Academic journal article Journal of International Affairs

Girl Power in Japanese Boardrooms? an Exploratory Study of Critical Masses' Impact on Firm Financial Performance

Academic journal article Journal of International Affairs

Girl Power in Japanese Boardrooms? an Exploratory Study of Critical Masses' Impact on Firm Financial Performance

Article excerpt

On 14 June 2013, the Japanese Cabinet approved the so-called "third arrow" of Abenomics, a growth strategy heralded by the incumbent Shinzo Abe Administration as the strategic means to revive Japan's stagnant economy. In a same-day video message released on YouTube, the prime minister proclaimed: "A society in which women shine is the core of my Growth Strategy," which includes a number of promises to fully utilize the "power of women" by promoting women's participation in the labor force and management. (1)


Bona fide empowerment of women in Japan, Inc. would undoubtedly need to include empowerment in the supreme decision-making body: the board of directors. As it stands, women's empowerment in Japanese boardrooms may read as an oxymoron. In 2012, only 1.6 percent of board members across corporate Japan were female, and on a macro level, policymakers and observers alike have highlighted the need for structural reform for some time now, including changes in the Japanese gender stratification. (2) When it comes to equality between men and women, the "Global Gender Gap Report 2012", released by the World Economic Forum, ranks Japan 101 out of 135 countries, making it a conspicuous example of gender inequality. (3) According to 2011 data from the World Bank, the Japanese labor force participation rate for women was 49.4 percent--below the Organisation for Economic Co-operation and Development (OECD) average of 50.9 percent--but, as Figure 1 shows, the rate has nonetheless witnessed an upward trend in the past few years. (4)

The makeup of boards of directors across Japan exemplifies the country's challenges in improving gender equality. As Figure 2 reveals, women have always constituted a negligible percentage of board membership in the country. Lately, board diversity--and particularly the gender of directors--has begun to generate public attention, and the debate is likely to be amplified by the Abe Administration's movement to impose diversity requirements on boards, though they have yet to materialize.

In other parts of the world, diversity requirements in boardrooms have already been implemented. Norway has taken the lead in terms of policy implementation directed at addressing the gender issue. (5) Perhaps the most well-known example is the Norwegian quota law of 2003, which stipulated that beginning in 2006 publicly traded companies must transform their boards by appointing at least 40 percent female members, or risk forced dissolution through a delisting from the Oslo Stock Exchange.

Two separate studies investigated how this legislation impacted the performance of the approximately 494 firms affected. One found a decrease in their profitability, and the other similarly found a decrease in their value. (6) However, both of these studies examined corporate boards that became gender-balanced within a short time frame of less than two years, as the companies in question had only until the end of 2008 to comply. Quite expectedly, the sudden surge in demand for female directors had a simultaneous side effect: the newly appointed female board members were generally younger and less experienced than the existing male and female board members. Hence, the decline in firm performance was not necessarily caused by the rise in the percentage of women directors. Rather, it could have been caused by the rise in the percentage of young and inexperienced directors. Accordingly, Japan makes for an interesting case to conduct research on boards that have yet to experience a distinct market shock in the demand and supply of female directors.

While the number of female workers in Japanese firms has risen and attracted discussion, little academic attention has been paid to the infamous glass ceiling barring women from executive positions in Japan. (7) Few would contest the notion that having a female director on a board is unlikely to be a panacea for Japan, Inc. Nevertheless, it is worth asking: what is the measurable impact of having increasingly gender-balanced boards of directors? …

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