Japan’s Future: Gender Diversity in the Workplace

Japan is at an economic and social crossroads. Following decades as one of the world’s largest economies, the country now faces a deepening challenge: an aging population and shrinking workforce.1 Many are wondering whether Japan will be able to power its economy with a smaller future labor pool.2

These demographic woes are a complex issue—but one piece of the puzzle Japan cannot ignore is the lack of gender diversity in its workforce. At Domini, we know that investments are inseparable from the social and environmental systems that surround them. Our values matter to long-term performance, and Japan is a compelling example

Understanding the Gap

In Japan, labor force participation for women is almost 20% less than that for men, and women are less likely to have quality jobs.3 It’s a considerable difference, and this gender gap becomes increasingly clear as you progress to higher levels of the workforce. Women in Japan are far more likely to work part-time without benefits or be overqualified for their job.4 Up the chain, they hold just 15% of senior and managerial positions.5 And at the board level, women represent only 6% of directors, compared with about 25% among Fortune 500 companies in the United States.6 All this leaves Japan ranking 120th out of 156 countries in gender equality.7

In short, inadequate progress is taking a serious toll. Women in Japan are deterred from moving up the corporate ladder—with many even pushed out of the workforce during the Covid-19 pandemic. Domini knows that focused work on this issue can yield progress, so we’ve been steadfast in our efforts for over a decade.

Our Approach

When we research companies, we consider how their business activities align with addressing systemic racism. One of our key performance indicators, to this end, is gender and racial diversity.8 We assess the composition of boards, as well as executive managers and any programs to create internal pathways for women and people from historically under-represented groups. We look favorably upon companies that have at least 30% diversity, unless there is a higher applicable government mandate.

From there, direct dialogue is an important part of improving corporate governance, and we’re willing to do the legwork. When proxy voting comes around, we bring our standards to the fore. Our expectation is that boards are made up of at least 30% of women and historically under-represented groups, aspiring toward 40%. If a company’s board nominations don’t put it on track to hit our expectations, we vote against them.

For many years, we have communicated annually with the Japanese companies owned by the Domini Funds. We are sending letters to our 115 Japanese holdings, encouraging them to add at least one woman to their next slate of board nominees. In addition, we asked them to adopt a target to reach 30% gender diversity on their board by 2025. To do so, we suggested various business approaches, such as building a pipeline of qualified candidates, hiring search firms to help them increase diversity, and joining organizations such as the Thirty Percent Club.

Our work is ongoing, and we’re starting to see progress. According to internal data, the average representation of women on boards among Japanese companies we’ve engaged with increased from 11.4% to 12.7% over the past two years, an increase of 11% overall. We are also encouraged to see that the percentage of companies with no women on their boards decreased by 10%.

We believe that gender diversity on boards will make Japanese companies better, more resilient companies—and, more importantly, will enable women to realize their full potential.

It’s time that Japan becomes a better place for women to work. The world is watching closely as the country tackles its latest economic challenges. At Domini, we’re watching, we’re speaking up, and we’re engaging.

1: https: / /www. nytimes.co m/2 021/05 / 05/ podcasts/the-daily /japan-birthrate-ageing-population.htmI
2: https://www.weforum.org/agenda/2019/02/japan-s-workforce-will-shrink-20-by-2040/
3: https://www.catalyst.org/research/women-in-the-workforce-japan/
4: https://www. strategy-business.com/ article/ Japans-female-future
5: https://www.mckinsey.com/featured-insights/asia-pacific/mobilizing-women-to-step-up-as-leaders-in-japan
6: https://www.nytimes.com/2021/08/25/business/women-japan-companies.html
7: https://www3.weforum.org/docs/WEF _GGGR_2021.pdf
8: https://www.domini.com/i nsights/investing-in-diversity
Data on board diversity of Domini-held Japanese companies was accessed through Bloomberg Terminal.