Individual Matters

Companies put diversity, equity, and inclusion at the center of return-to-office policies

Offices in Japan have seen a revolution over the past two years or so, with the pandemic having ushered in the need for remote work. Despite being largely unfamiliar with the practice, companies across the country stepped up to the challenge. But, as living with Covid-19 has become standard, many businesses have back-pedaled or adapted their approach as they navigate a return to the office. Others have come to see the new normal as an opportunity to reflect on where, when, and how employees work, to foster greater productivity, and expand their diversity, equity, and inclusion (DEI) efforts.

The ACCJ Journal spoke with leading companies in various industries to explore the lessons they have learned from the pandemic vis-à-vis work and what the future might hold for employees in Japan.

Starting from Behind

When Japanese enterprises were slow to respond to the government’s request, in February 2020, to allow 70 percent of employees to telework to help contain Covid-19, they came under fire. Critics said companies’ working cultures were outdated and being held back by a focus on presenteeism and physical administration tools such as hanko (seals).

A study by Tokyo-based brand consultancy Riskybrand Inc., however, shows that Japan was simply behind the curve. Only five percent of the country’s workforce was practicing telework pre-pandemic (compared with 32 percent in the United States and 27 percent in the United Kingdom), making remote work an abrupt switch for Japanese companies.

Still, many were able to implement the recommendation quickly. According to a Riskybrand survey of some 1,700 businesspeople in Japan, in May 2020 almost 40 percent were working remotely at least three days a week, of whom 20 percent were doing so daily. The larger the company, the more extensive the implementation, with 30 percent of large organizations (those with more than 3,000 staff) offering telework compared with 14 percent of small and medium-sized enterprises (SMEs), defined here as having fewer than 50 employees.

Managed talent services provider MESHD, a brand of Tokyo-based HCCR, was among those to respond swiftly. On the declaration of Covid-19 being a pandemic, the enterprise shifted from office-based work to a compulsory work-from-home model across its Japan and India offices.

“On the whole, the company responded positively to the changes, and we saw no visible dips in performance and limited impact on team dynamics,” said Chief Executive Officer Sean Travers. “We felt the team was working as effectively remotely as they [had been] from the office.”

“Covid-19 and the workstyles adopted to mitigate it have boosted understanding of, and a desire for, greater DEI in business.”

Following the government’s first state of emergency declaration, healthcare company Novartis Pharma also introduced remote work for all staff, unless it was absolutely necessary for them to go to the office or attend critical customer visits. To support employees affected by the closure of schools and childcare centers, Novartis provided additional childcare services until the end of 2020.

Coca-Cola (Japan) Co., Ltd., meanwhile, encouraged employees to work remotely in the early days of the pandemic, before closing its office for a time in March 2020 and asking all staff to telework. On reopening, the organization capped office attendance at 25 percent to ensure employees were allowed to access the office for critical work of specific needs.

From those early days, the uptake of remote work by companies with white-collar workers has continued to rise—and increasingly so with the emergence of the highly contagious omicron variant of the coronavirus. By fall 2021, 52 percent of enterprises in Japan were offering telework, according to statistics portal Statista.

Office Allure

With Japan now well into the third year of the pandemic, many companies are returning to the former status quo.

In a survey of 6,500 companies by Tokyo Shoko Research, Ltd., 27 percent of those offering telework during the height of the pandemic had stopped doing so as of June, up from 21 percent in October 2021. Only 29 percent of those surveyed now offer the option of remote work, down from 37 percent in October 2021. Large enterprises were more flexible (57 percent offered telework) compared with 24 percent of SMEs.

And it is not only companies that are trying to go back to the former normal. About one-quarter of those offering teleworking said only 10 percent of their staff were using the option as of June 2022.

The reasons for this are unclear, especially as 80 percent of employees surveyed by Teikoku Databank Ltd. in February 2022 said they wanted to continue teleworking, citing reasons such as saving time on commuting, having freedom to care for family members, or gaining greater work–life balance.

But the past two years have shown that teleworking can pose difficulties for some groups, including those without an adequate office setup or a conducive working environment at home, which may make returning to the office appealing.

From the early days of the pandemic, EY Japan recognized that not everyone would have the ideal environment for telework and supported staff financially by purchasing display monitors, microphones, and other equipment for their use at home.

The company’s DEI leader, Megumi Umeda, said the move acknowledged the potential of remote work to “enhance the workforce by welcoming working mothers, people with disabilities, and others who have limitations on their workplace and working hours.”

