September 2, 2022
Nicholas Edward Benes
(Writing as an individual. Please see below.)
(Please feel free to email me to receive a PDF copy of this letter.)
Prime Minister Fumio Kishida
Prime Minister’s Residence
Chiyoda-ku, Tokyo 100-0014
Deputy Chief Cabinet Secretary Seiji Kihara
Mr. Masahiko Shibayama, Deputy Chairperson, Election Strategy Committee of the LDP
Hon. Prime Minister,
I am writing this letter with the respect that is due you as the foremost leader of this country, who has set forth a concept for “a new form of capitalism.” If I may, I would like to share my concrete thoughts on how further improving corporate governance in Japan can be a positive game-changer for Japan’s economy, society, and financial markets.
When I saw your moving speech to the NPT Review Conference, I was impressed how fluently you read English. Therefore, I am taking the liberty to write this letter in English, attaching a Japanese translation. As the person who suggested to the US government that President Obama visit Hiroshima, I was pleased with your passionate comments.
First, I will introduce myself. I am an American citizen who is the son of Slavic immigrants from Czechoslovakia and Russia. I am half-Jewish by blood. I am also a permanent resident in Japan, having lived here for more than half of my life, — that is, for 36 years in total. During this time, I have worked at JPMorgan for 11 years, led my own M&A advisory firm, sat on the boards of various Japanese companies for a total of 14 years, and established the公益社団法人会社役員育成機構 (BDTI). Among other director positions, after the scandal at Livedoor I was called in to serve as an outside director to improve governance and relations with shareholders. Currently, I serve on the board of Advantest as an independent director.
Both as a former governor and committee chair of the American Chamber of Commerce in Japan, and later as an individual “thought leader” acting in my personal capacity, over more than two decades I have been able to “seed” a number of reforms in Japan. These include the concepts of a politician-led, productivity-driven “growth strategy” that led to the “third arrow” of structural reform in Abenomics, and Japan’s Corporate Governance Code (the “CGC”). I have done so by writing articles and concrete policy proposals, and by maintaining dialogues with open-minded parliamentarians and bureaucrats.
In 2013 Deputy Chief Cabinet Secretary Seiji Kihara (who was then a member of the Diet) responded positively to my proposals regarding corporate governance by including them in the interim growth strategy document （中間報告). Later, in 2013 I proposed the concept of a corporate governance code to Mr. Yasuhisa Shiozaki in a series of meetings and memos. I then provided advice to him behind the scenes as he promoted that concept. This resulted in my giving a speech formally proposing the CGC to the LDP growth strategy subcommittee in charge of financial matters in early 2014, and thereafter advising the FSA informally. In 2016 I had the opportunity to meet with former Prime Minister Abe to provide him with input regarding the next necessary steps of the corporate governance reform process.
Through these experiences, as in the past, I was impressed by Japan’s openness to diverse perspectives and innovative ideas, as well as its strong commitment to creating a new future. If I say so myself, I suppose I am a living example of how diversity, which is increasingly gaining attention as a topic, can contribute to Japanese society. It is not a coincidence that I, a foreigner, was the first person to propose that the theme of “Ensuring Diversity, Including Active Participation of Women,” be included in the CGC (as well as many other principles I suggested).
There are two main topics about which I wanted to communicate my thoughts, — writing my individual opinions and not the opinions of any organization with which I am affiliated.
I. Director Training is Essential to Improving Corporate Governance, Sustainability, Productivity, and Employee Compensation and Satisfaction
During the past 12 years, I have served as Representative Director (CEO) of a government-certified nonprofit, The Board Director Training institute of Japan（公益社団法人会社役員育成機構（BDTI））https://bdti.or.jp/. I enclose materials describing BDTI’s activities in an easy-to-read format（「BDTIの紹介」）, https://bit.ly/3PAUCjF）, our most recent update to supporters, and materials describing our data services.
A sense of impending crisis that I had felt while serving as a non-executive director in Japan led me to establish BDTI in 2009, together with other professionals and experienced individuals whom I respected. We founders were all concerned that Japan was about to undergo the most significant corporate governance changes in decades, and yet there was no infrastructure in place to develop the minimum common skills, knowledge, and “director power” (「役員力」) needed to cope with these changes.
At the time, as you may recall, it was becoming more common for CEOs to appoint “friendly” (「お友達」) outside directors to their boards. If this were to continue, the value of “independence” and “objectivity” in corporate governance would never be well-understood by companies and investors. We worried that a backlash of cynicism about the value of modern governance practices might then ensue.
