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Japan Inc. scrambles to find female directors

Lack of internal candidates forces companies to look outside for talent

From left, Yuko Makino of Otsuka Holdings; Teiko Kudo, nominated to the Toyota board; and Noriko Tojo, also from Otsuka

TOKYO -- Four out of five listed companies in Japan have no women on their boards of directors. This puts the country in company with Saudi Arabia, South Korea and the United Arab Emirates as one of the worst when it comes to diversity.

Granted, Japan Inc. is increasingly willing to place women in high positions, motivated by pressure from the Shinzo Abe government and studies indicating that companies with more women perform better. But businesses are running into another problem: They have few internal candidates, having long failed to elevate female employees into senior management, and having done little to fix the country's historically wide gender gap in promotions and pay.

Many women hired for career-track jobs after an equal employment opportunity law took effect in 1986 have simply left.

Pharmaceutical group Otsuka Holdings has nominated two women -- Yuko Makino, head of accounting, and Noriko Tojo, president of subsidiary Otsuka Medical Devices, whose career included working for Goldman Sachs and McKinsey & Co. in Japan -- for board positions. It is the first time for the company to have two female board members.

Toyota Motor is looking to appoint its first female director, Teiko Kudo, an executive at Sumitomo Mitsui Banking Corp. Kudo has a wealth of experience in financing international projects related to infrastructure and resource development. The automotive industry faces a need to integrate new technologies such as artificial intelligence and communications, and Toyota hopes Kudo can bring a new decision-making perspective.

Kudo joined Sumitomo Bank (now SMBC) in 1987, one year after the equal employment law, in the bank's first batch of career-track women. She became an executive officer at SMBC in 2014.   

Industrial conglomerate Hitachi aims to have 10% of senior executive positions held by women by fiscal 2020 -- four times the current number.

But if all listed companies in Japan were to appoint at least one female director, they would need 2,980 more women, based on a simple calculation using data from QUICK FactSet.

Headhunters report an increase in inquiries about qualified women. "Companies, especially in central Tokyo, are asking us to find female candidates to be executives," a representative of HR company JAC Recruitment said. Average salaries range from around $110,000 to $200,000.

"We're having trouble finding candidates," said a human resources officer at a large metal company. 

Japanese banking group Resona Holdings' Women's Council, shown here in a meeting, advises management on issues from a female perspective.

The lack of internal candidates is prompting many businesses to bring in women as outside directors. The result is that quite a few women serve on multiple boards. As of last July, a dozen women served as outside officers or auditors for four or more companies listed on the Tokyo Stock Exchange's first section, up from eight the previous year, according to a survey by corporate governance advisory ProNed. Many of them are lawyers or professors.

"Japanese companies are still hesitant to hire management-level personnel from outside," said Kengo Nishiyama, a strategist at Nomura Securities. "If the candidate is a woman, even more so. The easy way out is to hire a famous woman as an outside director."

"Corporate Japan is changing its thinking," said Junko Nakagawa, senior managing director at Nomura Asset Management. She also heads a planning group for a committee promoting women at the powerful Keidanren business lobby.

Even so, there is a long way to go. Only 20.2% of publicly traded companies in Japan have at least one female board member, according to data compiled by Nikkei and group service QUICK FactSet, placing the country 49th in a ranking of 54.

Norway's boardrooms were most open to women, with 89.4% of companies there having at least one female director.

India, China and Israel followed with 88.4%, 86.2% and 84.3%, respectively. The top 10 included not only European countries, where efforts have been made to push gender quotas, but also Asian nations Thailand, Bangladesh and the Philippines. The U.S. came in 11th with 69.4%.

Japan ranked the lowest among advanced industrial economies and was followed mostly by Muslim-majority Middle Eastern countries, where women's rights and participation in the labor force are restricted. Saudi Arabia's 6.3% landed the country at the bottom of the list, one place below South Korea, which had 12.8%.

Corporations "need to review their seniority structures and increase investment in personnel development," said Izumi Kobayashi, who sits on boards at multiple companies, including trading house Mitsui & Co.

The government plans to push for female directors when it revises its corporate governance guidelines this spring. This comes at a time when investors are paying greater attention to environmental, social and governance issues. Institutional investors such as State Street Global Advisors of the U.S. are using gender diversity in boardrooms as a criterion in exercising voting rights.

A study by Boston Consulting Group suggests a link between the presence of female directors and profitability.

Companies with 20% or more of board seats held by women have a 4-percentage-point higher return on equity than those where female directors account for 10% or fewer directors, the U.S. consultancy found. This apparently is because the more vigorous companies are about boosting profits -- by venturing overseas, for example -- the more committed they are to having women in leadership.

There is, at least, reason to think Japanese boardrooms will gradually grow more diverse. Corporate Japan used to be an insiders' club, with 26% of TSE first-section companies having no outside directors in 2014. That was before Japan's Corporate Governance Code was adopted. Only 0.4% lacked them in 2017.

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