Patrick Jordan, vice president of human resources for Coca-Cola Japan & Korea at The Coca-Cola Company, also found that not all staff were equipped—physically, mentally, or emotionally—to work from home, noting that the company’s implementation of telework was “a great learning experience” regarding employee needs.

“While we wanted to ensure the safety of our employees from Covid, we also recognized we have to ensure their safety in many other ways, such as mental health,” said Jordan, adding that staff with medical concerns or who were uncomfortable working at home were allowed to return to the office, while undertaking thorough infection control measures.

For MESHD’s Travers, only a few months of telework brought to light issues for new hires. “New joiners were really struggling with their onboarding,” he said, noting that he “underestimated the impact of them not being in the same room as senior members” who could guide them in phone interactions, exchanges with fellow employees, day-to-day queries, and so on.

Learning Lessons

As the advantages and disadvantages of telework have become more apparent, so too have some successful approaches to future workstyles. Many companies have been finding out more about what employees want and giving them the choice to work in ways that suit them, all the while offering a hybrid work model.

Coca-Cola removed the office’s staff capacity rate of 25 percent in June and monitored attendance to see if there were any changes. When the number of staff working in the office didn’t rise, leaders had a sense of validation, believing that staff “didn’t want to return, didn’t see value in returning, or were not sure how to return,” explained Jordan.

However, the subsequent introduction of flex guidelines, to enable teams to choose how to work virtually, has resulted in an organic increase in attendance to 30 percent capacity. This shows that “clearer instructions are needed to help people settle into a more balanced hybrid way of working,” he added.

He also pointed out that survey data is critical for gaining better understanding of the desirable elements of hybrid working, as well as people’s concerns about working at the office or at home.

Flexibility is also key at Novartis. The company offers a framework called Choice with Responsibility, which was implemented in July 2020 in the belief that the pandemic would last longer than the world anticipated.

“This evolving framework asks employees and leaders to continue redesigning the way we work and make the best choices for high-impact hybrid work—not just for the individual but also for the team,” explained Chanel Leitch, country head of people and organization for Japan at Novartis.

Novartis has a new space for individual work which can be easily converted for small group discussions or medium-sized group short meetings.

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While the company continues to restrict the number of staff working at headquarters to 50 percent of each division at any one time, other limitations, such as the number of face-to-face attendees in meetings, have been relaxed to give staff autonomy over their workstyle. As a result, “each employee is now used to making sound decisions as to how they can best produce outcomes as an individual and a team in a hybrid working environment,” said Leitch, adding that the approach is “a key driver of engagement and continued retention.”

Similarly, EY Japan’s recent people survey also shows that continuing to offer telework options has resulted in improved engagement and inclusivity.

Since introducing this workstyle in 2018, the company launched its Flex and Remote Program in 2020 as a commitment to employees. EY Japan has promised to continue offering staff flexibility regarding where and when they work, regardless of the Covid-19 situation.

“Each person’s schedule is unique, considering the needs of the individual, the project they are working on, and the needs of the client and the team,” and therefore requires flexibility, Umeda said.

A new volunteer program was implemented to provide financial support to employees who wanted to move outside central Tokyo and work remotely from the suburbs. This supports employees desire to live outside Tokyo and contributes to the larger community.

Big Picture Thinking

Looking ahead, the future of work is likely to focus on how and why people work, as much as where and when they work. For many companies, the pandemic has shone a light on what work traditionally has been and has prompted or accelerated discussion on what work could be after some out-of-the-box thinking.

“As an organization, we need to think about the reasons we want our team to spend time together in the office,” said Travers. “It needs to go beyond just working at your desk.”

Indeed, with staff now able to conduct meetings online and do “deep work” and other individual-based tasks remotely, companies are keen for office-based time to focus on interactive activities, such as mind mapping and team building.

Coca-Cola has redesigned one floor of its headquarters as the Coke Collaboration Center, an experimental initiative to encourage teamwork via hot desks, lockers, meeting spots for different groups, and phone booths for individual or remote meeting participation.

EY Japan’s Umeda agrees that the role of the office has changed, noting that it should “become a collaboration space for colleagues, clients, and business partners, not a workspace.”

And, given that online employee social events “could never really be a substitute for an in-person, on-premises event,” office time should also be used for staff to spend time together and build relationships with each other, said Travers. For MESHD, a key reason for the hybrid work model is to forge a strong company culture and sense of community via employees’ in-office time.

Jordan agrees, noting that “the need for social interaction is very important.”

