Japan's latest policy push for more workforce diversity in terms of gender, ethnicity and employment background touches a nerve of the deep-seated culture of the nation's megabanks: male domination and lifetime employment.

Five years after Japan released its first corporate governance code that aimed at pushing for more female managers and board members, among other things, female representation in managerial positions in corporate Japan is still among the lowest for an advanced economy.

A revision of the code, proposed by a panel commissioned by Japan's Financial Services Agency and Tokyo Stock Exchange in December 2020, is now asking companies to do more: hire more non-Japanese managers and midcareer professionals from outside.

As Japan's Prime Minister Yoshihide Suga said earlier, the rationale is straightforward: Diverse perspectives and values, coming from a variety of experiences, skills and characteristics, support sustainable corporate growth.

For the three megabanks — Mitsubishi UFJ Financial Group Inc., Sumitomo Mitsui Financial Group Inc. and Mizuho Financial Group Inc. — the change will require a lot of efforts as well as buy-in from stakeholders, analysts said.

Japan's banking industry is still "a male's society," said Toyoki Sameshima, a senior analyst at SBI Securities Co.

Gender disparity

At MUFG, 25% of its managers were women as of March 2020, slightly ahead of its self-imposed target of reaching 24% by March 2021. The female proportion of managers was 15.3% at Sumitomo and 16% at Mizuho as of March 2020, compared with their own goals of 20% by March 2026 and 20% by July 2024, respectively.

As part of an ongoing effort to enable more women to take up leadership roles in Japan, a country that has been hit by an aging and declining population, the government in 2003 set a target of at least 30% female managers for any business or organization by 2030.

“Having a large number of female managers is important from the point of view of fully using the human capital of society," said Michael Makdad, an analyst at Morningstar. He recommended a 50/50 ratio for male and female managers on the basis of gender equality.

The gender inequality in Japan stems partly from a culture of family duties. Men often assume the income-earning role and women the housewife or caregiver role, which limits their career prospects.

In 2018, the latest data available, women's share of managerial positions in Japan stood at 14.9%, the second lowest among 16 countries surveyed by Japan Institute for Labour Policy and Training, a unit under the Ministry of Health, Labour and Welfare. It was far below 40.7% for the U.S. and 36.3% for the U.K., but similar to 14.6% for South Korea, according to the institute.

Lifetime employment

The new call for recruiting managers who are non-Japanese or midcareer professionals who do not climb up the ranks internally also poses challenges to Japanese companies, particularly to the banks.

"Having managers who were hired midcareer gets to the heart of the Japanese employment system," said Makdad. "A key question is whether Japanese people think the lifetime employment system has good points or not ... I suspect that many Japanese people think the 'Japanese' employment system is good and should be preserved without major change."

While Japanese companies are recruiting more midcareer professionals in recent years, they still rely heavily on fresh graduates who have been trained and promoted to managerial positions internally based on seniority.

The three megabanks have not made decisions on whether to set targets for foreign and midcareer managers, according to their spokespeople.

Whether to do so "will be a future issue to discuss," a Mizuho spokesman told S&P Global Market Intelligence. The lender will keep a 65% goal for non-Japanese managers in its overseas operations, after reaching 64% in the fiscal year ended March 2020.

The progress of midcareer hires has been mixed. Mizuho hired 48 midcareer professionals in the fiscal year ended March 2020, down by more than 75% three years ago. Meanwhile, Sumitomo recruited 234 midcareer professionals in the fiscal year ended March 2020, up from 197 in the previous fiscal year but still fewer than 251 two fiscal years ago. MUFG did not disclose such data.

"Banks are much more conservative and are behind other industries" in diversifying their operations, which is seen as a reason for the lack of employment diversity as they have focused on just a single business of lending, said Takahide Kiuchi, executive economist at Nomura Research Institute.