Japan's asset managers under pressure to improve workforce gender diversity
Japan’s asset management firms are under pressure from domestic policymakers and foreign investors to improve the sector’s gender diversity, as Tokyo attempts to reinvent itself as a hub for the global finance industry and stave off expectations of a shrinking labour population.
In December, Prime Minister Yoshihide Suga renewed the country’s decades-long effort to get more women into the workforce with a revised corporate governance code that asks companies to hire more women and foreign managers.
"It is desirable to promote diversity, including by hiring more women, foreigners, and midcareer workers," said Suga, adding that the need for companies to hear new opinions on their boards is growing out of business challenges created by the coronavirus pandemic.
Major global investors including AllianceBernstein, Legal & General Investment Management, and State Street Global Advisors have also put pressure on Japanese companies, recently stating that they will vote against boards of directors at Japanese companies that do not include any women.
Although it is the third largest economy in the world, Japan’s level of gender equality ranks among the lowest of all advanced nations. In 2020, fewer than 15 per cent of leadership positions in politics and business were filled by women, and Japan was ranked 121st in the world for gender equality by the World Economic Forum.
“There's some catching up to do,” says Stefanie Drews, senior corporate managing director at Tokyo-headquartered Nikko Asset Management, which manages assets of around USD250 billion.
‘Womenomics’ was championed by former Prime Minister Shinzo Abe, as part of his policy package to pull the Japanese economy out of decades of low growth.
One of the goals of ‘Womenomics’, a term first coined by former Goldman Sachs Japan vice president Kathy Matsui, was to increase the proportion of women in leadership position to 30 per cent by 2020. After failing to achieve even half of this target, Prime Minister Suga postponed the goal until “as early as possible during the 2020s”.
A spokesperson for Asset Management One, an Asia-based asset manager with more than USD500 billion in assets under management, said that there has been “no drastic change of assumptions of the male-dominated system in Japanese culture”.
Financial services firms’ work cultures are stereotyped as the province of old-fashioned Japanese ‘salarymen’, whose long working hours helped to inspire the Japanese word ‘karoshi’, which translates to ‘death by overworking’.
Government policies have done little to address many of the practical impediments for women entering full-time work.
Japan’s taxation system still discourages women from working full-time, by handing out income tax exemptions to those who make under a certain amount per year and can be claimed as a dependent spouse by their husbands. Although around three million more women were employed in Japan during Abe’s nearly eight years in office, fewer than half of these jobs were full-time, permanent positions.
Nikko AM’s Drews says that new policy measures such as the revised governance code “have to be matched with a willingness to do the right thing from the bottom up.”
“Good, sound policy needs to be matched with bottom-up behaviour, because the policy by itself never makes the difference, as there's always some way of interpreting it so that it might not make a fundamental difference,” says Drews.
Drews moved to Japan in 2014 as a single mother with three children and “many rescue dogs”, having previously held roles at Morgan Stanley and Barclays in London.
She says that Japan’s lack of early-stage childcare provision often leaves women little choice but to take time off work. “The childcare situation here is very challenging for women. If you have a child, it's incredibly difficult to find any childcare for babies or very young children, and so most people then take three, four, or even five years out.”
Prime Minister Suga has renewed the government’s pledge to eliminate child day-care waiting lists, as part of efforts to stem the fall in Japan’s birth rates.
Taking time out to raise children also creates a specific problem for asset management firms: a lack of female investment managers. This is because women often face losing their all-important continuous ‘track record’ as a fund manager when they take time out to have children.
A third of all permanent staff at Nikko AM’s Tokyo office are women, but that figure that falls to 18 per cent of senior leaders. Meanwhile, just under a third of Asset Management One’s employees are female, and 21 per cent at the manager level.
“Getting female portfolio managers is really the biggest challenge in asset management,” says Drews.
Nikko AM is trying to address the issue by allowing employees to take up to three years’ time off to look after children, after which they can come back to work at the same level as when they left.
Drews says that hiring policies also need to be scrutinised to allow more opportunities for women to come back after a career break, particularly for investment managers. “From a hiring perspective, the whole industry needs to be more flexible about what they're looking for, because a track record is not the only definition of talent. Unfortunately, that is the old-fashioned definition of talent and it’s an easy way to judge someone.”
Asset Management One says its proportion of female managers is “gradually increasing compared with the company’s past”, and the firm is encouraging further growth by holding gender diversity seminars, introducing a mentoring system by executive managers for female candidates, and paying attention to diversity when hiring recent graduates.