To encourage it, Coca-Cola has begun offering events at the office such as free lunches in the cafeteria, a summer festival that includes employees’ family members, and a bar serving alcoholic beverages.

“Each employee is now used to making sound decisions as to how they can best produce outcomes as an individual and a team in a hybrid working environment … the approach is a key driver of engagement and continued retention.”

Most important though, Covid-19 and the workstyles adopted to mitigate it have boosted understanding of, and a desire for, greater DEI in business.

EY Japan’s Umeda said people’s own challenges during the pandemic had made them “recognize the importance of inclusiveness, equity, and respect for others.”

The Novartis Choice with Responsibility framework has enabled the company to further embrace diverse needs and “look for ways to progress in building an inclusive environment,” said Leitch.

And at Coca-Cola, the hybrid work model is fostering inclusivity. “Returning to the office is all about inclusion,” said Jordan. “Each [employee] has developed personal habits which interact with their professional habits … so we need to be mindful of each individual’s needs and not treat everyone the same.”

MESHD’s Travers also has staff front of mind. The pandemic has enabled him to “come to the realization that it’s the employees who will dictate the future of work, irrespective of companies establishing regulations,” he said.

Indeed, the pandemic has increased employees’ willingness to change employers if they are not satisfied with their workstyle. In June, the JLL Workforce Preferences Barometer found three out of four of the 4,000 office workers surveyed would reconsider their involvement with their company if they wanted greater work flexibility.

Setting up suitable work models and fostering DEI has, therefore, never been so important for recruitment and retention.

Certainly, Travers notes, companies investing “time, money, and resources into their employees’ skills, emotional wellbeing, and job satisfaction will reap the rewards in the future.”

Hidden Treasure

Can women overcome obstacles to fill Japan’s tech gap?

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The Japanese government calls it a “digital cliff”—a projected shortfall of 450,000 engineers, programmers, and other tech workers needed by 2030 to undertake the country’s digital transformation.

Harnessing the largely untapped potential of Japanese women—who are drastically underrepresented in science, engineering, and computer programming jobs and college degrees—could help narrow that gap.

“Authorities realize they face a big labor shortage, and some people talk about opening up immigration. But, already, we have a huge resource: Japan’s hidden treasure is the power of women,” said Annie Chang, vice-chair of the ACCJ Independent Business Committee and head of IT recruiting company AC Global Solutions Ltd. In 2013, Chang co-founded Women in Technology Japan, a group dedicated to boosting female participation in the tech industry through workshops and mentorships.

And yet women face a host of obstacles—cultural, educational, corporate, and familial—that keep them from playing bigger roles in technology. As a result, Japan has a large digital gender gap, with some of the lowest shares globally of women in tech jobs and college programs, even compared with many developing Asian nations.

According to UNESCO data, just 14 percent of university graduates with engineering degrees in Japan are women. Compare this with 20.4 percent in the United States, 24.5 percent in the Philippines, and 30.8 percent in India. Among engineering researchers, Japanese women account for just 5.6 percent. That’s left a dearth of female role models to inspire girls about their futures.

“It’s embarrassing,” said Asumi Saito, 30, who co-founded Waffle, a non-profit in Japan that works to support teenage girls interested in science and technology at a critical juncture in their lives, when they must choose between pursuing science or humanities tracks in high school.

“I’m hopeful about the younger generation,” said Saito, who believes that bringing more women into technology will benefit the broader economy and society. “It will lead to greater diversity in innovations and, likely, more humane applications of technology in areas such as health and childcare.”

Allowing women to play a bigger role in the tech industry would “lead to so many more business opportunities,” said Yan Fan, a software programmer who previously worked in Silicon Valley and, in 2017, co-founded coding academy Code Chrysalis, which runs intensive 12-week programming boot camps in Japan. About a quarter of its students are women. Fan and her academy were featured in the April 2019 issue of The ACCJ Journal.

“The message I want Japanese women to have is: ‘You are 50 percent of one of the most powerful economies in the world. You are a significant part of the workplace,’” Fan explained.

And that could lift Japan on the IMD World Digital Competitiveness Ranking, where the country languishes at 28th globally and seventh in Asia, behind Hong Kong, Singapore, China, and South Korea.

Systemic Change

But Japan’s digital transformation could leave many of its women behind. Those at home with children, or who are middle-aged, have little chance to learn new in-demand skills, such as programming, machine learning engineering, and data science.

That’s a global concern: as automation takes over low-skilled jobs around the world, women stand to lose more than men, the 2021 UNESCO Science Report warns.

