lifestyle

Japanese firms need more women board members, outside directors and foreigners

20 Comments
By Julian Ryall for BCCJ ACUMEN

Britain is a global leader in the area of corporate governance and there are many lessons that its firms have learned that are also applicable in Japan, according to speakers at a recent symposium organised by The Nippon Foundation.

The speakers expressed concern, however, at the slow pace of change in corporations in a country that is widely considered to be a “special case”. They also questioned whether there is a genuine desire for reform in Japanese boardrooms.

Evidence indicates that investors are increasingly shying away from putting money into firms that fail to have more outside directors on their boards; resist women or foreign nationals joining the highest echelons of their management; are at a disadvantage in global markets, due to an inability to communicate in English; or have not reformed the structure and format of board meetings to make them more efficient. Firms that are not evolving in these critical areas, the analysts suggested, are not attracting capital and will slip behind their international rivals.

“I have detected a kind of defensiveness in many of the relationships that I have had with Japanese companies”, said Simon Learmount, a lecturer in corporate governance at the University of Cambridge Judge Business School. “I think the one thing that is very important to understand is that long-term investors have an interest in making sure that the companies in which they invest are successful. This should be welcomed with open arms”.

The UK has seen a shift in the concepts behind corporate governance to “a more nuanced and inclusive debate”. This is thanks, in part, to the ongoing examination of the importance of appropriate government in firms, and the implementation of a number of new regulations and recommendations.

For example, the 2010 UK Corporate Governance Code states: “The purpose of corporate governance is to facilitate effective, entrepreneurial and prudent management that can deliver the long-term success of the company”.

This makes it clear that the directors’ primary duty is to the firm, rather than to shareholders.

Change began in the UK in the wake of financial scandals at firms such as Polly Peck International and Coloroll, which demonstrated just how easy it was to fabricate corporate accounts, Learmount said.

One of the most important conclusions of the Cadbury Committee’s report, issued in 1991, was that there needs to be a balance of power on a firm’s board as well as more external directors.

While there has been progress in this area—more than half the firms listed on the Tokyo Stock Exchange have at least one outside director—this is partly because the exchange stipulates it and firms are merely moving to compliance, said Meryam Omi, head of the environmental, social and governance section at the investment management arm of the British financial services firm Legal & General Group plc.

Japanese firms often state that they wish to appoint an outside director who has experience in the sector in which the firm operates, because they already have a solid understanding of the business. However Omi believes this is a mistake. “The value of an outside director is in having someone who is completely different and does not think like everyone else on the board”, she said. “They have different solutions and strategic thinking that can be immensely important”.

Christina Ahmadjian, a professor at the Graduate School of Commerce and Management of Hitotsubashi University, was in complete agreement with that way of thinking.

“If you ask a lot of Japanese companies about balance, they will say that the all-insiders model is OK for them”, she said, adding that this approach “is dangerous in Japan”

“I still can’t figure out who makes the decisions at Japanese companies, on corporate governance or other issues”, she added. If you look at the economy as a whole and compare it to other Asian markets, [you see] the strong hand of government and corporate government organisations [in those markets]. Not in Japan. I think what is remarkable is that foreign investors have not had the influence that they expected to have”.

Addressing the issue of female representation in boardrooms here, Omi said it is “a real shame that 50% of the population is under-represented on Japanese boards”.

While women account for 11.1% of board members in developed countries and 7.2% in emerging markets, the figure in Japan is a paltry 1.1%, she pointed out.

Equally important is the question of having foreign nationals in Japanese boardrooms, particularly given that, with a shrinking market at home, firms here increasingly need to look overseas for markets and profits.

Omi pointed out that many firms have fared poorly when setting up in an overseas market because they lacked an understanding of, and experience in, that market. This could be remedied were such firms to have greater foreign representation on their boards.

It is fair to say, she added, that if a Japanese firm wants to succeed in a foreign market, it would help immeasurably were the firm able to show there are outsiders on the board. Moreover, such changes would not go unnoticed by investors.

Omi said she believes that within the next three to five years, at least one-third of the members of Japanese firms’ boards should be independent directors. The need to make this change is most critical in medium-sized and large firms — particularly those with business overseas. The next step would be to increase the proportion of outside directors to 50%.

There needs to be a reconsideration of the actions of boards here; how often they meet, how long they meet, and the formats of their meetings, she added. In addition, outside directors need to be provided with meaningful support and training if they are newcomers to a sector.

