A Corporate Challenge to D&I in Japan

21. 07. 2023

Ayako Chujo, Co-Founder and President

In the run up to and during the G7 summit held in Hiroshima this May, there was a palpable increase in the volume of discussion on diversity and inclusion in Japan. It’s something I have been thinking a lot about.

The Japanese government seems to at least be aware of its slowness in making progress on this issue. The announcement of targets including at least one woman on boards of companies listed on the Tokyo Stock Exchange by 2025 as well as increasing female board representation to at least 30% by 2030 are signs of impatience to make progress. But recent challenges with the Law for the Promotion of LGBT Understanding and proposed amendments to a new immigration law, as well as the findings of the 2023 Gender Gap Report, highlight that societal norms and trends will continue to make progress difficult.

A key area where these difficulties come to light is in Japan’s corporate structures and culture, specifically the ‘membership (or ‘lifetime’ in Japan) employment’ structure that was dominant for so many years and continues to be present. While this is a practice little seen elsewhere in the world, it has been standard in Japan and ultimately has had a significant impact on education and social values in the country.  

Membership employment

The membership employment structure, or 'lifetime employment system' in Japan, sets up the corporate career path and expectations for new graduates. New recruits are brought into the company with no fixed duties and clearly defined responsibilities. With little say in which department they work, employees rise through the ranks of seniority with repeated transfers and reassignments. But with the prospect of lifetime, secure employment, employees will rarely go against these directives.

These membership employment organisations want to develop generalists with a broad understanding of many different business or operational areas. They don’t want specialists with deep knowledge on one area. Specialists can typically be found at the bottom of the corporate pile, following the instructions of their generalist supervisors.

These firms prioritise stability over rapid growth, developing teams of employees that rarely change and have perhaps worked together for years if not decades. With all employees being promoted at some point, there is no rationale for a performance-based system. A culture of helping each other, rather than competing, is expected. Ultimately these characteristics were regarded as a core strength of Japanese companies, at least until the country’s economic bubble burst, and were seen as the reason for their long-term perspective versus Western short-term thinking.  

A structure that undermines D&I

The consequence of the membership employment model is diverse skills and expertise are not valued. The corporate goal is to raise the blanket employee level, not focusing on any individual groups or high-competence skillsets. This has made it particularly difficult for women and non-Japanese employees to really play an active role in these organisations.

With this lack of participation has come a range of issues. Some of these have perhaps declined but certainly still exist. One such issue is companies taking on female employees not for their own skills, but to support (and possibly act as potential marriage prospects for) their male counterparts, with derogatory terms for those who remain unmarried and continue to work.

Furthermore, due to the relatively low mobility of employment, part-time or contract workers can experience much lower treatment than permanent staff. Drastically lower pay for similar levels of work being typical. An entrenched practice of sharing positions exclusively amongst university-educated Japanese men is another problem but has rarely been seen as a disadvantage when it comes to promoting talent.

For foreign companies exploring partnerships or joint projects with a Japanese firm, it is important they understand that this membership employment model does still exist. Low female presence and what may be perceived as a lack of detailed understanding or specialism amongst the leadership may suggest the firm operates such a membership employment model.

Change…but slowly

Membership employment structures and culture, once a symbol of corporate stability, has fallen out of favour through the years of Japan’s economic stagnation.

We are now seeing a lot more highly skilled young graduates than before seeking jobs with foreign-owned firms or start-ups, where the opportunities to gain experience and specialist skills are greater compared to the traditional Japanese firms that risk losing competitive advantage through lack of change. The government is backing this shift, with a plan in the works to boost investment in startups to over USD 70 billion (JPY 10 trillion) annually, with the aim of creating 100,000 new firms in the next five years.  

Japanese companies like Hitachi and telecoms giant KDDI are ahead of some of this change, focusing on mid-career recruitment (so not just drafting in graduates) and highly specialist candidates under the banner of ‘job-type employment’, not membership employment.  

But in order to make ‘job-type employment’ the norm, legal reform that can increase employment mobility is essential. Japan has been able to maintain a low unemployment rate due to the membership employment system, that recruits graduates en masse and sees them there for life, maintaining the dated status quo. A more aggressive legislative push that discards the old stability and makes employment more fluid is needed but is likely to experience a lot of opposition. 

Nonetheless, as the job-based employment structure becomes ever more mainstream in Japan, specialists from diverse groups and backgrounds will see greater interest by Japanese firms, bringing the change needed to embrace diversity and inclusion, not just in Japan’s corporates, but also in Japanese society.

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