The Board Director Training Institute of Japan (BDTI) - Director, governance and compliance training

Introducing the enjoi Wolfpack, a DEI Leadership Program for Corporate Men

DEI Business Strategy is not a “Nice to Have”

Are you a forward-looking man in corporate Japan with an interest in learning how to shift your organization towards healthier, more equitable, and more innovative dynamics? 

Building diversity-positive workplaces is no longer a “nice to have.” It is now an IMPERATIVE just for baseline business continuity. Diverse talent mobilization strategy can no longer be delegated to the HR function where it is often under-resourced and disconnected from holistic innovation and business strategy.

Research by the Economist Intelligence Unit shows that just 38% of Japanese companies report that C-level executives have responsibility for the formulation of talent-management strategy, compared to 65% in the global results. If CEOs in Japan want to stem financial losses from talent attrition, building a gender-equal and diversity-positive workplace is the foundation.

That’s why we have developed the enjoi Wolfpack program.

This new, one-of-a-kind, six-month executive education program from enjoi Japan K.K. runs biweekly as virtual meetings on Monday evenings, 8:00-9:30 pm JST beginning February 28, 2022. There are three different packages available at three price levels: Wolfpack Explorer, Wolfpack Leader, and Wolfpack Mastermind.

There is only a limited number of spots still available in this confidential DEI leadership program! Applications close as soon as seats sell out. Final application deadline is February 15, 2022.

Visit www.en-joi.com/wolfpack to request pricing details and apply now!
We also welcome inquiries at wolfpack@en-joi.com.

METRICAL: Takeover Defenses② Stock Price Performance (Metrical Analysis Using BDTI Data)

In the previous article, “What Kind of Firm Adopts Takeover Defenses? (Metrical Analysis Using BDTI Data)” we used data from BDTI to analyze the performance and corporate governance practices of companies that have and have not adopted takeover defense measures. The results of the analysis showed that of the 421 companies found to have proposed anti-takeover measures at shareholder meetings since 2014, those companies that have not adopted anti-takeover measures now have superior performance in terms of ROE, ROA, and P/B, as well as in terms of the percentage of independent directors and the percentage of female directors as corporate governance practice metrics.

In BDTI’s data, 443 companies were confirmed to have proposed anti-takeover measures at their shareholders meetings since 2014, of which 10 were rejected and 433 were approved (see table below). As can be seen from the table below, once a takeover defense measure is proposed as an agenda item, it is usually approved. Whether the proposal is approved or rejected depends on the composition of the company’s shareholders, and mainly on the shareholding ratio of foreign shareholders. The TSE’s disclosure document “White Paper on Corporate Governance 2021” also states, “In terms of foreign shareholding ratio, the ratio of companies that have adopted takeover defense measures is lowest in the category of foreign shareholding ratio of 30% or more, at 2.7%, a decrease of 3.7 percentage points from the previous survey. The percentage of holdings in the 20% to 30% category was 9.2%, a significant decrease of 11.1 percentage points from the previous survey. Looking at the relationship with the ownership ratio of the largest shareholder, there was a tendency for the adoption ratio to be higher in the category where the ownership ratio of the largest shareholder is low, while the ratio in the category where the ownership ratio is less than 5% was 13.8%, a significant decrease of 9.5 percentage points from the previous survey.”

As shown in the table below, of the 433 companies that were confirmed to have proposed anti-takeover measures in their shareholder meetings since 2014, 421 are still listed on the stock exchange. Of these companies, 41% (173 companies) do not currently have takeover defense measures, and 59% (248 companies) still have takeover defense measures. As noted above, companies that do not currently have takeover defenses show superior performance and corporate governance practices. Furthermore, in terms of market capitalization, there is a significant difference between companies that do not currently have takeover defenses and those that still do.

METRICAL: What Kind of Firm Adopts Takeover Defenses? (Metrical Analysis Using BDTI Data)

As shown in the table below, more than 90% of all TSE-listed companies have not adopted takeover defense provisions, and about 90% of the companies in the Metrical universe (which consists mainly of companies listed on the TSE 1st Section and slightly larger in market capitalization than all listed companies) have not adopted takeover defense provisions.

