BDTI Seeks Dialogue with Large Japanese Institutional Investors

On July 27th, BDTI sent this letter to senior persons at Japan’s largest asset managers, asking for a dialogue and cooperation to improve Japanese boards via training, engagement, and data. Right now, we have fruitful dialogues with the many foreign institutional investors who are the source of 99% of donations to BDTI, or purchase our data, but very few dialogues with Japanese large investors. They could probably benefit from what we have learned providing director training to 2,500 persons over the past 11 years, and from what my colleagues and I have learned serving as independent directors for many years…. given that most fund managers have never sat on a board. We sent out letters like this last year, but received no responses. We will let you know what the result is this year; what kind of firms responded (if any) vs. not. (Note: the letter below is a translation from the original Japanese. )

Mr. /Ms. XXXX
XXX Corporation

Dear ______________,

I am Nicholas Benes, Representative Director of the Board of Directors Training Institute (BDTI).

Since its establishment in 2009, BDTI has provided director and pre-director training, and has analyzed data on the status of corporate governance at listed companies, with the aim of improving governance in Japan.

Today, I would like to ask for your help in improving the quality of boards in Japan. This is something which will lead to the greater attractiveness of the Japanese stock market, which is the source of your firm’s profits. I have contacted you because I believe that we are both striving towards this common goal.

My Letter to Mark Facebook at Facebook/Meta

The Board Director Training Institute of Japan has sent the letter set forth below to the Mark Zuckerberg,m CEO of Meta Plataforms, Inc. (Facebook), asking FB to make it possible for Japanese users  to donate to certified non-profits in Japan, rather than just the US, Germany, Denmark and many other countries that are listed in the current drop-down menu.  It would be very easy for Facebook to implement this change, because their drop-down menu for donations is linked to each country’s list of certified non-profits, and Japan’s cabinet office also furnishes a convenient web page (a “registry”) for purposes such as this.  It doesn’t make sense for Japanese users (say on their friend’s birthday) to be limited to donating on that friend’s behalf to a nonprofit in Luxembourg or Denmark or the U.S. (This is not to deny anything to charities in those countries, but rather, to state the obvious.)   We have also sought to contact persons in Facebook Japan’s office about this, but have not yet received any answer as of this writing (August 15, 2022).

=============================         July 27, 2022

Mr. Mark Zuckerberg
Meta/ Facebook
1 Hacker Way
Menlo Park, California
94025    USA

CC: copies also sent to
Director of Communications
Director of Fundraising Activities Team
Board of Director members via Corporate Secretary

Dear Mr. Zuckerberg,

The Board Director Training Institute of Japan (BDTI), which I lead from here in Tokyo, is a “public interest” nonprofit certified as such by the Japanese government. We provide: 1) training about directorship and corporate governance in Japan; 2) analysis and information dissemination about corporate governance; and 3) structured long-term big data taken from three separate types of disclosure reports in Japan. These are our major activities as approved by Japan’s Cabinet Office.

Mitsuboshi Case Leaves Poison Pill Doctrine Unresolved

Law on takeover defenses in Japan is unclear
by Stephen Givens

In a significant precedent that adds a missing piece or two to Japan’s wobbly and shifting poison pill doctrine, in late July the Supreme Court upheld decisions by the Osaka District Court and Osaka High Court that invalidated a poison pill hastily set up by target Mitsuboshi Corporation (TYO 5820) to fight off an investor group with shadowy China ties that had amassed a more than 20% stake quietly in the open market.

A Gloss on Last Year’s Tokyo Kikai Seisakusho Case

The facts in the Mitsuboshi decision are in many ways similar to those of the Tokyo Kikai Seisakusho (TKS) (TYO 6335) poison pill case decided in November 2021. In both cases investors with China ties quietly acquired a sizable stake in a small, obscure target that lacked a pre-existing poison pill.

