Women directors and firm performance in UK FTSE 350 : Implication for Japanese firms

The United Kingdom,which I often focus my research on in relation to health care, is also well-knownas one of the countries with the highest level of social participation forwomen along with Scandinavian countries and most western European countries. TheUK corporate Governance Code 2012 and social movements such as the establishmentof “The 30% club (https://30percentclub.org/)” recommends promotion of board diversityto develop a diverse pool of talent of UK listed firms.  According to my study using data sorted from Mergentonline (December 31, 2017) in order to find a correlationbetween the employment of female directors (the ratio of female directors) andthe performance of their firms (rate of profit) within the UK FTSE350, industriesclassified under “Commerce & Trade” and “Transportation and PublicUtilities” have been actively complying with the Corporate Governance Code withmore female directors than other industries. While being the largest industry in the UK, “Construction &Manufacturing” has no correlation between them, whereas the second largestindustry, “Service and Public Administration” possibly exhibits thiscorrelation.

In Japan, which has been making efforts to increase the ratio of female directors in recent years by implementing its own Corporate Governance Code much like the UK process, the number of female directors have increased 2.4 times from 2011 (585 female directors) to 2017 (1,510 female directors) but the ratio of female directors is still very low (3.7%) in 3,652 listed companies (data source: 2017 version data sorted from “eol”). If a comparison by industry were to be made, the “Insurance” industry has the highest ratio at 0.1%, while the “Petroleum and Coal” industry has the second highest ratio, and “Air transport” industry comes in at third, both the “Transportation and Public Utilities” industry in the UK and the “Air transport” industry of Japan seems to have a high ratio of female directors although this analysis shows that there is no clear similarity on the whole between both countries.

On the other hand, the industries with the lowest ratio of female directors, “Steel” industry, “Mining” industry, “Pulp & Paper” industry, “Rubber goods” industry, “Glass & Soil” and “Stone Products” industry, whose industries originally seemed to have a low number of female employees, have about 0.02% or below of average female directors. Other analysis results are also available pertaining to that of the “Insurance” industry, “Air transport” industry, “Retail” industry, “Service” industry, “Grocery” industry, “Banking” industry, and “Pharmaceutical Product” industry, whose industries operate more on a basis of B2C compared to other industries, and tend to have a higher ratio of female directors than industries which specialize in B2B.

I can conclude that a more effective incentive scheme for Japanese firms to dramatically want to increase the employment of female directors would be necessary than British firms, since even British firms, which have a higher ratio of female directors than those of Japan, have a distinct correlation between the ratio of female directors and the ratio of profit except for the “Service and Public Administration” industry.

Kojima, M. (2018).The correlation between employment of female directors and firm performance: An explanatory analysis based on the UK FTSE 350 (in Japanese), The Ritsumeikan Business Review, 57/1&2, 1-15.