Priorities for the Japanese Economy in 2014 (December 2013)

How Can We Increase the Number of Female Executives and Directors?

Vice President, RIETI

Trend for increasing the promotion of women

Abenomics' first and second arrows have contributed to the economic recovery in 2013 while it is anticipated that the third arrow will demonstrate its impact starting from 2014. Given the decreasing working population, one of the third arrow's core growth strategies is to expand opportunities for women to exert their capabilities.

Japan's working population is expected to decrease naturally by 0.8% per year up until 2030, which will have the effect of decreasing the economic growth rate by approximately 0.5% per year. Given that labor input growth and total factor productivity (TFP) determine capital's contribution to long-term growth, the negative impact of the decrease in working population on the economic growth rate, including the indirect impact through this process, will be even more significant. In this situation, while productivity improvement is essential, it is also important to curb the decrease in labor input.

The Japanese government's "Japan Revitalization Strategy" aims to promote the active participation of women with the target of increasing the employment rate of women between the ages of 25 and 44 to 73% (Note 1) by 2020 and, as part of such initiative, to encourage the promotion of women to the positions of director and manager (starting with at least one director at every listed company).

Recent research on female directors

There are a number of empirical studies on female directors conducted in Europe and the United States. Ahern and Dittmar (2012), based on analyses of Norwegian companies' panel data, demonstrate that the mandated quota of female directors to constitute 40% of the board has lowered corporate value and worsened business performance, indicating costs involved in the quota, and that the number of listed companies decreased significantly to avoid the application of this law while that of non-listed companies increased.

According to Parrotta and Smith (2013), who analyzed the determinants of female directors based on Danish companies' panel data, the ratio of women per the total number of directors at Danish companies is 12%, and 60% of the companies do not have female directors. Demonstrating that companies with women on their boards of directors have a very small probability to appoint additional female directors (which supports the "tokenism" hypothesis), they argue that external pressure to promote women hinders further diversity. Smith et al. (2013), based on the same data, analyzed the probability of promotion of female vice presidents to chief executive officer (CEO) positions and demonstrate that taking childcare leaves negatively affects the promotion of men but not that of women, there is no significant impact of being a family-friendly company on the promotion of women, and the presence of female executives has a negative impact on the promotion of other women.

It is surprising to observe these results, especially given that the female labor force participation rates in these Scandinavian countries are among the highest in the Organisation for Economic Co-operation and Development (OECD) countries.

In the United States, where, unlike European countries or Japan, the female labor force participation rate has not increased during the last two decades, empirical studies have been conducted on the causes of such situation. Blau and Kahn (2013) demonstrate that the difference between the United States and Europe has been caused mainly by the fact that Europe has expanded family-friendly policies including childcare leaves, protection of part-time workers' rights, and subsidies for nurseries. They also argue, however, that the policies to promote the participation of women in labor have such unintended side effects as an increase in the ratio of part-time workers in the labor force and relatively fewer women in higher positions and that, while the United States has no difference between men and women in the probability of promotion to managerial positions, the probability of women to be promoted to managerial level positions in Europe is about one-half of that of men.

These results indicate that an increase in the female labor force participation rate is not necessarily linked to an increase in the number of female managers or directors.

What kinds of companies have female directors?

According to Japan's Population Census (2010), the total number of female corporate directors in the country was 152,920, constituting 14.5% of all corporate directors. While the percentage is far lower than for men, the absolute number over 150,000 might appear surprisingly significant.

What kinds of companies have the more than 150,000 female directors and, furthermore, female CEOs? Planning effective policies would require detailed evidence. However, looking only at listed companies will not show the reality of the overall economy, and public data covering the small and medium-sized enterprises (SMEs) provide no information about the attributes of executives or directors. Thus, I analyzed the attributes of companies that have female directors and executives using data on a few thousand companies from the "Survey on Management and Economic Policy," which I conducted in 2012, and METI's "Basic Survey of Japanese Business Structure and Activities." It should be noted that the samples covered are companies with 50 or more employees, which exclude micro enterprises.

Simple compilation of data indicates that 50% or more-owned subsidiaries of parent companies have fewer female directors; that SMEs with capital of 100 million yen or less have more female directors than large-sized companies; and companies with labor unions have fewer female directors. However, as these attributes of companies are interrelated, the above indications do not necessarily demonstrate the pure effect of each attribute. Then we conducted a simple Probit Model estimation with the presence/absence of female directors as a dependent variable and companies' various attributes as explanatory variables. The explanatory variables include company sizes and ages and other dummy variables—listed companies, owner-managed companies, foreign companies, subsidiaries, labor unions, and industrial sectors. Table 1 shows the marginal effect of each company attribute based on the results of the estimation. The result indicates that owner-managed companies and young companies demonstrate higher probabilities of having female directors at a high significance level and, on the other hand, that subsidiaries, listed companies, and companies with labor unions tend to have fewer female directors. Neither company size nor status as a foreign company shows significant relations with the presence/absence of female directors.