Old-fashioned ideas, and “years of looking at the industry and seeing only men”, have damaged the reputation of the asset management sector, says Drews.
“If I think about my daughter, when she grows up and wants to find a job, is she going to say, 'I can't wait to go into asset management'? It needs to be made really appealing.”
Diversity activism group, The 30% Club Japan, monitors gender data coming out of Japan’s financial services sector.
In 2020, it found that 11.8 per cent of directors at banks were women, a figure which rose to 15.3 per cent at insurance companies, 14.8 per cent at brokers, and stood at 10.2 per cent for financial firms outside the category.
The head of the 30% Club’s Investor Group, Douglas Hymas, says that these figures are low by Western standards, and foreign investors are bringing new diversity expectations to Japan. In the UK, the average level of female representation in senior management of financial services firms stands at 38 per cent.
“Most of the activity on the stock market is by foreign investors, and I think that through investor relations, these pressures are coming into Japan, primarily through the route of ESG investing.”
Environmental, social, and governance investing (ESG) or sustainable investing, is concerned with making a financial return and also having a positive impact on the world by taking into account issues such as labour relations, environmental preservation and gender diversity.
Hymas is also Japan country executive and managing director at the world’s eighth largest asset manager, BNY Mellon, which manages nearly USD2 trillion in assets. Having first come to Japan in the 1980s as a missionary, his career in investment management spans more than twenty years, including positions at Citi Group, ING Group, Lehman Brothers, and Wells Fargo.
“Japan is like a large ship that takes slow turns,” says Hymas, explaining that the last few years have built “tremendous” momentum for the gender diversity cause. “It just takes a lot of effort to build that momentum, and a lot of time.”
A slow pace of change is baked into Japan’s corporate governance structures, explains Hymas.
In the UK and the US, companies’ corporate structures generally aim to maximise value for shareholders, which encourages managers to engage in “creative destruction”, in the name of progress.
Japanese companies prefer to wait and build a consensus from within before they make decisions, which makes them much slower to change, says Hymas. By the same token, its companies avoid certain mistakes by being less quick to adopt new ideas. For example, Japan’s low adoption of sub-prime mortgage products limited some of the direct impact of the Global Financial Crisis in 2008.
According to Hymas, the country is fast-approaching a consensus in favour of greater diversity, as Tokyo strives to make itself more attractive as a centre for global financial services firms through new schemes such as the Financial City Tokyo initiative.
“It’s like trying to control a flock of birds, or a school of fish. No one's really leading it, but there's a consensus that that that's the right way to go, and everyone goes in that direction. That is finally building.”
Many also believe that greater gender and ethnic diversity in the workforce will provide a solution to Japan’s demographic struggles, and help make Japan’s finance industry competitive on the world-stage by attracting top international talent.
Japan’s fast-growing population of retirees are supported by an ever-smaller workforce, which is expected to shrink by 40 per cent by 2055. Japan’s “demographic tsunami” is a result of having both the highest longevity and one of the lowest fertility rates in the world, according to Goldman Sachs.
Women, robots, and foreign workers, are all ‘new’ sources of labour that Japan’s government and business leaders are exploring.
Ethnic diversity has started to gain traction as ethnic Japanese people account for over 98 per cent of the population. “A lot of companies are now touting the fact that they have a foreigner on the board, especially those that are multinational companies,” says Hymas.
The government has been keen to expand the entry points for foreign companies, with Finance Minister Taro Aso recently announcing that in January an English-speaking support office will open to help foreign asset management firms seeking to do business in the country.
Nikko AM is also trying to improve the ethnic diversity of its workforce. In the summer of 2020, it ran a small internship programme for Syrian refugees in Japan, after it was brought to their attention that some refugees were attending Japanese universities in order to win back the qualifications they had held.
In 2020, change within Japan’s finance industry picked up pace as the coronavirus crisis forced companies out of their torpor. “The thing that women have been asking for 50 years happened overnight, because different circumstances required it,” says Drews.
Home-working was something that Nikko AM was already “fully set up for” before the pandemic struck, as preparations had already been made ahead of the planned 2020 Tokyo Olympics, when traffic was expected to increase.
“When Covid hit in March and suddenly everyone had to work from home, we did it without a hitch. In fact, I think it was one of our most productive years ever,” says Drews.
She says that women in particular, who often struggle with fitting their childcare into long working hours and commuting, have benefited from remote-working because “suddenly everything's output oriented”.
The last year has proved that Japanese companies can adapt fast under pressure.
“This has been night and day for me as well. We as a firm will not go back,” says Drews.