Fan isn’t confident that Japanese society can shed the constraints and cultural assumptions that impede women. She points to the oft-heard microaggression, “Even a housewife can do this,” as an example of the mindset that grips Japan. “When you hear those kinds of things day after day, it becomes ingrained in you.”

Systemic change is needed, Fan said. “The onus seems to fall mostly on women. There’s little talk about all the other changes that need to happen for women to actually make the space in their lives to learn new skills. So, I think women will fall further behind as the country digitizes.”

Still, Fan is optimistic about Japan’s potential—and the wider impact it can have. “If we can elevate women in this society, we can create reverberations throughout the world just due to the sheer size and power of Japan’s culture and its economy.”

Mindset Change

There are signs of modest progress. Compared with 20 years ago, there’s greater awareness of diversity, and companies are taking steps to hire and promote more women. That’s thanks partly to former Prime Minister Shinzo Abe’s promotion of Womenomics, a term he apparently borrowed from Kathy Matsui, the former Goldman Sachs Japan vice-chair who, earlier this year, co-founded MPower Partners, Japan’s first venture capital fund focused on environmental, social, and corporate governance (ESG). “Just the fact that diversity is part of the vernacular is a huge step forward,” Matsui said.

But, more importantly, there’s been a mindset change at some corporations. Leaders have realized that giving women bigger roles in projects and leadership isn’t just a human rights and equality issue, but a driver of economic growth, she added.

“If you don’t think diversity is a competitive and growth imperative, it really isn’t going to get any traction,” she said. “But if you think it is a weapon for growth and a competitive advantage, and you filter that down through your organization, you can get buy-in. Then you can start to change how you recruit, how you evaluate, how you promote. That’s the only way you’re going to get women into those leadership positions.”

One step in this direction is the appointment of Yoko Ishikura, professor emeritus of Hitotsubashi University, to be the No. 2 official in charge of Japan’s new Digital Agency.

The number of women seeking and finding jobs in the tech industry is slowly growing. Of the 27,300 candidates placed by tech recruiting company Wahl + Case since 2014, the portion who are women has risen from 27 percent to 38 percent, explained founder Casey Wahl. However, women make up 14 percent in highly technical positions such as software coding, he said; more go into marketing and product design.

Women who do land tech jobs find they pay better than work in many other industries. The average annual salary for candidates recently placed by Wahl + Case has been about ¥9 million ($80,000).

Compared with 20 years ago, Wahl said he sees major changes in the role of women in the workplace. “There’s a big trend going on, a generational time shift,” he noted. “The people in their thirties and forties—when they get into power, then things will change even more.”

The combination of soaring demand for tech jobs and greater commitment to diversity presents women with an opening—provided they have the right skills. “Women have a great opportunity now,” Chang said. “But the pipeline is so small. How do you increase this from the grassroots level?”

Home Front

Parents and teachers have the biggest responsibility in nurturing—or discouraging—girls’ interest in science, math, and computers, Chang, Matsui, and others said.

When Chang asks Japanese female engineers who had the biggest influence on their career choice, the frequent response is their fathers. Ironically, it is more often their mothers who tried to dissuade them, she explained. “The moms are generally stuck at home, so they don’t have much exposure to technology. They’re not very encouraging of daughters who are interested in science and don’t think the image is very good.” Some even worry about their daughter’s marriage prospects if they pursue an engineering career.

Even today, there is a persistent bias in Japan that girls aren’t particularly good at science and math. Parents and teachers may express such views, and girls pick up cues from anime and TV shows that tend to portray boys tinkering with robots or computers, but not usually girls.

Those images can influence girls’ self-image and confidence, said Miki Ito, 38, an aerospace engineer and general manager at Astroscale, which is engaged in removing space debris circling Earth. “There’s the idea that if you go study science at university, it’s full of men, or it’s really difficult,” she said.

Ito’s parents were surprised but supportive when, as a teen, she expressed a desire to study space. Her only model was Chiaki Mukai, Japan’s first female astronaut. In college and graduate school, most of her college classmates and all her teachers were men, but Ito said she didn’t encounter any discrimination.

“I actually think women are well-suited to programming. It involves setting up steps to carry out a plan, like going on a trip. Women are good at that kind of planning for their families,” Ito said. “As more women take these IT jobs, they will become role models for the younger girls, who will realize they can do those jobs.”

Digital Future

To prepare Japan’s youth for the digital future, the government now requires computer programming to be taught in elementary schools. At that age, boys and girls are equally enthused about technology, said Haruka Fujiwara, 34, who has been teaching and coordinating programming classes at her school in Tsukuba, located north of Tokyo in Ibaraki Prefecture.