But the context of any changes that take place is vitally important in Japan, said Learmount. “The UK provides a good model of how corporate governance worked for the UK. The model is appropriate for the systems that we have in place, our employment, the way our markets work and so on.

“I think that simply looking at UK structures and processes, and then trying to apply them to Japan, would be a mistake”, he added. “It is the principles of the reform that are more important: the inclusiveness of the debate, the ways the recommendations are implemented, the importance of enterprise and strategy.

“This all needs to be debated”, he said. “If we spend too much time just looking at the UK and our examples, it will end in failure. Instead, trying to understand the processes is very important”.

© Japan Today

©2019 GPlusMedia Inc.


20 Comments
Login to comment

What Japan needs are "excellent" people - the type that rose to the challenge when Japan modernised and also helped the recovery process after the war.

I'm not talking about either Japanese or foreigners, I'm talking about both.

0 ( +3 / -3 )

Japanese firms often state that they wish to appoint an outside director who has experience in the sector in which the firm operates, because they already have a solid understanding of the business. However Omi believes this is a mistake. “The value of an outside director is in having someone who is completely different and does not think like everyone else on the board”, she said. “They have different solutions and strategic thinking that can be immensely important”.

As Michael Woodford (Olympus) or howard stringer Sony? Foreign executives not be good business for Japanese company. Perhaps the only success is Carlos Ghosn of Nissan, but he is a descendant of Lebanese.

-14 ( +3 / -16 )

The 'keiretsu' business groups, with their intense vertical industry structures and horizontal cross-holdings, backed by the major banks, who provide many of the 'outside directors', do not want outside interference or the UK/ US business model of focus on shareholder value. Japan is closer to the German model, except that is not influenced by workers' groups to the same extent.

0 ( +0 / -0 )

As Michael Woodford (Olympus) or howard stringer Sony? Foreign executives not be good business for Japanese company.

Erm, Woodford has uncovered Olympus' huge scandal and corruption, and he should be praised and he is praised.

As for "foreign CEOs", they're usually just there for decorations for the company, they're used and thrown away like Woodford was, and CEOs rarely have any real executive power in Japan... as do prime ministers don't exercise any real power...

6 ( +8 / -2 )

Why should board members let in outsiders or women? They are comfortable, and regardless of whether not the companies implode, the board members will come out ahead.

-4 ( +2 / -6 )

“I have detected a kind of defensiveness in many of the relationships that I have had with Japanese companies”, said Simon Learmount, a lecturer in corporate governance at the University of Cambridge Judge Business School. “I think the one thing that is very important to understand is that long-term investors have an interest in making sure that the companies in which they invest are successful. This should be welcomed with open arms”.

This is true, but doesn't necessarily mean they have to have women or outsiders on their boards.........

-4 ( +0 / -4 )

"Britain is a global leader in the area of corporate governance "

so What happened to British Airways?

-3 ( +3 / -6 )

Japanese firms need more women board members, outside directors and foreigners

By Julian Ryall for BCCJ ACUMEN

If this article had been written by someone who was Japanese it would carry a bit more weight. Otherwise it just again sounds like the complaints and whining by another foreigner.

No matter how accurate the topic may be, it wont carry weight until a Japanese person in authority says it.

What's the temp in hell?

2 ( +6 / -4 )

“I still can’t figure out who makes the decisions at Japanese companies, on corporate governance or other issues”

But that is the point. You are not supposed to be able to. The idea is to quarantine decisions from decision makers so that no-one is directly responsible. This might even be said to be a feature of all realms of society and of Japanese "culture" (much though I dislike the word) itself.

2 ( +3 / -1 )

If this article had been written by someone who was Japanese it would carry a bit more weight. Otherwise it just again sounds like the complaints and whining by another foreigner.

No matter how accurate the topic may be, it wont carry weight until a Japanese person in authority says it.

What's the temp in hell?

The idea has to come from outside - that's part of the philosophy these speakers were trying to emphasise.

Besides, do you really believe that Japanese do not listen to outsiders? Where would Japan be today if it had not taken on-board recommendations and inspiration from abroad?

1 ( +1 / -0 )

@Yubaru

You said what I didn't want to - the fact that the majority of these recommendations come from foreigners doesn't mean much unless there are visible results. Those outside mainstream employment will either find their niche or just scrape by.

