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Newsletter January 31, 2017

Interview: Corporate 'Virtue'-based Evaluation System

Helps Employees Grow
Keywords: Corporate Newsletter Well-Being

JFS Newsletter No.173 (January 2017)

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Introduction
The June 2015 JFS Newsletter (The Pursuit of Economic Growth Requires a Balance
between 'Yin' and'Yang') dealt with economic growth from the viewpoint of Eastern wisdom
through an interview with Yoshifumi Taguchi, a scholar of the works of Lao Tzu and Chuang-
Tzu, and director of the Research Institute for Integration of Eastern and Western Wisdom.
Fuji Pharma Co. (Tokyo Stock Exchange: 4554) is one Japanese company that has learned
from Taguchi and incorporated the teachings of Eastern wisdom into its employee evaluation
system. This article introduces that unique evaluation system, which aims to help employees
grow into persons of virtue, thereby also leading to the company's growth. This interview
with Hirofumi Imai, Chairman & Representative Director, was conducted by Junko Edahiro,
chief executive of JFS.

Since Taguchi, who is my teacher in the field of Eastern wisdom, introduced Imai to me, it is
no wonder that virtue was mentioned. Even so, I was surprised that a corporation with
approximately 700 employees in Japan alone has adopted an employee evaluation system
that assesses both "virtue" and work performance.

About the employee evaluation system

"This is a description of our company's evaluation system. We assess our employees for
each item on a scale of one to five. The weighting between the work performance evaluation
and this 'virtue' evaluation is roughly two to one."

Mr. Imai was displaying a table entitled "19 New Evaluation Indicators for Virtue," followed
by this description.

"A person of virtue means a person who does his/her best for others and is pleased with
others' happiness and success from the bottom of his/her heart.

"A person of virtue knows his/her own missions, and to fulfill them, strictly hones his/her
skills, respects others, and continues to strive hard for his/her goal humbly, faithfully, and
seriously, with a determination to follow things through to the end.

"For us to aim to become and remain such a person, the virtue evaluation system is
designed so that we can evaluate ourselves based on the following seven virtues (19
indicators).

"Let's mutually observe other employees' daily behavior carefully, recognize mutually
that other employees show their virtue, and mutually help other employees hone their
 virtue.

Next, the seven Confucian virtues of "propriety," "righteousness," "determination," "wisdom,"

"benevolence," "moderation," and "sincerity" are listed, followed by 19 indicators. For
example, here are three of the indicators:

Essence: Whether you try to see the essence of things, which does not tend to appear on
the surface.
Fairness/balance: Whether you have no prejudice and make judgments from a wider
standpoint and with a sense of balance.
Belief: Whether you have what you believe to be right and determine to accomplish things
to the end.

For each of the 19 indicators, examples of standard behavior, examples of how not to
behave, and criteria on each scale of one to five are provided.

Interview
Junko Edahiro: When did Fuji Pharma Co. start this kind of evaluation?

Hirofumi Imai: We started this system three years ago. We help our employees become
accustomed to this system by encouraging them to read relatively easy-to-understand books
written by Taguchi. We used to use an evaluation system based on competency; however,
we found that it rated employees higher for short-term results, but it did not really respond to
company's real expectations of employees. This led us to introduce this new evaluation
system.

Management Principle: 'Company is a Venue to Help Employees Grow'

Edahiro: What is your company's management principle?

Imai: The growth of Fuji Pharma, which helps people live more healthily by providing high-
quality pharmaceuticals, is directly proportional to our growth.

The most notable point is that this company clearly states that the company is a venue to
help its employees grow. To continue providing opportunities for employees to grow, the
company must play a meaningful role and make a profit in the medical industry to make use
of all the funds for the growth of its employees.

When I was learning under Taguchi, I made a difficult request to him, that is, "Please pick
one word of wisdom that you think most important in the Chinese classical writings." His
response was "virtue." Then, I asked him, "How do you define 'a person of virtue'?" He said,
"A person who serves others by fully bringing out his/her best."

Through the process of enhancing the very best of ourselves, we try to extend and expand
what we can do to serve patients in the field of medicine -- this is what our management
principle represents and I understood that "virtue" would be exactly the same.

My father, when he was the president, wanted to make his employees the happiest in the
world just like he would do for his family. It's because it would be difficult to support your
employees in a company unless you care for your employees as your family members.
When I face our employees in person, I often ask myself, "Would I act in the same way or
say the same things to my son?" Through this kind of self-questioning, I believe that I have
been able to carry on the intentions of my father to some extent.

Also, when my company is to invest in something, the important objectives for me are to
make our employees happy and to bring about opportunities for them to experience things.
Even if an investment doesn't work out as expected, I consider it OK as long as the
investment can provide opportunities for our employees to have various experiences or to
grow themselves. I try to keep pitching -- we intentionally use this phrase, "keep pitching" --
or providing opportunities to our employees as much as possible.