While companies that do not retain takeover defenses are now the mainstream, we looked at the performance and corporate governance practices of companies that have adopted takeover defenses and those that have not. The table below shows them. As you can see, the performance of companies without takeover defense measures is superior in terms of ROE (actual), ROA (actual) for the past three years on average and Tobin’s Q. In terms of corporate governance practices, other than the percentage of independent directors, companies were found to be superior in terms of the percentage of female directors and Metrical score.

“How We Saved Our Planet”, by Nicholas Benes

In this article and video published in Ethical Boardroom, I urge a much deeper discourse about #ESG and the structure of profit-seeking corporations – one that considers ways to install the right incentive drivers. As summarized in the video, in my article aliens from another planet (the Vilcans) visit Earth and advise us to think much harder about key questions that we are not fully grappling with – such as: 1) who is best able to assess ESG factors that affect sustainability? 2) does our system provide enough incentives for them to think 20 years ahead, but act now? Does it do that throughout the entire investment chain? 3) why does ownership need to be non-transparent much of the time? Is that healthy?  5) what are the implications of giving FULL limited liability to corporations? 6) does it make sense that those who bought no stock, bear a large part of externalized risk? etc. etc.

The article then describes exactly how the Vilcans reconfigured their equity markets to address these and a host of other issues that (in my view) current #ESG initiatives and debates are not effectively coping with.

METRICAL:CG Stock Performance: November 2021

Stock market declines in November. CG Top 20 stocks underperformed the index. Stock prices in November plunged sharply toward the end of the month, falling for the second month in a row, as investors grew wary of a new variant of the COVID-19, the Omicron virus. The Topix and JPX400 indices fell -3.60% and -3.44%, […]

Metrical: Equity Issuance and Performance, Corporate Governance

Metrical has previously published “Retirement of treasury stock and performance, corporate governance” and “Dividend policy and performance, corporate governance,” and in the articles we have examined the relationship between share retirement and performance and corporate governance, and between dividend policy and performance and corporate governance, respectively (please contact us if you would like to know more). The current article on equity issuance is the third in a trilogy. Surprisingly, interesting analysis results were confirmed for each of these approaches.

To summarize the previous two articles, the stock retirement score is positively correlated with ROA (actual) and Tobin’s q, and companies that have retired their own shares three or more times have significantly better key performance indicators in ROE (actual), ROA (actual), and Tobin’s q. Similarly, in evaluating corporate governance practices (including actions), the Metrical Corporate Governance Score, the % of Independent Directors, the Equity Issuance Score, and the Dividend Policy Score, the 100 companies that have retired their own shares three or more times have significantly higher scores than the companies that have retired their shares less frequently. This confirms that these companies have a strong awareness of the need to improve their corporate governance, as these scores are significantly higher than those of the companies that have retired their own shares less frequently.

The Dividend Policy Score has a certain relationship with the Key Performance Indicators. Companies with a payout ratio target or forecast of less than 10% have the lowest ROE (actual) and ROA (actual) as key performance indicators compared to the group with the higher dividend policy score, while they have the highest Tobin’s q. In addition, companies with a payout ratio target or forecast of less than 10% have the lowest dividend policy score compared to the group with the higher dividend policy score in the Metrical Corporate Governance Score, Equity Retirement Score and Equity Issuance Score as an evaluation of corporate governance practices (including actions). These companies have the lowest Corporate Governance Score, Equity Cancellation Score and Equity Issuance Score compared to the group with the higher Dividend Policy Score. Therefore, it can be pointed out that these companies may have relatively low awareness of improving corporate governance.

Metrical evaluates the Equity Issuance Score according to the type of equity issuance (capital increase, CB, WB, preferred stock, etc.) and the frequency of such issuance. Specifically, if a company has never issued equity since 2000, the score is 0, and if it has subsequently implemented equity financing, the score is lowered according to the type of issuance. Specifically, the score is -2 for capital increases that directly issue new shares and -1 for equity financing that mitigates the dilution of shareholder interests, such as CB, WB, and preferred shares, and a negative score is added for each equity financing.

