Boards in Japan are taking on a more global profile as more seats go to directors from outside Japan, but there is still progress to be made.
Boards that break the traditional all-Japanese, all-male mould are multiplying, slowly but steadily. Currently nearly 15% of companies in the Nikkei 225 have at least one non-Japanese board member, up from 12% in 2013. This trend is expected to continue. Japan’s biggest bank, Mitsubishi UFJ Financial Group, and Takeda, the country’s biggest pharmaceuticals company, which has a French CEO, each appointed foreign directors this year.
One driver of this trend, both on the board of directors and management teams in Japan, is M&A activity. When Japanese companies buy Western ones, they tend to retain their senior leadership. SoftBank’s diverse portfolio, for example, includes ARM, the British chipmaker it acquired in 2017. It previously acquired Vodafone’s Japanese operations and US telecoms company Sprint. Currently seven out of 10 directors on the conglomerate’s board are non-Japanese, including Vice-Chairman Ronald Fisher, an American.
Other examples include drinks company Suntory, which added the British Chief Executive of Beam, a spirits-maker, to its board in 2014 when it acquired the American company. “Greater outside influence over Japanese firms also stems from more overseas investors, who hold about 30% of Japanese shares, up from 23.5% in 2008”, The Economist reports.
Looking beyond corporate giants to the broader business landscape, however, many Japanese companies still have a long way to go: The number of foreigners on boards of listed firms has crept up from 0.6% in 2001 only to 0.8% last year.
Japanese companies need to prioritize board diversity, says Sir George Buckley, if they are to maintain global relevance. UK-born Buckley is an outside director of Hitachi and former CEO of 3M. William Saito, a venture capitalist and public policy consultant, observes that their style of corporate governance may also need to change. Foreigners who join Japanese boards often find that they are not overseers, but rather groups in which retired chairmen and chief executives continue to hold sway.
Apart from the benefits all companies gain from having more diverse viewpoints in the boardroom, Japanese firms in particular could see more investment if foreign directors have seats at the table. Overseas operations would also benefit. Traditionally, in order to stay in control, Japan’s manufacturers would send people they know to lead subsidiaries abroad. But as Masahiko Uotani, President of cosmetics company Shiseido, points out, “You need people who can really understand local tastes.” The real risk, according to Christina Ahmadjian, a non-executive director at Mitsubishi Heavy Industries, lies in being dangerously out of touch.