Since 2009, BDTI has trained over 2,500 persons in its various director and governance training courses, and over 10,000 persons have received training from our e-Learning courses. Moreover, BDTI has hosted approximately 80 detailed seminars or webinars on timely topics, which have been low-cost or free to participants, and can often be viewed on our Youtube channel. To raise awareness and spread knowledge, I have given speeches to audiences totaling more than 9,000 persons.
We have been able to do this because of generosity and support of our supporters, which has enabled BDTI to develop its curriculum and invite lecturers, making it possible for more companies and individuals to take offer training to “develop human resources with respect to corporate governance” (our primary mission) at low cost.
The reason why we decided to become a “public-interest” corporation （公益法人）which is subject to certification and supervision by the Cabinet Office, – and to give up all hope of ever recovering our invested capital -, was to create the most eminently “supportable” platform for our activities. In fact, because of my large personal donations and four years with no salary at the outset, I have essentially worked “for nothing” for the past 12 years.
However, despite numerous meetings over the past 12 years, BDTI has received no support from major Japanese investment institutions, and 99% of our donations and meaningful feedback or dialogue have come from foreign asset managers and owners, including some of the most respected institutions in the world. We are grateful to them, and at the same time, we find it difficult to ignore or forgive this state of affairs, because it demonstrates the weak state of stewardship in Japan, which should work in tandem with corporate governance.
Especially after advocating for a Corporate Governance Code (“CGC”) in 2013-2014, and because the Stewardship Code was introduced around the same time (in 2014), I had high hopes that our organizational status as a 公益法人would make it easy for Japanese institutional investors to support our activities.
But now is a particularly critical time, because the era of ESG investment and management is upon us, and both investors and companies are on the brink of a major shift in their strategies,– which, if they fail, will become viewed as mere slogans. ESG is a very broad concept, but at the end of the day, “G” (the quality of the board) is the central pillar that ensures whether in the long run “E” and “S” create value for shareholders, other stakeholders, and society. Japan may have already entered its fourth “lost decade. It should be clear to anyone that a CGC alone is not sufficient to bring about effective governance. We need transformation of the companies themselves. This will require a shift in the role of the board of directors itself that will accelerate that transformation, and training for directors and director candidates to change their mindsets.
If Japan can understand and act on the organizational reforms and changes in executive awareness that are needed now, the stock market will regain its attractiveness, luring in more domestic and foreign investors who actively invest in Japan. But even now, the inability of governance to implement the necessary organizational reforms has resulted in many companies with low productivity, which has reduced the attractiveness of our stock market, as well as employee satisfaction and compensation levels.
These things are obvious to many foreign institutional investors. However, what is obvious to foreign institutional investors, for some reason, seems to be incomprehensible to Japanese institutional investors. Of course, we pursue personal connections and send letters to many large institutional investors here, but the results from our promotional activities are very meager.
This stance of domestic institutional investors is very strange. While the number of outside directors is rapidly increasing, the reality is that “only about 20% of companies say they are working on providing training opportunities for outside directors,” according to data released last month by METI (CGS). Japanese investors should be worried about this issue, but they seem to be apathetic.
If this trend continues, BDTI’s foreign donors may well ask me, “why is it that Japanese domestic institutions do not contribute to, or cooperate with, BDTI? Don’t they vote whether or not to approve director nominees? Japanese large institutional investors talk about ESG all the time, but they do not support your activities, which improve the very equity market from which they draw most of their own profits. Why is this? We thought that Japan was ‘obsessed with education. (e.g.「教育熱心日本」). What is going on?“
If foreign investors who actively invest in the Japanese market come to believe that Japanese institutions themselves do not comprehend the challenging magnitude of change in organizational and director mindsets that is necessary in Japan, they will lose faith in BDTI’s ability to have a positive impact in Japan. As BDTI’s (foreign) supporters and dialogue partners decrease in number, foreign investors will continue to disinvest in the Japanese equity market, which will shrink. I hope that you have some sense of crisis that this is already beginning to happen.
II. Policies for Which Strong Political Leadership by the LDP is Necessary for Japan’s Future
As Messrs. Shiozaki and Shibayama demonstrated when they introduced the CGC, policies involving major changes can only be realized if senior politicians take direct action. This is not a job for bureaucrats, who tend to maintain the status quo while making incremental progress.
On a personal basis and not as an opinion of BDTI – but based on insights I have gained from its activities – I would humbly propose the following policies, which require top-down “political” leadership:
1. First, the FSA/MHLW should adopt policies to inject a more serious and action-oriented stewardship “spirit” into institutional investors in Japan.