“The kids love it. They naturally engage with each other and talk about projects together. Children who were kind of quiet or not very confident now brag about their projects,” Fujiwara said. “I haven’t seen any gender difference in enthusiasm or ability.”

To create projects, fifth and sixth graders use software and tools such as Microsoft Excel and Scratch, a coding language and community developed for children by the US-based non-profit Scratch Foundation. One of their projects measured the amount of carbon dioxide in the air, Fujiwara explained. Seventh graders at her school start learning the JavaScript programming language. “In the upcoming generation,” she said, “I think girls will be using computers just as confidently as boys.”

Until age 15, Japanese boys and girls perform equally well on international standardized math and science tests. But a gap develops once they enter high school and are required to choose between science and humanities tracks. More girls choose the latter, perhaps because science seems daunting or because they are encouraged to do so by their teachers or parents.

The gender gap widens further in college and graduate school, where engineering and tech programs are dominated by male students and teachers. In many countries, this leaky pipeline phenomenon is common: the higher the education level, the fewer the women. But in Japan’s case, the flow narrows to a trickle.

And working women are generally expected to quit once they bear children, removing their ideas and contributions from the marketplace. When women are at home, they have few opportunities to gain tech skills, and tend to settle for part-time, low-paying jobs such as supermarket cashiers—a position that is dwindling as checkout kiosks take over.

While more young mothers are returning to work after maternity leave, finding daycare can be difficult—especially if they have to work late. And working women are still generally expected to do most of the housework and child-rearing, as well as care for elderly parents or in-laws.

To flourish and advance in the workplace, women may need to think more about how to brand themselves—how they can use their unique gifts and strengths to be successful, said Nancy Ngou, an ACCJ governor and co-chair of the Human Resource Management Committee, who is also head of organizational change and diversity at accounting firm EY.

“They shouldn’t have to emulate the male personality,” Ngou said. “Maybe they’re better at networking or building trusting relationships with people. As a leader, those are very important qualities.”

Reframing the Narrative

At Waffle, Saito and her co-founder, Sayaka Tanaka, are trying to change the narrative about technology and gender.

They run one-day camps for girls in middle and high school that cover programming basics and offer career talks, as well as hands-on experiences that emphasize the problem-solving, community-building, and entrepreneurial aspects of technology. “We want to create a safe space where girls can talk about these things freely,” said Saito, 30, who holds a master’s degree in data analytics from the University of Arizona.

Earlier this year, Waffle supported 75 young women who participated in a Technovation Girls contest, in which teams developed and pitched apps to a panel of judges. Many of the apps were intensely practical. One provided advice on where to find vegan food, and another divvied up household chores among family members. Recently, they received a grant from Google to support their work.

Saito said she receives text messages from girls about the opposition they face at home. One said her father refused to pay for her university tuition if she was going to major in data science and told her instead to study medicine—considered a scientific field more suited to women. Another girl said her parents didn’t want her to study physics because they were afraid that she would never get married.

“A lot of these girls don’t have adults around them to listen to them seriously,” said Saito. “That’s a huge problem in Japan.”

Creative and Flexible

Coding academies have popped up across Japan, but enrollment is heavily weighted toward men. Most women simply don’t have the time, money, or inclination to attend.

Trying to make programming attractive to women, Hitomi Yamazaki in April co-founded Ms. Engineer, Japan’s first coding academy expressly for women. With female models and muted purple tones, the website emphasizes the flexibility that programming offers, including working from home. Even the startup’s name is meant to convey the idea that being a female engineer is cool.

“We wanted to avoid the geeky image and stress the creative monozukuri aspects of programming,” Yamazaki said, using a Japanese term meaning craftsmanship or making things. “We also emphasize that programming is well-suited to a woman’s work style—the freedom of working hours and location.”

Applicants to the first class want to change careers or achieve more in their jobs, Yamazaki said, and 70 percent of inquiries have come from women with children. The pandemic has helped both working women and stay-at-home moms realize that working from home is a realistic option, she said.

Ms. Engineer aims to produce graduates who can do full-stack programming, meaning they can design web applications as well as manage databases and servers. The course costs ¥1.42 million, or about $13,000.

Yamazaki has worked to promote her new business among social media influencers, including Yuri Sasagawa, a model, TV announcer, and new mother who recently attended Ms. Engineer’s kickoff event and tweeted enthusiastically about the future opportunities for female engineers.