A similar analysis with female CEOs as a dependent variable indicated no statistically significant relations with most of the explanatory variables except owner-managed companies which demonstrate a higher probability of having female CEOs. A comparison of the backgrounds of male and female CEOs indicates that 74% of the female CEOs come from the founders' families (Table 2).

Table 1: Attributes of companies with female directorsTable 1: Attributes of companies with female directors
(Note) Probit estimation result; *** indicates statistically significant at the 1% level. A positive number indicates a company attribute with a higher probability of having female directors.
Table 2: Background of male and female CEOTable 2: Background of male and female CEO
(Note) Calculated from the "Survey on Management and Economic Policy."

The above results indicate that it is difficult for women to be promoted to directors at established, large-sized companies and their subsidiaries; that owner-managed companies often appoint the women from the founders' families such as the founders' wives and daughters as directors, some of whom get appointed CEOs succeeding their family businesses; and that younger companies have more opportunities for women to get involved.


Based on the situations demonstrated by the above-mentioned foreign studies and the statistical evidence of Japanese companies, in order to promote an increase in the number of female executives and directors, it is necessary to take comprehensive approaches without being limited to measures for long-term employees at listed large companies.

"The Japan Revitalization Strategy" refers to the creation of new businesses as an important challenge, aiming to achieve a business startup rate of 10%. Although this program is not mentioned in the context of women's active participation, new businesses started by women would directly lead to an increase in the number of female executives. Also, even if men start new businesses, young and growing companies are likely to promote women to directors. The strategy also states that the government will "encourage new businesses by women." Policies to enhance women's willingness to start new businesses will have a consequent effect on increasing the number of female executives and directors (Note 2).

Education plays an important role, too. For example, marriage and child-rearing have less impact on the employment of women who completed graduate education than on that of female workers with an undergraduate education or less. Difference in wages between men and women is also smaller in the cases of women with postgraduate education (Morikawa, 2013). Another study demonstrates that women who study advanced mathematics during high school become engaged in occupations that used to be dominated by men or appointed executives, which has a significantly positive effect on their wages. (Joensen and Nielsen, 2013) Enhancing women's skills from the time before employment may not be a quick remedy, but it is effective for steadily increasing the number of women in leadership positions. The recent increase in the number of women studying science and engineering is a positive sign.

December 27, 2013
  1. ^ The increase in the female labor force participation rate between the ages of 25 and 44 to the said number means an increase of five percentage points from the present 68%. The rate in this age group increased by six percentage points from 2002 to 2012, which indicates that the targeted increase and its contribution to growth approximately equal the numbers in the past 10 years.
  2. ^ Koellinger, et al. (2013) demonstrate, based on data from 17 countries including Japan, that the lower rate of female business ownership is primarily due to women's lower propensity to start businesses.
  • Ahern, Kenneth R. and Amy K. Dittmar (2012), "The Changing of the Boards: The Impact on Firm Valuation of Mandated Female Board Representation," Quarterly Journal of Economics, Vol. 127, No. 1, pp. 137-197.
  • Blau, Francine D. and Lawrence M. Kahn (2013), "Female Labor Supply: Why Is the United States Falling Behind?" American Economic Review, Vol. 103, No. 3, pp. 251-256.
  • Joensen, Juanna Schrøter and Helena Skyt Nielsen (2013), "Math and Gender: Is Math a Route to a High-Powered Career?" IZA Discussion Paper, No. 7164.
  • Koellinger, Philipp, Maria Minniti, and Christian Schade (2013), "Gender Differences in Entrepreneurial Propensity," Oxford Bulletin of Economics and Statistics, Vol. 75, No. 2, pp. 213-234.
  • Morikawa, Masayuki (2013), "Postgraduate Education, Labor Participation, and Wages: An empirical analysis using micro data from Japan," RIETI Discussion Paper, 13-E-065.
  • Parrotta, Pierpaolo and Nina Smith (2013), "Why So Few Women on Boards of Directors? Empirical Evidence from Danish Companies 1997-2007," IZA Discussion Paper, No. 7678.
  • Smith, Nina, Valdemar Smith, and Mette Verner (2013), "Why Are So Few Females Promoted into CEO and Vice President Positions? Danish Empirical Evidence, 1997-2007," Industrial and Labor Relations Review, Vol. 66, No. 2, pp. 380-408.

January 14, 2014

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