations have costs like any other.?

Yayoi Tanaka, an associate professor at the National Institute for Academic Degree and University Evaluation,, is concerned that many organisations have been relegated to mere subcontractors, and have little influence over which services are commissioned by the local authorities. She believes that diversification of financial resources by generating more private income will be crucial in developing the sector's independence and strengthening its bargaining position.

Tatsuo Ohta, President of JACO, adds that improving third sector governance and management must be a priority. JACO?s members have noted that levels of board performance depend heavily on the personal approach and culture of CEOs. Many face a struggle to keep their boards active, rather than vestigial.

The tradition of corporate philanthropy is well-established in Japan. 250 of Japan's 2000 corporate grant-making foundations are members of the Japan Foundation Centre, and they spend ¥50bn per year. Both Sasakawa and the Toyota Foundation take an enlightened and flexible approach to grantmaking, aiming to build the sector's knowledge and skills by establishing networks of leaders. Smaller foundations tend to issue far more tightly specified programmes, as are commonplace in the UK.

Investment in the arts and culture is also popular: the Association for Corporate Support of the Arts has 189 businesses and arts organisations as members ? including 149 companies. Tomoko Wakabayashi thinks that CSR company departments and corporate foundations can be more flexible, innovative and supportive strategic funders than the government, ?Many of them want to see organisations develop, and will give money to set up new projects or organisations. During that time they will seek to encourage an entrepreneurial attitude in the organisation, so it can survive beyond their involvement.?

However, extremely low interest rates have led to a decline in foundations' spending since 1994, as their assets generate a miserly return on investment. Seitarou Horiuchi believes that a legal change in the next two years will allow foundations more control over their assets, and some will be sold to fund the medium-term funding gap. However, a massive influx of corporate funding for the sector seems unlikely.

According to its leaders, it seems that the Japanese Third Sector is beginning to find its feet. Yet career paths and funding streams remain underdeveloped, and organisations are squeezed on all sides by a fiscal and cultural environment that remains distinctly unfavourable.

Katsuji Imata believes the sector is in an introspective mood: "Many are wondering how much has been achieved by the reforms of the last 10 years. There is a sense of fatigue, and much soul-searching. Perhaps we need a reexamination before we can move on.?

Yet Japanese third sector leaders, though small in number, clearly share a deep and genuine commitment to the sector?s development. Their participation in international dialogues and networks, combined with a patient but firm approach to changing the regulatory system, may help to create the confidence the sector badly needs to put down firmer roots. Until then, many Japanese leaders, with characteristic modesty, will steer clear of more ambitious talk about the sector's prospects.

More info:

• www.acevo.org.uk
• www.glinet.org

Follow up:

Look out for Vita Europe's newest news column, the week's Who's Who, soon to be launched with an exclusive interview. Phillida Purvis, director of Global Links Initiative and Japanese third sector expert gives an interesting insight into some of the challenges and strategies most relevant to today's non profit world. The weekly Who's Who column is dedicated to outstanding third sector protagonists who have distinguished themselves for their work in the field… coming up on www.vitaeurope.org.