Elevating Women

Companies embracing diversity have taken various approaches to narrow the digital gender gap. Some have set numerical targets and implemented steps to reach them, while others have focused on changing hiring and promotional practices.

ACCJ member company Hitachi Ltd. recognizes that the input of women is essential to address consumers’ needs, said Tomoko Soma, a manager at the company’s diversity and inclusion development center. “Our entire business is changing, and we are not trying to sell products as much as services that provide solutions to everyday problems,” she explained. “To do that, we need a variety of employees coming up with ideas.”

Hitachi, which has been implementing initiatives to support and elevate women for more than 20 years, recently reached two goals: the employment of 800 female managers, who account for 6.3 percent of all the company’s managers, and raising the portion of female senior executives to 10 percent.

By 2030, the company aims to raise the ratio of female senior executives to 30 percent through its long-term plans to identify and develop promising young employees and by absorbing talent through global acquisitions, Soma said.

In keeping with government guidelines, female Hitachi employees can take up to two years of maternity and childcare leave, then come back to the same job. If the women have a hard time finding daycare for their child, Hitachi will help them and can extend the leave for a third year. “In situations where there are no nursery vacancies, we don’t want women to quit their jobs just for that reason,” Soma said.

Changing Hiring Practices

Online marketplace Mercari, launched in 2013 and one of Japan’s most successful startups, decided not to set numerical targets for women because doing so might lead to mistaken notions that some women were hired just to meet a quota, said D&I Strategy Team Manager Hirona Hono. “People may feel that they have to reach the goal for the sake of reaching the goal, instead of addressing the fundamental problem behind why this is happening,” she said.

Instead, the company has changed its hiring practices by expanding the pool of candidates to include as many qualified women as possible through recruiting events, women’s coding groups, and other methods. It also has installed checks in the hiring process that might detect bias. Human resources staffers check the pass-through ratios of male and female candidates after each interview to see if there’s any significant disparity and discuss the results with division leaders, she said.

Hono also added a series of diversity questions to the company’s internal promotion recommendation forms, including asking the person filling it out if other candidates from different backgrounds had been considered. If they hadn’t been, she wants to know why. “These questions keep people accountable,” she said.

At EY, while female employees are out for maternity leave, the company offers them a tablet so that they can stay connected to their peers and do e-learning if they want to stay up to speed, Ngou said. The company also provides women returning after maternity leave with an independent coaching service to help them work out daycare, their schedule, and the career they want when they return.

For real change to occur, Ngou said, there must be genuine commitment by the top of the organization—usually a man—displayed in public and behind closed doors. “If the leader doesn’t take it seriously, isn’t active in it, and doesn’t hold his other male leaders accountable for advancing women, nothing’s going to happen.”

Once the top adopts a change, the middle managers can confidently carry out the policies throughout the company, Ngou explained. “The top is so important. Change happens middle-out in Japan. But without the top leader voicing it, nothing will happen.”

Not a Sense of Crisis

The Japanese government has come under fire for doing little to address the shortage of women studying and training for jobs in technology—especially since doing so would help the country meet its digital transformation goals. One suggestion mentioned by several people interviewed for this story was to offer scholarships for female students interested in studying engineering.

“There’s still not a sense of crisis,” said Dr. Jackie Steele, a Canadian political scientist who has lived in Japan for more than 20 years. “I think Japan is going to have to hit an even bigger wall economically before the political and economic elite will admit that there are systemic hierarchies rewarding masculinity, senior age, and ethnocultural purity. These biases must be consciously eliminated. This undermines Japan’s ability to attract diverse talent in a global market.”

To give middle and high school girls exposure to tech workplaces, the government’s Gender Equality Bureau Cabinet Office set up a program in 2015 that promotes events where students can interact with female engineers, including those at ACCJ member company Amazon Web Services Japan G.K., and visit computer labs or university campuses. In 2019, some 36,000 people participated.

To help boost the number of workers with digital skills, the Japanese government offers subsidies that cover 70 percent of the cost of pre-approved training courses in artificial intelligence, data science, and other topics that are offered by private cram schools, explained Takefumi Tanabe, a director at the Ministry of Economy, Trade and Industry. While these don’t target women in particular, Tanabe sees Japan’s digital transformation as an opportunity for women to join the IT workforce.

Husband of the Year

The growth of ESG investing, or funding companies that meet certain environmental, social, and governance standards, can bring investor or market pressure for change, said Matsui, whose MPower Partners runs such a fund. For example, these funds will focus on ESG considerations, such as board diversity, which remains a big challenge in Japan.