Practicing "Virtue" is at the Heart of Corporate Management

Edahiro: How did you incorporate your company's management principle into the virtue-
based personnel evaluation system?

Imai: Taguchi teaches "virtue" with a practical and concrete code, which I wanted to use as
action guidelines in my company and to incorporate into my company's personnel evaluation
system so that it could be fully practiced by our employees. So, I consulted with him about
how to develop an evaluation system.

I learned from him that "virtue" should be incorporated into employee education and training,
in addition to a company's personnel evaluation system, because a management principle
and practicing "virtue" are at the heart of corporate management. It is true that quite a few
employees say, "What is this? Our objective is to make money, right?" Therefore, through
communication, we are making efforts to ensure our way of thinking will be fully understood
and practiced.

Edahiro: Do you see any changes or reactions from your employees after incorporating
"virtue" into the employee education and the personnel evaluation system? If so, how?

Imai: Persons who join this industry have a desire in the first place to be of help for people in
the field of medicine. At the same time, however, they are required, as professionals, to
achieve positive business results and sometimes it is easy for them to forget what is truly
important to them because they get so busy with work. Against this background, I have
noticed an increasing number of positive comments from our employees, such as, "It was a
good opportunity for me to reconfirm what we are here for and what we are trying to achieve
through our work."

Although it is little by little, I also hear that some employees started to change their
perception of the relationship between their work and themselves and the way they
communicate with their co-workers. I think that we have to make more efforts, though.

Developing a Concrete Evaluation Method through Dialogues

Edahiro: Who does the virtue-based evaluation and how?

Imai: Everyone in a team takes part in the evaluation. Regardless of their positions at work,
whether you are a boss or subordinate in a team, everyone is evaluated using the same
evaluation criteria. Based on the evaluation results, staff at the managerial level make the
final evaluation.

Edahiro: So, you are able to put "virtue" into practical form by setting up concrete indicators?
Imai: We revised the items quite a bit. I remember that when we started we had about
double the number of items. We made a draft based on the compiled opinions of employees
gathered through dialogue and took it to Taguchi to ask for his guidance. We were able to
improve the items little by little by repeating this process.

Edahiro: Is this virtue-based evaluation also reflected in employees' salaries and bonuses?

Imai: Yes, it is. Currently, the weighting of work performance to virtue evaluation is about 2 to
1.

Edahiro: What do employees think of the fact that their virtue is evaluated in parallel with
their work performance?

Imai: They are relatively positive. I ask them to answer a questionnaire survey regularly, and
in the survey I have never seen any negative or critical opinion about this system itself.
Regarding the system's content, I have received pretty candid opinions. So, I have made
efforts to reflect them in the system.

Edahiro: I think your employees are fortunate because the basis used to evaluate them is
not mere figures.

Imai: I think so, too. Our company also has a variety of challenging issues, but I believe the
possibility is not high that the recent wave of business scandals will occur in our company.
There are many employees whose grown children also work for our company when they join
the work force. It is often the case that our employees recommend their children to come
work for us.

Edahiro: Meanwhile, needless to say, you must properly make profits to ensure your
corporate sustainability, right?

Imai: Absolutely. If we don't continue pursuing profit, we won't be able to create an

environment for employees to grow. We need to create a workplace where people are
motivated to continue making an effort. So, I think we must devote ourselves to being
profitable.
We drew up a five-year plan to articulate where our company wants to be by the end of
September 2019, and are now making efforts to achieve it. Our institutional investors and
the market give us quite detailed opinions on our short-term results. I understand
achievements on a short-term basis are also important, but I also try to communicate the
various values that are important for management.

Edahiro: So, being listed on the Tokyo Stock Exchange has not become an obstacle for your
company to pursue what you consider important, namely virtue, has it?

Imai: As a listed company, we are required to meet short-term goals from the market, and
we try to consider the requirements as a source of good tension. Traded companies are
expected to boost income and profits every year, and that's why they tend to focus on
raising corporate value. As a result, even our executives begin to question what they are
working for. If they do so, our employees will burn out.

While we do respond the expectations of the market, we also want to be rooted in the idea
that we work because we want everybody to be healthy. In other words, earning money is
just a means for our company, and our true purpose is to grow, become happy, and continue
to be of service to society. In order to steadily expand as a place where we can grow, we
must continue to earn a profit.

Edahiro: Amid an increase in environmental, social, and governance (ESG) investment, I

sincerely hope that investors will evaluate companies not only from the perspective of the
stock market but also from that of ESG and so forth.

Imai: I agree. If that kind of investment takes root firmly, everybody will be able to work with
a good effort for others, a sense of happiness, and continual excitement. I think, as a result,
companies' corporate value will be enhanced naturally.

Edahiro: I agree. The word "excitement," which you repeatedly used, is likely to be the key.
Thank you very much for speaking with us. That provided us with excitement.

Written by Junko Edahiro

 About Japan for Sustainability (JFS)
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