Diversity: a radical intervention
Updated: Apr 23, 2021
Is Prime Minister Suga suggesting a radical intervention of gender quotas? Japan is a clear outlier in terms of female representation on corporate boards. Abe's soft approach had only a marginal impact to date.
On Monday, Japanese Prime Minister Yoshidide Suga called for changes to the Corporate Governance Code by promoting "diversity, including by hiring more women, foreigners, mid career workers" and putting them in management positions.
Until now, Japan has adopted soft approaches that aim for gradual increases in women participation on Boards. The latest iteration of the Corporate Governance Code (June 2018) set out the approach in Principle 4.11 - Preconditions for Board Effectiveness - in which it states that boards "should be constituted in a manner to achieve both diversity, including gender and international experience."
The Corporate Governance Code assumes a shared desire to change the culture and procedures for selecting and nominating board members. Ultimately, it is left to the Board to establish appropriate policies and procedures for nominating directors and disclosing its view. More than a decade ago, countries in Europe began to take measures to increase the gender diversity of their corporate boards. Norway was the first to adopt a quota for female board members (40%) in 2004. Other nations followed suit – adopting either mandatory quotas (Germany, France, Belgium, Iceland, Italy) or voluntary goals (Austria, Finland, the Netherlands, Spain, Sweden, the UK).
Despite a basic agreement about the theoretical desirability of gender equality, many instances of inequality remain - the proportion of women at the board level is around only 25.5% in the OECD's largest listed companies.
Will Suga's approach be any different? The issue revolves around the question: ‘Is it best to prescribe outcomes and force compliance, or suggest outcomes and permit flexibility around their achievement?’ Either way, Japan has a lot of catching up to do.