“Japan is one of the fastest-growing markets globally for ESG investing. Every asset owner is increasingly focused on how to ‘ESG-ify’ their assets,” Matsui said. So, in addition to examining company fundamentals, fund managers are asking questions about the company’s carbon footprint, as well as its supply chain resilience, child labor policies, employee well-being, and the diversity of the workforce. “To me, the ESG movement is going to be a huge force for change,” she added.

A critical, but almost entirely overlooked, step is to educate and support Japanese men about their changing roles in society—and to celebrate those who are supportive husbands, said Wahl. There are plenty of seminars on what it means to be a working mother, but virtually none on what it means to be a working father. Many men assume that their main role is to work hard and provide for their families financially, although that view is changing among younger men.

“There should be a Husband of the Year award,” said Wahl. “He should get a prize and all kinds of recognition as his wife gives the speech about how she is successful because of what he did. And this has to be seen as cool.”

And if the government is going to offer women scholarships in technology, then it should also offer scholarships for men in caregiving, said Steele. “We need to work on both sides of the equation,” she added. “Men also face gender-based harassment if they stray from the corporate-warrior masculinity model.”

Matsui is encouraged by the differences she sees among the young men with whom she interacts. “They don’t necessarily want to work like their fathers and grandfathers, they don’t want to be slaves to their employers. They want to spend more time with their families. So, their values are more aligned with what many women have been striving for.”

That bodes well for the future. “The younger generation wants a world that is more equal. They want their spouses or partners to maximize their own potential,” Matsui added. “They’re still young, so they’re not necessarily in decision-making roles. But it’s only a matter of time before we see this generation leading Japan, and that makes me optimistic.”

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Attracting Global Investment

Ideas for making Japan a top financial center

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Two recent papers produced by committees of the American Chamber of Commerce in Japan (ACCJ) have highlighted the considerable opportunities that would result from changes to regulations that currently hinder Japan’s financial sector from attaining its full potential. And with the Japanese government committed to raising Tokyo’s profile as one of the world’s top financial centers, the committees are hopeful that regulatory authorities here might embrace some of the proposals.

The Investment Management Committee published a viewpoint entitled Relax or Eliminate Unrelated and Onerous Regulatory Requirements for Marketing of Offshore Funds to Professional Investors Conducted by Global Investment Managers, while the Financial Services Forum released a white paper headlined Reimagining Japan as a Global Financial Center, the latter proposing changes that would drive the nation’s long-term economic growth.

License to Sell

Japan’s financial regulations are designed to protect investors, both retail and institutional, which is a “worthwhile goal” according to David Nichols, executive advisor at EY Strategy and Consulting Co., Ltd. The type of investment is determined by the definition of the investment and the sales license held by the distributor.

“The licenses entail certain responsibilities—some fiduciary and some customer best-interest,” said Nichols, who also chairs the Investment Management Committee.

“While distributors do not have a fiduciary duty to their clients, they are holding their customers’ security purchases in firm accounts,” he added. “As such, the state of the distributors’ balance sheets can impact the client holdings. If the distributor goes bankrupt, clients may have difficulty accessing their investments.” As a result, the Type 1 license required by a distributor has capital adequacy requirements to safeguard investors.

While offshore funds fall under the definition of securities that can only be sold by distributors with a Type 1 license, the fund assets are not part of a distributor’s balance sheet and, therefore, are not impacted by the health of that balance sheet, Nichols pointed out.

“So, the reason the regulations are in force is that offshore funds have been classified as a security but do not hold the same dependency on the distributor’s balance sheet as a normal security does, since the fund assets are held by an independent custodian,” he explained, describing the situation as “an unintended consequence of regulations intended to protect investors.”

To correct the situation would require a root-and-branch revision of the 2006 Financial Instruments and Exchange Act, which would be a major undertaking and would require an amendment approved by the national Diet. Instead, the ACCJ is proposing some administrative changes that the Financial Services Agency can enact and “that would get us to materially the same place,” Nichols said.

Norihiko Tsukada, managing director and head of compliance at BlackRock Japan Co., Ltd. and vice-chair of the Investment Management Committee, identified “certain off-site monitoring items, including daily calculations of capital ratios” as one regulation that is unnecessarily obstructive, although he points out that regulations in Japan are broadly equivalent to those of other jurisdictions. In the United States, however, limitations are less of a concern, as the market there is sufficiently large to make it economically feasible to package investments in US onshore vehicles.

