Agefi Actifs (23.07.2021) - Significant improvements in corporate governance in Japan – as shown in particular by increasing female representation in companies' governing bodies – could drive stronger momentum in the Japanese market over the long term.
Japanese equities are in demand among investors. In 2020 and since the start of 2021, they have outperformed most emerging-market indices. At a time when the global economy is reopening, this investor interest in the Japanese market is consistent with historical trends. In recovery phases, Japanese equities traditionally offer higher beta and offer genuine opportunities for investors seeking alpha.
As well as cyclical factors, however, there are other secular aspects capable of driving returns from Japanese stocks on a longer-term view. Foremost among these are improvements in corporate governance and Japanese companies are reaping the rewards of reforms adopted in 2014 and 2015 during the Shinzo Abe era. In 2014, Japan introduced the Stewardship Code for companies wanting to improve their governance, and then a Corporate Governance Code the following year. This has led to significant progress in this area, in which Japan used to be a laggard.
Revisions of these codes every three years – in 2014, 2017 and 2020 for the Stewardship Code and in 2015, 2018 and 2021 for the Corporate Governance Code – have contributed to the slow but steady improvement in Japanese governance practices.
The next stage will involve changes to the way the Tokyo Stock Exchange operates in summer 2022, along with new requirements for listed companies.
Listed large-caps will have to meet new criteria to be admitted to the exchange’s new “prime” compartment.
Younger women in senior management roles
In 2018, the revision of the Corporate Governance Code focused on the need for greater diversity in boards of directors, including greater female representation. That recommendation fuelled the debate about the role played by women and diversity within Japanese society. On an international comparison, although Japan still has relatively few women in senior management roles, significant improvements have taken place. The proportion of directors, auditors and senior operational managers who are women has tripled since the Corporate Governance Code was adopted. This increase in the number of women in key business roles is far from trivial. It has allowed relatively young women (aged between 40 and 60) to gain senior management positions, and so it is not just a case of honorary promotions being offered to women aged over 60 towards the end of their careers.
Governance reforms have enabled Japanese women to take advantage of the increasing opportunities arising from Japan’s strong jobs market.
The combination of these two factors – a strong economy and reforms – lie behind the sharp increase in labour force participation among women in the last few years. Like women of all ages, men aged over 65 have also been able to take advantage of the increase in job vacancies. An unprecedented quest for talent has opened up new horizons, and this has been highly beneficial for women. The higher profile achieved by young, influential Japanese women partly explains the success of the campaign against former Prime Minister Yoshirō Mori. On 12 February, after making controversial comments about women, Mr Mori was forced to resign as head of the Tokyo Olympics organising committee, an episode that illustrates the deep-seated changes currently taking place in Japanese society.
Cedric Le Berre
Senior Analyst
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