The number of companies with an Equity Issuance Score of 0 (no equity issuance since 2000) is 797, the number of companies with an Equity Issuance Score of -1 (has issued equity only once using CBs, WBs, preferred shares, etc. that are not directly dilutive) is 121, the number of companies with an Equity Issuance Score of -2 (has raised capital once or has issued equity twice using CBs, WBs, preferred shares, etc. that are not directly dilutive) is 557, and the number of companies with an Equity Issuance Score of -3 (has issued more equity than the above) is 69, the number of companies with an equity issuance score of -4 (has issued more equity than the above) is 118, and the number of companies with an equity issuance score of -5 or lower (has issued more equity than the above) is 54.

11/18 “Director Boot Camp” Held by Zoom! Next Courses: 2022.2.7!


 

On July 13th, still in the midst of the pandemic, BDTI held its English Director Boot Camp via teleconference. The day-long intensive course was attended by 6 highly-experienced and highly interactive participants. The participants heard lectures about corporate governance by Nicholas Benes along with a guest lecture by Andrew Silberman of AMT, and exchanged experiences and opinions. Even during a pandemic, training continued smoothly, with all participants chiming in with insightful comments and questions.

We are planning to hold the next course on February 7(Mon)2022. Sign up early! Please see a description of our director training course here or click the button below for further information.

Eiichi Shibusawa: The Spirit of Japanese Ethical Capitalism & Sustainability

Ken Shibusawa and Christina Ahmadjian, and Joshua W Walker Thank you –that was an excellent, concise explanation/introduction about ” Eiichi Shibusawa: The Spirit of Japanese Ethical Capitalism & Sustainability”. Well done! To others: worth watching. I am always impressed by how deeply persons like Shibusawa thought about issues related to capitalism and its related social issues that need to be addressed, even at very early stages in its birth. When I have taught business ethics, I really appreciate reading the thoughts of Shibusawa, Adam Smith, Andrew Carnegie, and others. (webinar by the @JapanSociety_SF @japansociety )

Posted by Nicholas Benes

METRICAL: CG Stock Performance – October 2021

Stock market declines in October. CG Top 20 stocks significantly outperformed the index.

In a reversal of the previous month’s sharp rise, the stock market plunged in the first half of October, followed by a market stalemate ahead of financial reports starting at the end of the month. Topix and JPX400 indices fell -1.34% and -1.35%, respectively, during the month of October, while the CGTop20, the top CG rating score, outperformed both indices by a smaller margin, -0.41%.

METRICAL: Considerations for Nominating Committees

Nominating committees are the most difficult issue in corporate governance practices. Since the election (nomination) of directors is a matter that involves personnel rights, and personnel is also a matter that has a great deal to do with compensation, the CEO is still deeply involved in this decision in many companies, especially in Japan where the board of directors is composed of many inside directors. It is not difficult to imagine that there would be resistance to delegating this decision-making authority to independent outside directors. To conclude, even if a nominating committee has been established, it is impossible to know whether the committee is functioning properly without a close examination of the substance of the committee. In order to check whether the nominating committee is functioning properly, the first point to be considered is whether the majority of the members of the committee are independent outside directors, and whether the committee is chaired by an independent outside director. However, a prerequisite for this is that the board of directors must be prepared to accept decisions on director nominations made through a transparent and objective process. This can be thought of as the board of directors itself being operated in a transparent and objective manner. As a measure of this, I would like to examine whether independent outside directors make up the majority of the board of directors. If the board of directors is dominated by inside directors, it is unclear whether the process of nominating directors is carried out in a transparent and objective manner, and it is also unclear whether the board of directors approves the proposed candidates for directors submitted by the nominating committee.

First of all, as shown in the table below, the current status of the nominating committees of all listed companies in Japan is as follows: of the 3,733 companies that submitted corporate governance reports out of the 3,784 companies listed on the Tokyo Stock Exchange as of October 1, 2021, 82 companies (2% of the total) are companies with nominating committees under the law. (2% of the total). There were 1,249 companies with audit committees and 2,401 companies with board of corporate auditors, of which 609 companies (49%) and 1,046 companies (44%) had voluntary nominating committees in their respective organizational forms.

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