Board diversity and the changing face of work in Japan: A reflection from speaking at the Osaka World Expo

A System under pressure

Japan’s economic strength was built on lifetime employment, defined hierarchies, and uniform career paths. That model thrived during a period of population growth, but with a shrinking workforce and shifting expectations around work, its limitations are showing. 

It’s also worth acknowledging that the system long relied in part on the unpaid contributions of those—often women—excluded from career opportunities. Today, it is increasingly out of step with societal and workforce realities.

As long-term investors, we believe boards and leadership must evolve to remain fit for purpose. That means greater transparency and accountability in nominations, support for flexible work and career paths, and a broader range of perspectives into decision-making roles. 

Japan’s evolving governance landscape

Japan has made notable strides in corporate governance. For example, in 2014, just 6.4% of First Section companies[1] had one-third independent board members. Today, nearly all (98.8%) Prime-listed companies[2] have reached that minimum threshold, with a quarter (26.2%) reaching majority independence. 

At the same time, Japan has also emerged as the world’s second-largest market for shareholder activism, according to Bloomberg data.[3] This reflects heightened investor attention and rising expectations of Japanese companies and their boards, accelerating the pace of change in Japan’s governance landscape.

It is our view that improving board diversity is central to this development and key to building stronger, more effective boards, alongside greater board independence, a more clearly defined and independent board chair role, and other governance fundamentals. Yet some long-standing dynamics—such as long-tenure employment, limited job mobility, and quiet norms—may still discourage open dialogue and challenge.

Gender gaps on boards

In 2020, after 10 years of voting on board independence in Japan, L&G introduced a voting policy on board diversity initially targeting TOPIX 100 companies with all-male boards—11 companies at the time. By 2024, the last of those appointed its first female director. Symbolically, it marked the end of an era. 

Today, we vote against the most senior board member or the nomination committee chair for TOPIX 500 companies with less than 15% female board representation. For all other listed companies, we expect to see at least one woman on the board. This approach led to 102 diversity-related votes against companies during the 2025 Q2 (April-June) AGM season.

Despite improvements, women hold only about 25% of board seats in the TOPIX 100 and 19% across the Prime market, according to ISS data as of August 2025.[4] This is far from representative of a workforce that is nearly 50% female. 

It’s not simply a supply gap 

It’s often suggested that the challenge is a limited pool of qualified women. But many demonstrably capable women are ready to contribute at the highest levels. If they are still not being appointed, we must ask why.

The issue is less about supply and more about access. As we’ve written in past blogs, structural barriers, including rigid career paths and persistent gender expectations, make it difficult for women who step away (typically in their 20s or 30s) to return to rewarding, engaging roles. These challenges are not a matter of motivation or competence. 

Non-linear careers and time outside the workforce can often broaden perspectives and deepen understanding of how to lead diverse, evolving teams. What once sidelined candidates can now be an asset.

Diversity beyond numbers

Appointing a single woman, or even two, to a board doesn’t automatically create diversity. No single person can represent the full range of female perspectives, just as no male director is expected to represent all men. 

And gender is only one dimension. True diversity is cognitive, shaped by differences in life experience, skills, and career paths. 

Boards that reflect a narrow set of perspectives may feel stable but carry the risk of ‘groupthink’ and missed warning signs.

In addition, we believe that fostering a culture where challenge is welcomed and new perspectives are genuinely valued leads to richer discussion, improved oversight, and more resilient boards.

Rethinking board nominations

Another critical aspect of governance reform in Japan is the board nominations process. In many companies, nominations still rely on opaque processes rooted in existing networks and internal loyalty. Board membership is still often viewed as a reward for lifetime service: a practice that tends to exclude those with interrupted or unconventional careers. 

While there have been developments, such as the growing use of ‘voluntary’ nomination committees, most remain non-statutory. In fact, fewer than 5% of Prime-listed companies have formal statutory nomination committees. 

As expectations for board accountability rise, so too does scrutiny over how directors are appointed.

Shifts in the workplace and in mindset

Change is underway, not only on boards but throughout the broader work culture in Japan. 

We increasingly see men take extended parental leave[5] of several months to a year or longer. Men are also increasingly stepping away from work to support a partner’s relocation or rethinking how work fits into their personal and family life. These decisions, once rare, are no longer isolated.

This shift aligns with government studies, for example by the Ministry of Health, Labour and Welfare or the Gender Equality Bureau of the Cabinet Office, each showing that today’s talent, regardless of gender, values flexibility and purpose. It’s not about clocking the longest hours anymore. The freedom to pause, pivot, and return—supported by flexible working arrangements—is increasingly shaping what people seek in their professional lives. 

As noted earlier, the fresh perspectives brought by those who pursue less traditional career paths can contribute valuable leadership insights and help organisations respond more effectively to the needs of diverse teams and stakeholders. 

Companies that fail to adapt to this reality risk losing not just women, but the next generation of leaders altogether.

Building boards and cultures that endure

Investors can play a role in supporting this transition, but progress won’t come from ticking boxes or satisfying external pressures. It will come from a shared understanding that cognitive diversity is a strategic asset for navigating disruption, connecting with stakeholders, and thrive in a world that looks nothing like the one they were built for. 

For that, we’ll need everyone at the table.

 

Whilst L&G has integrated Environmental, Social, and Governance (ESG) considerations into its investment decision-making and stewardship practices, this does not guarantee the achievement of responsible investing goals within funds that do not include specific ESG goals within their objectives.

 
[1] As of July 31, 2025, the Tokyo Stock Exchange lists 3,950 companies. Its Prime Market, which replaced the former First Section in 2022, now serves as the venue for Japan’s largest and most established firms, totalling 1,620.
[2] Ibid.
[3] This trend is also propelled by broader market conditions, a relatively low threshold for filing shareholder proposals, and the gradual unwinding of cross-shareholdings. 
[4] Government statistics are less precise, combining board directors together with statutory auditors and executive officers, including “equivalent positions” as defined by each company rather than by a standard definition. Within this much broader category, women represent just 15.7% in Prime-listed companies as of 2024. 
[5] A recent study by the Ministry of Health, Labour and Welfare shows that 40.5% of men with newborns took some form of parental leave, up 10.4% from the previous year, though duration isn’t specified.