Attitudes Towards Corporate Governance: How do Japanese Views Compare with the Views of Long-Time Foreign Residents Here?

Although there were not enough foreign respondents to BDTI's survey on attitudes by them towards corporate governance to make the results statistically significant, we did get 72 respondents and a number of insights and interesting contrasts.

The full-fledged (prior) response results from Japanese participantsare summarized at bottom below.Below, are some ofthe intriguing highlightsandcontrasts from the survey of foreigners.

About half of the foreign respondents were fluent in Japanese, including reading and writing. Two-thirds of them have been living in Japan for more than 10 years. About half are either board directors or executive officers.

Compared with only only 24.3% of Japanse board members and executive officers, almost half (twice as many) foreign respondents said they new a lot about corporate governance.

Many foreign respondents (33%) thought that corporate governance problems are related to the Japan's economic and stock market malaise, but fewer than the 43% of Japanese respondents who thought so! Foreigners were a bitmore likely to think a mixture of economic and other factors at work, such as the need for immigration and a more active M&A market. Similar percentagesof persons (about 35%) in both groups thought the Company Law needs to be amended in order to address declining corporate performance.

Fully 79% of the foreign respondents thought that a strong board with in-depth discussions about… strategy and risks, and where directors give their honest opinions irrespective of hierarchy or politics, is essential…, as opposed to 64% of Japanese respondents. A mere 1.7% (vs. a mere 11.9% among Japanese) thought that boards at Japanese companies are presentlydoing a good job at monitoring employees.

The foreign respondents, uncharacteristically,seem to be more humble about their own boards. A smaller percentage claimed to be very confident about their own boards. Only 35% of the foreign respondents were generally satisfied with the level of corporate governance at their companies, even though a large proportion 55% thought that their board had good knowledge of governance and the law.

Perhaps because of this, an even greater number of foreign respondents than Japanesebelieve that board members should receive training in law, corporate governance and related matters: 95% (vs. 76%); 88% thoughtmiddle managers should receive it as well (vs. about 61%).

About 26% had received some form of governance-related training, and 86% of this group felt that the program had helped them prepare for their role on the board.

Fully 78% – a much larger % than among Japanese – would consider an outside board appointment now, and 92% would consider accepting such a position after retiring from their current job. The latter figurewas only slightly greaterthan the85%level of Japanese respondents.

Confidence levelswth respect to(a) the policymaking and legislative process in Japanese politics, i.e. from the standpoint of democratic/civilian govenrance and (b) the real substance of corporate governance at Japanese listed companies, were both very low, – 58% and 60% responding not that muchrespectively. However, we had not asked this question of Japanese resondents, so cannot compare.

PRIOR SUMMARY OF SURVEY OF 4,119 JAPANESE RESPONDENTS

BDTIhas conducted a survey on attitudes towards corporate governance in Japan. A summary of the findings is available at

http://bdti.mastertree.jp/f/c1hal6ep

Among the most interesting results were:

Only 11.9% of respondents thought that corporate governance at the majority of listed companies is presently working to prevent scandals. Further, 64.0% of all respondents felt that directors at Japanese companies need to be able to make their own proposals to the board from an independent standpoint.

Consistent with the above responses, large numbers of employees at Japanese companies appear to believe that independent outside directors are needed at their companies.When asked specifically about their own companies, 40.8% of board members and corporate officers, 48.8% of managers and sectionchiefs, and 50% of non-managerial employeesagreed with the statement thatthatevenif directors have good knowledge of the law, corporate governance and financial matters, the quality of corporate governance in my companywill not improve unless there is an increase in the number of outside directors who are truly independent.These were thepercentages for those companies that offered any sort of training for their directors. Even including companies that offerno training for their directors, fully 40.7% of all corporate employeesagreed with the same statement.

The survey also revealed that employees who work at companies that provide their new directors with training about corporate governance tend to: a) feel less anxiety about the future of their job or their company, and b) have more trust and confidence in the board of their own company, than employees who work at companies that do not provide new directors with training about corporate governance.

Consistent with the above results, an impressive 54.7% of all surveyed employees expressed interest in receiving such training themselves.This result confirms the general consensus view of the average Japanese employee as diligent and interested, even hungry, to learn new knowledge that could be useful at work. (As context, Japanese companies on average offer fewer off-the-job training opportunities than companies in many other developed nations.)

In a follow-up survey, 36.4% of1,031 board directors and executive officer respondents who have received some form of training about corporate governance topics said that would consider accepting an appointment as an independent external board director if they were asked. This level was approximately double that of respondents who have not received any form of training, and suggests that claims by industry groups that there are not enough candidates to serve as independent outside directors in Japan are unfounded, especially if companies properly educate their staff with training programs.

These results are particularly relevant at the present time, inasmuch as Japan is currently considering revision of its Company Law in order to improve corporate governance along the lines of a plank in the “Manifesto” that brought the Democratic Party of Japan (DPJ) to power in 2009.This plank suggested that public companies should be required to appoint independent outside directors.

The total respondent group of the first survey consisted of 4,119 members, including 3,090 company employees and 1,029 non-company employees.

A more detailed explanation of the results is available at:

http://bdti.mastertree.jp/f/venjo4tr

The Board Director Training Institute (BDTI) is a "public interest" nonprofit in Japan dedicated to training about directorship, corporate governance, and related management techniques. It is certified by the Japanese government to conduct these activities as a regulated nonprofit. Read a summary about BDTI here, and see a menu of its services for both corporations and investors here.

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