In my previous blog, I explained why we believe diverse perspectives and opinions – of which different gender-based experiences are an essential component – are crucial in boardrooms and management teams. I also highlighted the slow progress being made in Japan on this important issue. But what is behind this situation, and what can we as investors do about it?
Despite the lack of female representation on corporate boards documented in my last blog, more than 70% of women in Japan work. According to government statistics, the number of employed women increased by 13% (equivalent to 3.07 million people) between 2013 and 2019.
So why isn’t this reflected in the boardroom and executive suite? Part of the answer is that many women working in Japan are in irregular (or hi-seiki) jobs with less training, less pay, and less security. To take the 35-54 age group as an example, most working women are in such employment, compared with less than 10% of men. Indeed, almost 60% of those three million women recently added to the workforce have entered irregular jobs.
As these figures show, one main problem is not that women aren’t participating in the workforce; it’s that many women aren’t given the same level of career opportunity and responsibility as their male counterparts. This is especially the case when women leave the workforce early in their working lives, in their 20s or 30s, which could be for personal or family reasons. Statistics reveal that once they leave, many don’t or can’t return.
The resulting weak pipeline contributes to the difficulties Japanese companies face in building a diverse board. This is why we’ve pushed companies to appoint and promote more women across the entire workforce, not just at board level.
One aspect to this is ensuring that employee-friendly measures such as flexible working arrangements are not only available but implemented. We believe such policies benefit not only employees of all genders, but employers too, as they allow companies to retain talent and talented individuals who might otherwise leave the workforce to thrive in roles aligned with their capabilities, interests, and life outside work.
We strongly encourage companies to actively seek and respond to the views of employees across different demographics. We would also welcome a change in the corporate mindset from the traditional approach of rewarding long hours, which are still often regarded as an indication of dedication and loyalty, to one in which efficiency is prioritised. Again, we are certain that women employees will not be the only ones who will benefit from such change.
Additionally, we may ask if companies are actively recruiting externally across different levels – in contrast to the conventional practice of hiring only new graduates – and if there is healthy staff turnover.
Lastly but importantly, we are of the view that the commitment to diversity and inclusion should come from the top – and that the commitment needs to be supported by targets and disclosures of progress.
Following our engagement campaign with large Japanese companies on the importance of gender diversity, which began in January 2019, we started in 2020 to vote against TOPIX 100 companies that had no women on their boards.
Last year, our first implementing this policy, we voted against the most senior member of the board or the nominations committee chair (depending on the board structure) at 10 Japanese companies*: Canon, Olympus, Fast Retailing, Nitori Holdings, KEYENCE, Central Japan Railway (JR Tokai), Toray Industries, Shin-Etsu Chemical, SMC, and Kubota. We would have voted against Sumitomo Reality & Development too, but it had no directors up for election in 2020.
More broadly, we are pushing companies globally to address various types of diversity, including but not limited to gender, nationality, ethnicity, and age. Japan is no exception to these expectations, although we retain a strong focus on gender diversity in the country.
From 2021, we will therefore expand the scope of our policy to vote against the TOPIX Mid 400 companies – in addition to TOPIX 100 constituents – that have no women on their boards. At the time of making this decision, we expected this to affect approximately 22% of companies in the full TOPIX 500. However, we are encouraged to see a number of companies (including some of the aforementioned) moving to appoint women candidates.
We firmly believe that a strong culture of diversity and inclusion is key for companies to stay resilient, innovative, and sensitive to the needs of their stakeholders, including customers, business partners, employees and jobseekers, and the community in which they operate.
This is why we will continue engaging Japanese companies, both directly and through collaboration with peers through initiatives such as the 30% Club Japan Investor Group. In the coming years, we will look to expand the scope and also raise the bar of our voting policies to signal our concerns to companies that fail to take action on this important issue.
*For illustrative purposes only. Reference to a particular security is on a historical basis and does not mean that the security is currently held or will be held within an LGIM portfolio. The above information does not constitute a recommendation to buy or sell any security.
 Source: Statistics Bureau, Ministry of Internal Affairs and Communications
 For example, diversity at the board, executive, management, and entire workforce levels are indicators in our LGIM ESG Score, used to score thousands of companies globally.
 We do not count statutory auditors (kansayaku) as board members.
 Globally, we voted against more than 200 directors in 2020 due to concerns over diversity.
 In certain markets such as the US and UK, we have begun to look beyond gender and have set red lines in terms of ethnic diversity. In these markets, we have announced that we will start voting against companies that lack ethnic diversity on the board starting in 2022.
 Source: ISS