Spencer Stuart: Japan Board Index (2013 results)

Main items from the Summary: Eighty-two percent of TOPIX 100 companies have appointedexternal directors. The trend is more pronounced in companieswith a high ratio of foreign investors. In this regard, whencompanies do not have any external directors on their boards,they can still meet the Tokyo Stock Exchange requirement thatcompanies appoint independent directors by ensuring thattheir audit & supervisory board members2 are independent.

Of the total of 1,210 directors on the boards of TOPIX 100companies, 261 or 21.5 percent are external directors. Thisis much lower than the 84 percent of outside independentdirectors in the United States, 58 percent in France and 57percent in the United Kingdom.

Eighteen companies have appointed foreign nationals to theirboards: Seven companies have appointed foreign nationalsas internal directors, six have appointed them as externaldirectors, and five have appointed foreign nationals as bothinternal and external directors. A total of 37 foreign directorshave been appointed (19 internal and 18 external), whichrepresents just 3.1 percent of all board members.

Eighteen companies have appointed foreign nationals to theirboards: Seven companies have appointed foreign nationalsas internal directors, six have appointed them as externaldirectors, and five have appointed foreign nationals as bothinternal and external directors. A total of 37 foreign directorshave been appointed (19 internal and 18 external), whichrepresents just 3.1 percent of all board members.

Twenty-seven percent of Japanese companies have appointed
female directors, a much lower figure than in the United
States, United Kingdom, Germany and France, countries where
at least 80 percent of companies have women on their boards.
Furthermore, the percentage of women on the boards of
TOPIX 100 companies is a mere 2.4 percent, falling behind the
United States, United Kingdom, Germany and France, whose
percentages of women on boards all exceed 15 percent.

Japanese boards hold an average of 14.8 meetings a year, which
totals more than once per month. This is a higher frequency
than the average of six to nine meetings held per year in the
United States, United Kingdom, Germany and France.

Average compensation for external directors and external
audit & supervisory board members is ¥11 million. Of the 16
companies that separate their external directors and audit &
supervisory board members and that release their data, the
majority pay their external directors ¥10 million to ¥12 million,
and their external audit & supervisory board members ¥12
million to ¥15 million.

The majority (88 percent) of the TOPIX 100 companies have audit & supervisoryboards, which is the general practice in Japan, and 12 percent of companies have auditcommittees, which is more similar to the American system. While more companiesare appointing externaldirectors, there are still very few that are doing so through thecommittee system. Most companies are attempting to strengthen management oversightwithin the traditional framework.

Approximately half of Japanese company boards have a range of nine to twelve directors.The average board size is 12.1 directors, which is close to the size of boards in the UnitedStates, United Kingdom, Germany and France. Our analysis leads us to assume that theincrease in the number of companies with an operating officer system has prompted adecrease in the number of external directors.

An examination of the data shows that with an average of 21.5 percent of externaldirectors, Japanese companies are far outpaced in terms of external director presenceby the United States (84 percent), France (58 percent), and the United Kingdom (57percent). Based on these figures, we conclude that, even if many overseas investors makeallowances for differences in board systems, they still believe that Japanese companies areappointing too few external directors to their boards.

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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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