Japan's New Disclosure Regulations will Help G7's Worst Pay Disparity

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by KnowESG
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Japan's new rules for reporting the pay gap are going to be stricter. By June next year, many Japanese companies will have to report new information.

The measure could boost diversity in a country that has long lagged behind its worldwide rivals in terms of gender equality.

Fujita, who contributed to a recent JPMorgan report that focused on women’s professional advancement, said:

"Disclosing it leads to a truer way of helping women take a more active role in business. Nothing will change if we just let things be — the market has to put pressure on companies to change by requiring disclosure.”

The pay gap isn’t the only new disclosure required under Prime Minister Fumio Kishida’s “new capitalism” policy. From the next fiscal year on, companies must also include in their securities reports the number of women in management positions and the number of male employees who take time off to care for children.

Japan has the highest gender wage disparity among the Group of Seven countries. According to the latest World Inequality Report, women's share of labour income in Japan was also low at 28.2% in 2020, much below that in the other six countries.

"Japan's gender pay disparity will not shrink in a few years," Fujita said. That is why, she says, the government must act quickly to shift Japan away from present structures within companies and work settings that lack diversity. "Increasing diversity leads to increased innovation," the economist asserted.

While initiatives to boost the number of female employees have made some headway, "there hasn't been much discussion of how those people should change firms," according to Fujita. "Companies have not transformed in such a way that being a manager is appealing to women or that more women may participate in decision-making processes."

Since 2003, Japan has set a goal of having 30% of executive roles filled by women; however, the number of women on boards has not increased much. According to the Cabinet Office, the proportion of women on the boards of publicly traded companies has more than doubled in the last decade but remains low. According to the most recent Teikoku Databank study, the percentage of women in managerial positions remained at 9.4%.

Even though the number of women on boards has grown, Rie Nishihara, Head of Japan Equity Strategy at JPMorgan, who also worked on the report, says that "it hasn't reached the point where diverse opinions are truly reflected in management decisions." She believes that the ratio of women on boards needs to increase to 30% for this to happen.

Rina Bando, who is a senior manager at the consulting firm Mercer Japan and wrote a report about gender pay disclosing last month, said:

"We have hopes that the 30% leadership goal will be reached by 2030. Although changes do not happen easily in Japan, we are definitely seeing shifts in awareness in the past few years, especially as Japan follows the footsteps of the U.S. and Europe in promoting diversity.”

Japan lags considerably behind its worldwide peers in terms of female board members. In June, the European Union agreed that listed companies must have 33% of all directors and 40% of non-executive directors who are women by the middle of 2026.

If varied viewpoints begin to influence management decisions, stock performance may suffer. When the market is in a decline, shares of companies with varied management teams may be held on to more tightly, reducing downward pressure on stocks, according to Nishihara.

Shaheen Contractor, an ESG strategist at Bloomberg Intelligence, says that having a lot of women on boards seems to make stock prices less volatile in most places. "The method may lower risk while also providing downside protection," she said.

“Gender diversity provides the potential to discover values that are hidden,” said Ayako Sera, a market strategist at Sumitomo Mitsui Trust Bank. “Profit comes from discovering things and services that can be helpful to the public. When thinking about those new value-added services, people might miss out on potential opportunities if they do not have a diversified perspective.”

According to Bloomberg data, women held three fewer seats on the boards of companies in the 225-issue Nikkei stock index in the third quarter compared to the previous three-month period. The average number of women on boards has stayed the same, at 1.5 out of a total of 10.4.

Source: Japan Times

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