In TKS, these facts proved an embarrassment to recent judicial iterations on the poison pill, which seemed to make shareholder ratification of a poison pill both a necessary and sufficient condition for validation. [See footnote #1.]  Applying the still-fresh shareholder ratification principle would have allowed Asia Development Corporation (ADC), the Chinese-controlled company that had already acquired 40% of TKS,

Video of “The General Counsel as Board Member – Discussion with Larry Bates, Panasonic’s first General Counsel”

This webinar explores how in Japan there was no traditional role of “General Counsel” (GC), in Japanese companies. However, as Japanese companies have expanded and globalized, more of them are realizing that it is essential to have an actual licensed attorney serve as the “Chief Legal Officer” (CLO), serving a broader, more senior, and influential role.

BDTI’s own Nicholas Benes interviews the well-known Larry Bates, who recently stepped down from his role as Panasonic’s first General Counsel. During the past 30 years, Larry has served as General Counsel at three different companies, all of which operated in a global legal context. To provide actionable advice and perspectives to Japanese companies, the interview focuses on key issues such as: “What should be the GC’s role and mission, and how does the concept of “GC” differ from the traditional Japanese model?” and “What are the pros and cons of having the GC sit on the board and what is his or her relationship with the board and other executives?” – among other questions.

Included is a short panel discussion with other experienced legal advisors and independent directors at global companies. Larry Bates is joined by Chika Hirata, currently Regional Head of Ethics and Compliance at Takeda, and the former CLO and Corporate Secretary at MetLife Japan; and by Yumiko Ito of Ito Law Office, who also serves as an independent director for Kobe Steel, Ltd. and as an independent corporate auditor for Santen Pharmaceutical, Co., Ltd., and has served as General Counsel at Sharp Corporation, GE Medical Systems Japan, and Microsoft Japan.

METRICAL: CG Stock Performance (Japan): July 2022

In July, the stock market was supported by the strong U.S. stock market and began to test a return from the second half of the month. The CG Top20, whose components were changed once a year starting this month, continues to outperform over the long term while slightly underperforming against both the TOPIX and JPX400 over the one-month period.

The stock market was firm from the second half of the month as the U.S. market rallied in mid-July on the back of lower long-term interest rates in anticipation of a recession in the U.S. economy. Over the long term since 2014, the CG Top 20 has continued to outperform both indices by about 2% per year. Over the long term since 2014, the CG Top20 continues to outperform both indices by about 2% per annum. The CG Top 20 has been reassessed as of July 1. The new individual stocks are listed in the table 2022

METRICAL: Considerations Regarding Retirement of Treasury Stock

I am sure you are aware that the number of companies moving to retire treasury stock is gradually increasing due to prime market listing standards. In my previous article, Metrical’s analysis has also revealed that companies that have retired treasury stock three or more times are also more positive in their corporate governance efforts. If share repurchases are a sign that corporate governance initiatives and performance improvement are working in tandem, it is very welcome. I would like to think more about how the actual action taken by the company to retire its own shares relates to corporate governance.

The table below shows the correlation between the frequency of share buybacks and ROE, ROA, and Tobin’s q for the Metrical Universe (as of 1/2022). As shown in the previous article, a highly significant positive correlation between the frequency of share buybacks and ROE and ROA has been confirmed, indicating that the more frequently a company retires its own shares, the higher its ROE and ROA.

This result seems reasonable, because to cancel treasury stock, a company has to buy back its own shares, which has a positive effect on ROE and ROA. On the other hand, the correlation between Tobin’s q and the frequency of share repurchases is not shown to be significant. This means that a company that retires its own shares more frequently does not have a higher stock price valuation, which means that a company that retires its own shares does not have a significant relationship with its stock price valuation. Although the company buys back its own shares before retiring them, this result is also reasonable because the company does not take Tobin’s q (P/B) into account when making its decision to buy back its own shares. On the other hand, it is interesting to note that there is a highly significant positive correlation between the rate of change in market capitalization (12/2021-1/2022) and the frequency of stock repurchases. Even though the frequency of share buybacks is not correlated with respect to stock price premium or discount, it is related to the rate of change in market capitalization over the period 12/2021-1/2022. Over this 13-month period, the more frequent the company’s share retirement (or stock repurchase), the greater the increase in market capitalization. The results show that stock retirement was associated with an increase in market capitalization over this period.