Japan’s all-male boards face gender reckoning

The all-male boards of hundreds of Japanese companies face a mass shaming this month as investors prepare to vote against the leadership of companies that do not have any female directors.

The change in the voting policies of Goldman Sachs Asset Management and several other global fund managers has crystallised ahead of Japan’s annual shareholder meetings season in June, when typically more than 2,400 companies cluster their AGMs into the space of one week.

Although asset managers have also toughened their pro-diversity voting policies in other developed markets, the disapproval of boards with no women could hit a disproportionately large number of listed Japanese companies. Last year, about 57 per cent had no female board representation, according to Tokyo Shoko Research.

Among the world’s biggest asset managers, UK’s Legal and General, with $1.4tn in assets under management, said it planned to vote against all Topix 100 companies without female representation.

Even without the upheaval of the coronavirus pandemic, which is expected to force conservative Japanese companies to turn their AGMs into online events, the season is set to be feisty.

According to Mizuho Securities, companies face a record number of shareholder proposals this year, with demands ranging from the sale of key assets and the scrapping of poison pill takeover defences to pressure for higher dividends and the dismissal of auditors.

While investors say they would accept delays to AGMs and slippage on key metrics such as return on equity because of the health crisis, they intend to hold firm on areas including diversity and governance, where progress by many Japanese companies has been slow. 

According to Legal and General, the percentage of women board members at Topix 100 groups only crept above 10 per cent for the first time in 2019, and remains significantly below the 30 per cent ratio among FTSE 350 companies and 27 per cent of S&P 500 board members.

57 per cent of Japanese companies had no female board representation last year

“It is certainly going to be a unique proxy season,” said Chris Vilburn, head of stewardship at Goldman Sachs Asset Management Asia. “I think we will see some relaxation on the ROE-related side, but there will still be pressure on companies on environmental, social and governance issues.”

Hiroki Sampei, head of engagement in Japan at Fidelity International, said the Covid-19 experience should be used “as a stress test to re-recognise the reality that companies and investors have shelved and postponed various priority issues such as diversity and inclusion”.

Proxy adviser Glass Lewis will also recommend rejecting the chair of a board that does not have an incumbent or proposed female director for companies listed on the first and second sections of the Tokyo Stock Exchange. 

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Companies are taking steps to avoid public shaming. SoftBank nominated its first female non-executive director last month, adding Yuko Kawamoto, a professor at Waseda Business School who has served on the boards of at least seven Japanese companies. 

The rush for board diversity is set to add pressure to Japan’s limited pool of female candidates, with most companies expected to turn to inviting a non-executive director instead of tapping into internal talent. 

But deeper appreciation for gender diversity among Japanese management is expected to take time.

“This is a quick solution at least on the surface, but we believe that the broader perspective and unbiased views which drive the decisions in the boardroom is more effective,” Mr Sampei said.