Granted, Japan is slow to change in some ways. My own country, as well as other Western countries, have gone too far with regards to integration as far as I'm concerned. While it might look "progressive", it's largely following the trend. Do people really believe management back home think independently? Hilarious! Real game changers are just as few and far between there as they are here.

Obviously the current practice of picking people who went to the "right" schools and universities is not working. In fact, again, this is the same situation overseas. The assumption that universities churn out useful people is largely mitigated by the fact that so many people want to attend for all the wrong reasons, and a lot of the blame can be placed with employers.

2 ( +3 / -1 )

White man's burden.

On the women directors issue though, the author has my vote. Who holds the purse strings, or decides what TV to buy (as Samsung used to their advantage)?

-1 ( +0 / -1 )

how can westerns preach such issues.. when they themselves do not adhere to the principle of capitalism. If a corporation is deemed to fail from mismanagement, then let it fail, so that from its ashes a new, more efficient system arises.. yet Western government, utilize eastern money to essentially save such corporations, on the simple basis of socio-economics, too big to fail.

It is not that Japan requires more foreigners, more intellectuals endorsing equal gender management, if one looks at the west closely have they, themselves endorsed equal gender management? .. western society in this 21st century understands, that Asia is the key, to western survival. Everything that they own, everything that their society exists upon is fundamentally attuned to Asia. the clothes they wear, the food they eat, the electronic components that run their industries, and medical components that allows their hospitals to function, most if not all are imported.

and it is not, an understatement to say, that this system of economic, industrial co-existence is the model that allowed Japan to enact its miracle.. so are the systems in Hong kong, taiwan, and korea.. and all these nations the west cannot live without..

basically, perhaps rather then preaching a failed model.. that the west itself no longer believes in.. why cannot we learn from one-another..

alas for human hubris..

1 ( +2 / -1 )

A firm does not care about some equal representation model that social advocates advocate for. Such models always fail because competency is ruled out over equality. Most competent board members across the world are male because they worked hard to earn it. You can apply your equal-rights tactics at the Govt level butt at the private level it wont and should not be tolerated. And why should more members be women? are they suppose to bring different ideas to make a firm more profitable because of their gender? That's the underlying logic by people like Julian Ryall and its very condescending towards men. It's a very discrete way of saying "men are stupid, women are smarter".

-2 ( +1 / -3 )

I don't believe in equality in as much as hiring the best person for the job, no matter what they look like, their gender, etc.. Perhaps therin lies the problem and quite systemic for Japan. Maybe not many women are actually applying for these positions or just aren't qualified enough - as a note, surely there are qualified women for director roles, but perhaps they don't apply or "go for them." Whether it be by personal choice or the belief the system is rigged against them.

I don't subscribe to the thought that gender can determine profitability... correlation does not imply causation.

0 ( +0 / -0 )

Japanese firms need more women board members, outside directors and foreigners

Sorry, but they don't.

They need people who can get the job done.

They need to stop caring what university they graduated and whether they are naijin, gaijin, men, women or something inbetween.

Hire people who can get the job done and fire those who can't.

There are too many of the latter drawing high salaries in Japanese companies.

Now more than ever, Japan needs people who can actually DO.

2 ( +5 / -3 )

They need people who can get the job done.

Yes and statistics show that having more women on board lead to better outcomes.

1 ( +3 / -2 )

correlation does not imply causation

0 ( +0 / -0 )

I'm in support of having more women in power. Sometimes, problems needs a lady's touch.

0 ( +0 / -0 )

Of course gender should not be the sole reason for hiring someone, but from my understanding many positions in Japan flat out do not consider woman for career-path jobs. There is blatant sexual discrimination, because woman are expected to work for a few years, then quit for marriage and babies, and are almost never allowed to reenter the full-time work force, because there is also blatant age discrimination. Some men really need to learn more about how the real world works. Woman are still have unfair advantage, regardless of their education or skills. Not everywhere, not every company, but don't think there aren't extra hurdles.

-1 ( +0 / -1 )

Login to leave a comment

Facebook users

Use your Facebook account to login or register with JapanToday. By doing so, you will also receive an email inviting you to receive our news alerts.

Facebook Connect

Login with your JapanToday account

User registration

Articles, Offers & Useful Resources

A mix of what's trending on our other sites