Lost in Translation

Distributors in Japan also face administrative hurdles and language requirements that make it more complicated to set up and run an asset management business. That should be a concern since Tokyo has designs on a larger role in the global financial services market.

The committee has recommended that regulations surrounding the offsite monitoring of investment management companies (IMCs) should be relaxed, as certain reporting items are not relevant to the activities of global IMCs, along with the initial registration process for distributors of standard Type 1 Financial Instruments Business (FIB).

“Tailoring regulatory requirements to address relevant business risks will not impact client protection,” the paper emphasizes, adding that “such relaxation of regulatory requirements would improve the appeal of Japan to foreign investment managers interested in establishing a presence in Japan, and would be consistent with the [government of Japan’s] objectives to promote Tokyo as a global financial city.”

The solution, the committee suggests, would be the creation of a new type of FIB, that might be called a “solicitation-only” Type 1 FIB.

Seize the Moment

Aaron Lloyd, director of Sompo Japan DC Securities Inc., said the regulations are not new, “but you could say that dissatisfaction has reached a tipping point, as many foreign investment management companies would like this regulation changed.”

Failure to seize this opportunity, he believes, may have lasting negative implications—particularly with Tokyo and Singapore competing to attract companies that might be considering leaving Hong Kong as a result of the Chinese government’s recent crackdowns in a city that, until now, has been the Asia–Pacific region’s preeminent financial center.

“Japan should introduce changes,” Lloyd told The ACCJ Journal. “The government should be making it easier for foreign asset managers to solicit their funds, not more difficult. With the costs of maintaining an investment management business high in Japan, it would be a boon to the industry if overburdening regulatory requirements were reduced.”

Driving Disruptive Innovation

The Investment Management Committee’s aims have a good degree of crossover with those of the ACCJ Financial Services Forum, which is confident that Japan can position itself as one of the leading financial gateways for Asia, and prosper were the region to become the leader in global economic growth.

“Financial services firms ultimately help grow capital markets and the economy, which creates jobs and a higher standard of living. They also help solve the financial wellness challenges of institutional and retail investors’ clients in a way that creates confidence and [encourages] participation in capital markets,” said Derek Young, a Chartered Financial Analyst charterholder who is president and representative director for Japan at FIL Investments (Japan) Limited.

Relative to its size and the diversity of its economy, at present Japan’s finance industry “punches far below its weight,” according to Young, who also serves as vice-chair of the ACCJ Financial Services Forum and is a member of Fidelity International’s Global Operating Committee.

Introducing more competition in this sector also helps to drive disruptive innovation in the pursuit of expanding Japan’s capital markets and helping Japanese investors solve the challenges that they face, Young added.

“Japan is the third-wealthiest country in the world, and is a super-aging society,” he pointed out. “The need for assets to last for longer and to provide income makes Japan a prime target for financial services firms that want to help solve that challenge.”

Roadmap

The Financial Services Forum has drawn up an extensive list of recommendations for the Japanese government that can be distilled into six main areas:

• Make it easier to live and work in Japan, as well as to enter and return
• Improve governance, transparency, and stewardship
• Address the need for more specialized professionals
• Broaden market participation for individual investors
• Address shortcomings in selected financial regulations
• Facilitate development of key financial infrastructure functions

In conclusion, the report states that, “Japan possesses the necessary attributes to achieve this goal: a highly educated and motivated population, a diverse and large economy and corporate base to support it, high levels of technological development and adoption, and a stable political environment underpinned by commitment to the rule of law.”

Critically, however, what has been missing to date is a coordinated commitment, across the government and corporate sectors, to address legacy structural shortcomings that are impeding the development of a financial center that leads rather than follows. On its current trajectory, Japan is likely to fall further behind nimbler centers.

“Many of the issues needing attention are challenging to address,” the report concludes. “Nevertheless, developing a more robust financial ecosystem in Japan demands that policymakers take up this challenge with a sense of urgency and determination. Doing so not only would establish Japanese leadership in global finance, but also make a vital contribution to Japan’s long-term economic growth.”

And Young is optimistic that change is in the air.

“One of the most encouraging facets of this white paper exercise was meeting with prominent Japanese government officials about the findings,” he said. “It’s clear that there is existing momentum to change the business environment in Japan, [and] to make it more friendly to foreign investors.

“Change is not easy—especially in a tradition-rich country such as Japan—but we met with very little resistance in a general sense and, instead, were greeted with a friendly acknowledgment that Japan is thinking about ways to improve its positioning as a global financial center.”

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