The difference between women's empowerment and board diversity

Please allow my strange English... because it is produced with Google translation. (Please do not laugh ;) my Japanese is also strange... ) The original article is?here.

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A roundtable discussion

At the end of September, a roundtable on gender diversity was held in Tokyo by a global investor group and an asset management company co-host. A lively discussion was held in a mixture of English and Japanese, and many of the participants were women. The investor group recently submitted a letter to the Tokyo Stock Exchange requesting that listed companies appoint more female directors, and the discussion naturally turned to the current status and challenges of women's advancement in Japan, as well as the ratio of women on boards of directors. The panellists representing government officials, companies, and investors said that the ratio of female directors in Japan is very low compared to other countries, and although it is increasing, at the current rate it will take nearly 20 years to reach 30% of the board women ratio. Investor panelists said that even when they repeatedly ask the companies, they engage to appoint female directors, they are told that they cannot find a suitable candidate. A panellist from a business company is an executive officer at a young company where the average age of employees is in their 30s, and she spoke of the importance of women becoming active as executives.

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Participants at the venue raised issues such as the underrepresentation of women at the time of recruitment, the division of household labour, and men's awareness. Additionally, a woman who currently serves as an outside director said that she continues to say at board meetings, "Women can do this too!" every day. As I listened to this kind of discussions, I gradually felt uncomfortable. What this means is that two seemingly similar but completely different issues, ``empowerment of women'' and ``board diversity,'' are being discussed together.

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About women's empowerment

At the company I work for, the current hiring ratio of women is 32%. It is aiming for a managerial ratio of 13% ( It was aiming for 8.5% in 2019, so it is increasing). In Japan as a whole, the ratio of women in managerial positions is 13.2%, which is quite low internationally. This ratio is still slightly higher for small and medium-sized enterprises and appears to be lower for large enterprises.

By the way, why should investors pay attention to this issue? The active participation of women may lead to an increase in corporate value, but is this because affirmative action improves a company's reputation? Or is there any analysis that shows that companies with a high proportion of women in management positions have higher profits and growth rates? On the other hand, one of the reasons why women are not able to play an active role is that men's share of housework and childcare is low. But if the company allows men to take paid-leave for housework or childcare, it may be additional cost for companies.

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It is only recently in history that investors have begun to demand the active participation of women in the companies in which they invest. To begin with, in Japan, the majority of investors are still overwhelmingly male, and it cannot be denied that ``women's empowerment'' is being driven by government initiatives. However, a consensus is gaining ground that companies, where it is easy for men to take childcare leave and where it is easy for women to continue working at a company, attract talented employees, improve productivity, and can be expected to increase corporate value in the future. As a country with a declining population, companies that are unable to increase the proportion of women may eventually see a decline in the number of employees and a decline in productivity.

????On the other hand, from the government's point of view, if many women interrupt their careers midway through and earn less than men of the same age, income tax revenues will not grow, and if consumption does not grow due to income problems, this will contribute to economic stagnation.

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About board diversity

It is important the discussions that women work in the same way as men, and that they want men to share in housework and childcare, and that they are given the same opportunities for advancement as men. As an extension of that discussion, board diversity is now being talked.

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Ten years ago, domestic discussions about board diversity focused on calls for the introduction of outside directors to improve governance. Although there is now widespread recognition that this is necessary, at the time many companies resisted it Then discussions began to be extended, including the idea of introducing at least one female executive officer and increasing that to 30%. In response to this, many "excuses'' such as ``there are not enough qualified people'' and "in order to increase the number of female directors, we first need to increase the number of general manager positions and executive officers'' some people shared such a cases at this roundtable.

However, I felt a sense of discomfort there. Is that really so?

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In the UK, updated to the Corporate Governance Code a few years ago it has required the inclusion of employee representatives on boards, with other alternative ways. This is to seek diverse perspectives on the board of directors. Overwhelmingly, Japanese boards of directors have a mix of executive and supervisory functions. It would be better to have diversity on the executive side, but it is only a prerequisite that they can perform executive duties. In contrast, the diversity of directors in terms of their supervisory function may be qualitatively different. This is because those who oversee execution do not necessarily have to have direct experience with it.

As a supervisory board, the board of directors is required to make statements and take actions regarding projects proposed by executives based on a variety of considerations, including risks and the impact on other stakeholders. Therefore, if there are employees who have been treated poorly in the past when it comes to promotions, they may actually be more suitable for the position. You will be able to see a different side from other directors, and you may be able to better consider things that will motivate employees and energize suppliers. Isn't that the reason for seeking board diversity?

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The importance of the nomination committee

Originally, the practice of having the president decide the remuneration of directors and select the next president was not only practised in Japan. These issues have been debated, and advanced forms of governance have gradually been "developed''. If management-related decisions are made only by members with similar ideas, such as thinking that there is no way to get promoted unless you are selected by a specific person, you may not be able to measure risks accurately, or you may be stuck in a business that has lost profitability. To avoid this, many countries have introduced a system in which directors and executive officers are separated and a nominating committee is established. In Japan, the percentage of companies that have introduced this method is small. (An increasing number of companies have adopted the system of establishing voluntary committees, but these are placed under a board of directors that includes executive committees, and are different from the nomination committee mentioned here in terms of independence.) As mentioned above, it is easy to fall into the mindset that ``there are no candidates for director because there are few people with the same experience as men today.''

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One participant asked, ``One of the reasons there are so few women is that there is no separation between directors and executive officers?'' The moderator said that even in countries where directors and executive officers are separated, there are few women. But this is an important point to break from the current situation. First, it would be easier to diversify the role of the board if it specialized in supervision. Because every experience comes alive. If we do that, there will be no reason why we can't increase the proportion of women to 50%, let alone 30%, starting today. Furthermore, it is necessary to establish a completely independent nominating committee and break away from the current system, which repeatedly selects only similar people. Diversity on the board of directors cannot be achieved simply by having women on the board. Diversity in age and various experiences is required, but this will be difficult unless the nominating committee can respond in a fairly neutral manner.

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I believe that it is necessary to separate the discussion of women's empowerment and board diversity, and re-evaluate what each side wants. By doing so, it will ultimately be a shortcut to achieving both.