No Women on 90% of Japan Boards Belies Abe Equality Push

Two years after Prime Minister Shinzo Abe came to power with a plan to empower women, Japanese boardrooms are still the biggest boys’ clubs in the developed world.

Just 196 of the 1,858 firms listed on the nation’s benchmark Topix index have female directors, and 1.5 percent of all board members are women, according to data compiled by Bloomberg. That’s an increase from 1 percent before December 2012, when Abe took power, and the lowest among the main markets of 24 advanced economies, the data show.

The slight increase in female board participation shows progress has been slow in a nation where half of companies only have male managers. And businesses may be worse off for it. Kathy Matsui, who coined the term womenomics in 1999 and whose research Abe takes note of, says passing over half of society will hurt innovation.

Having women on a board is “definitely worth a premium,” said Matsui, chief equity strategist in Tokyo at Goldman Sachs Group Inc. “In a very homogeneous society like Japan, to have a diverse set of opinions incorporated in the decision-making process usually produces a better outcome.”

Data on corporate performance appears to support Matsui’s argument. The five-year average return on equity for the Topix’s 196 companies with at least one female director is 6.8 percent, Bloomberg-compiled data show. That compares with 5.4 percent ROE for 1,595 companies with all-male boards.

Leadership Goal

The 1.5 percent ratio for women on Japanese boards compares with 18 percent in the U.S., 28 percent in France, and 40 percent in Norway, according to data compiled by Bloomberg. Some 93 percent of firms listed on the Standard & Poor’s 500 Index in the U.S. have at least one female director.

Germany’s parliament last week approved a bill mandating more than 100 of the biggest listed companies to allocate 30 percent of supervisory board positions to women.

As Japan’s declining population reduces the pool of working-age people, Abe has reiterated a target for women to hold 30 percent of leadership positions by 2020. He stopped short of enforcing a quota for companies and hasn’t set a target for more female directors. Women held 11 percent of management posts in Japan as of 2012, according to the latest labor ministry data. That compares with 43 percent in the U.S. and 39 percent in France, the ministry said.

Better Returns

Past studies have shown companies with more female directors tend to outperform. Fortune 500 companies with three or more women as directors had an average return on equity of 15.3 percent for the five years ended 2008, according to a 2011 report by Catalyst. That compares with 10.5 percent for companies with no female board members.

“Companies with the best record of promoting women outperformed their competitors by revenue, equity and assets,” said Miyuki Kashima, head of Japanese equity investment at BNY Mellon Asset Management Japan Ltd. “I would expect a similar trend going forward in Japan.”

Companies with at least one female director in Japan delivered a total cumulative return of 108 percent in the three years through Feb. 28, data compiled by Bloomberg show. For firms with all-male boards, the total return was 99 percent.

The figures for cumulative return include reinvested dividends and take into account changes in the number of companies in the Topix throughout the period.

GDP Dividend

Increasing the number of female managers “adds new value and brings new ideas and innovation,” said Haruno Yoshida, the president of BT Japan, a unit of the U.K.’s BT Group Plc, who is set to become the first female executive to join Keidanren, Japan’s biggest business lobby, in June. “That will contribute to an increase in the value of a company.”

About 52 percent of 11,017 companies surveyed last year by Teikoku Databank Ltd., Japan’s largest credit research company, didn’t have any female managers.

The potential windfall from increased female participation is enormous. More gender equality in the labor force could boost Japan’s gross domestic product by almost 20 percent over the next two decades, according to an estimate by the Organization for Economic Co-operation and Development.

Abe’s cabinet is getting ready to give companies a nudge. It plans to submit a bill in the current session of parliament that would force businesses with more than 300 employees to disclose plans to hire and promote more female workers.

“If you want to thrive as a company and you depend on labor, then the faster you make yourself appealing to the best quality talent available, the better off you will be,” said Matsui.

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