Would UK-Style “Red-Top” Corporate Governance Alerts” Work in Japan?

“Red-Top”Corporate Governance Alerts for Japan? (Thoughts After the “Director Boot Camp)

In discussions at the “Director Boot Camp” on Saturday, I mentioned that either PIRC (Pensions & Investment Research Consultants Ltd.) or RREV (the Research Recommendations Electronic Voting) were the bodies issuing the high-profile and very effective corporate governance warnings in the UK known as “red-top alerts”… and I wondered whether a similar system might have benefits for Japan. I stand by my hunch that a similar system might be no less effective here, but the names and details I gave weren't quite right, hence a quick note on the Discussion Forumjust to get the basic facts straight.

Association of British Insurers (ABI)

It turns out to be the Association of British Insurers (ABI) that is issuing “red-top” and “amber-top” alerts (although RREV, PIRC and others are doing similar things too, hence my confusion).

ABI developed the “ABI UK Corporate Governance Guidelines” and those are the basis for the alerts, when they judge there to have been a serious breach of the guidelines. The ABI UK Corporate Governance Guidelines can be found at the ABI’s Institutional Voting Information Service:


As you’d expect, whenever ABI issues an alert, the target’s management issue a denial, claim the ABI has misunderstood /isn’t qualified to comment, and that all is just fine – nothing to see here. It’s not unlike what ratings agencies have to deal with after a downgrade. In the case of a red-top alert, that's fine, since the very fact that it has become the subject of a public disagreement makes each case a ready-packaged story, inviting media coverage and fresh scrutiny. It helps add to the pressure on investors in a poorly governed company to take a view and, who knows, maybe even do the right thing.

Pensions & Investment Research Consultants Ltd (PIRC)

PIRC doesn't issue the red-top alerts. It describes itself as an advocate “for transparent markets, accountable corporations and responsible investment” and provides “institutional shareholders with advice on how to exercise their ownership responsibilities”, working “with institutional investors from the UK and elsewhere to encourage investee companies to adhere to high standards of governance and social responsibility.”

PIRC created its own “Shareholder Voting Guidelines”, which provide another corporate governance benchmark, and developed the “Stewardship Code” on how institutional investors should discharge their stewardship responsibilities towards companies they own.

National Association of Pension Funds (NAPF) and Research Recommendations Electronic Voting (RREV)

The other active player I mentioned in UK corporate governance is the National Association of Pension Funds (NAPF), which publishes its own thinking on corporate governance, including another set of voting guidelines. Along with Institutional Shareholder Services Inc. (ISS), it owns 50% of RREV.

RREV – less high profile but an interesting and important part of the system since it advises investors en masse on how to exercise their vote – serves pension funds and institutional investors with “research and voting recommendations covering all companies in the FTSE All-Share”, and a few other UK companies. RREV’s voting recommendations are “based on the NAPF’s corporate governance policies”.

According to the RREV website, “RREV’s research and recommendations provide a best practises view on a company’s:

Governance and financial performance

Board structure


Auditing and accounting disclosure

Shareholder Relations”

RREV says it addresses “the difficult questions such as:

Is there sufficient genuine independence on the Board?

Does the composition of key Board Committees meet the requirements under Higgs?

Is there adequate disclosure of remuneration policies?

Are there accounting or audit issues?”

Applicable in Japan?

My innocent original question was whether there were equivalent systems and organisations in Japan, and if so who? Hearing that the answer might be “no”, makes me wonder if there’s potential for more to be done along similar lines here, since the methodology could – with time – be just as effective in bringing pressure to bear on corporate governance in Japan as it does currently in the UK.

Philip Howard

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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