Diversity makes money

For non-Japanese, one of Japan’s leading retail chains presents a problem: how do you pronounce its name?

OIOI is actually Marui –where maru means circle or zero and I means 1. It’s a play on the names of predecessor companies and leaders but there are other layers of meaning too. Note to Australians: it’s definitely not ‘oy-oy’.

For OIOI there was a deeper problem: it had long been known for youth fashion, with a target market under 40. And with Japan’s ageing population a substantial customer base was simply ageing out.

The company’s answer, according to its president Hiroshi Aoi (his family name is also picked up in the company brand) was not simply to refocus product or marketing but to reshape the company even more fundamentally.

"ESG policies are a key determinant [key investors] use in making investment decisions.”

“We wanted to expand our customer base – not just in terms of sizes and styles but of age, of gender diversity,” he told the recent APEC Top Management Forum on Diversity Management for Women’s Empowerment.

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The Fearless Girl.

“But we were criticised, both internally and externally, for such a strategy being too unclear.”

Aoi persisted, adopting the 17 United Nations Sustainabile Development Goals, drawing lessons on how the company could be more inclusive and more engaging. Particular focus was placed on Japan’s marginalised LGBTI community.

The results have been stark: 80 per cent of the retailer’s customers used to be under 39. Now the figure is less than 30 per cent while total customer numbers have been growing.

The financial services side of Marui – from its foundation it has vendor-financed customer purchases – has also grown.


Meanwhile staff engagement has improved dramatically. Average overtime worked has dropped from 130 hours a year to 44 – a welcome development for staff whose churn rate has plunged.

Aoi accepts women in management ranks is still a challenge as only 7 per cent of senior management are women compared with 70 per cent of customer facing staff.

Still he is adamant the emphasis on what are now broadly termed environmental, social and governance (ESG) policies has worked for the company and its shareholders.

Sitting alongside Aoi at the APEC forum were representatives of three major stakeholder groups who each have strong opinions on this theme. They were State Street Global Advisers, one of the world’s most powerful investment firms; Dai-Ichi Life Insurance, one of the world’s largest life insurers; and the Japanese Government Pension Investment Fund (GPIF), the world’s largest pension fund.

They were all unequivocal: ESG policies are a key determinant they use in making investment decisions; companies with such policies deliver better long term returns; and such policies make these companies lower risk.

They had a simple message for those who believe there is no evidence to support such policies or they are just a kind of ‘virtue signalling’ (one of those terms like ‘political correctness’ so beloved of the reactionary right when they want to hide their vested interests).

The simple message is critics are wrong. The evidence is now unequivocal. And major investors, governance advisers and proxy firms are placing more and more emphasis on ESG policies, implementation and measurement.


On diversity, State Street’s deputy global chief investment officer Lori Heinel laid out the argument succinctly: companies with a higher degree of gender diversity make more money.

Drawing on research from Institutional Shareholder Services and the McKinsey Global Institute, State Street has measured an average 36.4 per cent increase in return on equity for companies with strong female leadership and an average price to book ratio of 1.8 compared with 1.6 where such leadership is absent.

“ESG is not just doing good, it leads to better financial outcomes,” she said. “When we look at this issue we see markets which lead to better shareholder outcomes.”

State Street as a major shareholder can obviously bring direct pressure to bear but the group has also been a key supporter of the “Fearless Girl” project – spectacularly on display on Wall St where the now famous fearless girl stature stares down the iconic snorting bull.

GPIF’s Hiro Mizuno reminded the audience his firm took ESG very seriously – and it owned 8 per cent of the Japanese market.

“It is a very effective mechanism and it works to mitigate long term risk factors – and we are a long term investor,” he said.

That was also the case for Dai-Ichi president Seiji Inagaki.

“We have long term liabilities and we believe in the long term (ESG focus) will produce alpha [returns in excess of the market],” he said.

While the attitude of major stakeholders is unequivocal, the process for investors and companies is not straightforward.

For investors, reporting of ESG outcomes – and indeed what should be measured – remains inconsistent.

For companies, even when the executive and boards are clear on the need for action, there remains considerable uncertainty around what to actually do. Marui is a case in point.

But ANZ’s Japan chief executive Grant Knuckey, another panelist, drew attention to the reality of implementing ESG policies such as gender pay equality and equal representation.

Knuckey, who has worked across Asia, from the developing south east to the mature north, noted “every market is starting from a different position so the challenges in each market are very different. So then must be our policies”.


For multi-national companies such as ANZ, these different contexts are critical at the policy and implementation level but they don’t affect the driving philosophy.

“We know that these values drive better outcomes and better performance at ANZ,” Knuckey said.

However, ESG measurement, reporting and policy remains relatively new for the market.

GPIF’s Mizuno explained when the investor first started looking at the issue most of the evidence was anecdotal. For hard-nosed investors that wasn’t enough.

For Inagaki, the issue of evidence was more hardline. Dai-Ichi launched an ESG fund in 2010 but it has lagged the broader Japanese Topix index.

“This didn’t seem right so we looked more closely. What we found was that we had a huge screen [to identify the right companies] in this fund but that screen introduced a bias to large cap companies – and large cap companies have underperformed over seven years,” he said.

For State Street, Dai-Ichi, GPIF and an increasing number of major investors, the challenge is not whether scrutiny of ESG pays off, it is the best way to do it – what to measure, how to compare.

But as with a lot of risk management, the process of asking questions is actually valuable – and it makes companies more responsive.

Knuckey made the point that while in Australia, legislation around gender equality reporting made companies pay attention, better performing companies were taking the issue seriously anyway.

“We are now seeing this scrutiny become even more intensive from the investor front, in Australia we have just seen the council representing superannuation funds laying out very clear guidelines to companies about how they intend to vote in response to board diversity – to the point of voting down chairmen or heads of nomination committees,” he said.

The process of identifying and addressing barriers – such as unconscious bias or benevolent bias for example – is ongoing. But it’s not going to stop because not only is it right, it delivers shareholder returns.

Andrew Cornell is managing editor at bluenotes

The views and opinions expressed in this communication are those of the author and may not necessarily state or reflect those of ANZ.

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