In Japan, diversity is increasingly becoming a demographic necessity rather than a policy choice.

US President Donald Trump is dismantling all public diversity, equity and inclusion initiatives under the guise of promoting “national unity’“and reviving meritocratic ideals — even though the changes risk worsening existing social and economic inequalities in the United States. In contrast, Japan continues to promote DEI initiatives as a strategic response to economic stagnation and rapid population decline.

To remain globally competitive and adapt to ongoing demographic shifts in the labour market, Japan must prioritise the development of diverse leadership. The country’s lack of leadership diversity has constrained innovation, weakened global competitiveness, and slowed productivity growth.

Social-justice-oriented DEI originated in the US civil rights movement and began as a means of breaking down structural barriers and levelling the playing field. It later evolved into business-oriented DEI – often deployed to enhance competitiveness, strengthen public reputation, attract talent, foster innovation and improve productivity. DEI in US business management also expanded in response to broad economic transitions, including the shift from manufacturing to a service-based economy and the rise of a more diverse, less secure workforce driven by globalisation.

Japan also faces structural challenges. The DEI initiative in Japan should be framed as a strategic tool for managing workforce transformation and economic adaptation. With a shrinking population and rising pressure to globalise, Japanese companies are increasingly adopting shareholder-oriented governance and acquiring large foreign companies to support global expansion. Inclusive leadership and organisational flexibility are no longer optional, but essential for sustainable growth.

Japan’s low international ranking underscores the need for change. In the 2024 IMD World Competitiveness Ranking, Japan placed 38th out of 67 countries, with particularly low scores in management efficiency and business practices. Foreign shareholder activists are calling for performance-driven reforms, urging companies to change outdated management systems.

Japan’s limited but notable progress in gender diversity — a key component of DEI — has largely been driven by foreign shareholder pressure. From 2012–22, the number of women executives in publicly listed companies increased sixfold, largely due to pressure from US-based institutional investors like State Street Global Advisers and Goldman Sachs Asset Management. These investors pushed for more diverse boards by voting against uniform, male-dominated appointments. But recent political shifts in the US, including a retreat from DEI commitments under the Trump administration may weaken this external pressure and slow further progress in Japan.

Still, foreign shareholder activism remains a powerful force in corporate governance. In 2025, US investor Dalton Investments intervened in a sexual misconduct scandal at Fuji Media Holdings, demanding executive resignations and the appointment of outside directors, with a target of 30% of women. This case underscored the ongoing role of foreign pressure in promoting accountability and advancing gender diversity.

While such external forces have been instrumental in advancing DEI, lasting change depends on domestic leadership. In Japan, most executives are men, often with limited external experience, who were promoted from within. This uniformity in leadership pathways limits adaptability and reduces responsiveness to global business trends.

Chief executives of global companies tend to be more engaged with foreign shareholders, more open to shareholder-oriented practices and more likely to diversify their executive teams. In contrast, leaders of domestically focused or family-owned firms are typically less exposed to international standards and less inclined to embrace reform.

Homogeneity at the top leads to narrow thinking, which can hinder innovation and long-term business growth, even if it enables quicker consensus building. Japanese managers, shaped by strong internal loyalty and rarely exposed to external oversight, are often hesitant to challenge their chief executives. Boardrooms dominated by “old boy” networks reinforce this pattern. Directors with similar backgrounds avoid substantive debate to preserve insider harmony, resulting in weak governance and superficial decision-making.

When leadership is diverse, performance improves. Foreign-born chief executives of S&P 500 firms outperform their US-born counterparts. Globally, many Swiss companies are led by foreign executives and immigrant leaders head several of the largest US tech companies. But Japan lags behind. As of 2024, only three of Japan’s 100 highest-valued Japanese firms had foreign chief executives, and just 13 women served as CEOs among more than 1500 large companies. Importantly, companies such as Hitachi have set concrete goals to increase the proportion of women and foreign executives and managers to at least 30% by 2030.

Leadership diversity is critical for Japan’s adaptation to demographic change. It enables the country to make use of underused talent including women, immigrants and non-traditional workers at a time of serious labour shortages. Diverse leadership brings varied experiences and global perspectives, helping companies innovate, compete internationally and enhance their reputation. Promoting business-oriented DEI is no longer a policy option – it is a national imperative for Japan’s economic survival.

Japan’s future workforce is already becoming more diverse. Foreigners now make up 3.4% of the workforce, and the foreign resident population has grown 1.7 times since 2015. The non-Japanese population could make up more than 10% of the population by 2067 — though this milestone could be reached sooner due to Japan’s declining birthrate. At Japan’s top university, the University of Tokyo, 15% of students are international, and the school aims to raise that proportion to 30% by 2049.

Trump’s push to eliminate diversity in favour of national unity does not align with Japan’s demographic and economic reality. For Japan, emphasising uniformity over diversity may not only hinder progress – it could also threaten the country’s long-term sustainability.

The views expressed in this article may or may not reflect those of Pearls and Irritations.