Despite their role as stewards with a fiduciary duty to protect the interests of employees and pensioners, only 54 of Japan’s many corporate pension funds have signed the Stewardship Code. This represents just over 14% of all corporate pension funds that could be expected to accept the Stewardship Code.
One way to achieve a higher level of stewardship would be to enact a Japanese version of the US law known as ERISA, which would mandate a higher level of stewardship responsibilities (including legal liability for the fund or its directors, if they do not act in the interests of employees who are beneficiaries). Pension funds are very influential asset owners, because they sit at the top of the “investment chain, so disciplining them is effective. In the US, the enactment of ERISA in 1974 arguably marks the historical birth of modern corporate governance and stewardship.
After the AIJ pension fund scandal in 2012, the LDP itself proposed a “Japanese ERISA Law”, but there was no follow-through. Later, in 2016, I made a proposal to the Ministry of Health, Labor and Welfare (MHLW), and as a result a “study group” was set up including the MHLW, the Pension Fund Association, institutional investors, academic experts, and the Financial Services Agency (as an observer). Although no Japanese version of ERISA was passed into law, the outcome was that a new principle in the CGC was created, “Roles of Corporate Pension Funds as Asset Owners” (Principle 2.6), which implicitly seeks to encourage corporate pension funds to sign the Stewardship Code.
As an important way to protect employees as part of “new capitalism”, I propose that each pension fund be legally required to set forth its own “stewardship policy” and publish it to beneficiaries.
Another effective policy would be to make it much less procedurally burdensome for institutional investors to undertake “collaborative engagement” regarding the broad range of issues that dedicated investors would like to discuss with companies, including their ESG-related policies, business portfolios, and board composition, including the issue of gender equity. I have written articles on this topic in both Japanese and English and enclose them herewith. The gap between the UK and Japan regarding rules for “collaborative engagement” rules is striking. Japan has a Stewardship Code, but the FSA’s own rules have effectively hobbled it in the area of collective engagement. This is not the way to achieve the main purposes of the Stewardship Code. This issue was explained in detail by legal experts and Japanese institutional investors in a webinar hosted by BDTI last year.
2. Second, the CGC should require companies to explicitly disclose the director or pre-director training that they actually provided or arranged in the previous year.
Such disclosure should include the position and number of persons trained (including executive officers, etc.) and the subjects of training. Some Asian countries have stricter rules regarding director training than Japan. In contrast, in our country, it seems that candidates simply assume that they know everything they will need to know as a director, and that many people think that any other presumption would be insulting. However, in today’s fast-changing age of VUCA, reskilling and updating knowledge is critical, and such assumptions are naive.
In the absence of specific requirements like this, CGC Report disclosures regarding director training will continue to be vague, factually inaccurate, and in most cases, incomparable and of low quality. The reality is that many firms either are not providing any training at all (e.g., “we provide opportunities as needed”) or if they do, it is only for an hour and a half. This low-quality disclosure is not what I expected from the CGC in 2014. Moreover, human resource development, including for board members, is now an even more urgent issue than before. If companies are going to sit on their hands and do nothing, they should be required to disclose the facts and explain why they are doing so.
3. DX for the “disclosure items” in Corporate Governance Reports should be utilized more, and the XBRL taxonomy for the Reports should be refined.
The XBRL taxonomy used for JPX/TSE Corporate Governance Reports lumps 11 different types of “disclosure item” information under a single XBRL tag, leading to low-quality disclosures that are frequently not even examined because the different items cannot be “read” (separated) by a computer, even using AI. XBRL coding was introduced in order to classify disclosures by type –in other words, to facilitate computer (machine) analysis by easily identifying information types. But the JPX’s current taxonomy for this information jumbles everything together, making the disclosures more difficult to use. This taxonomy problem in Corporate Governance Reports can be solved at very low cost. It could be implemented immediately, and would then become an early “success story” example.
4. Fourth, the MOJ should elevate “executive officers”（執行役員） to the status of a unified, defined role under the Companies Act, one that bears fiduciary duty, can be appointed or terminated by the board of directors, and can be the subject to shareholder derivative lawsuits.
The Ministry of Economy, Trade, and Industry (METI) proposed this concept to the Legislative Council of Japan (Corporate Law Subcommittee) in 2017, and the American Chamber of Commerce in Japan (ACCJ) submitted an opinion in support of that proposal, but the law was not amended. The proposed amendment would clarify legal responsibilities and duties, and at the same time, allow for much greater flexibility in the appointment (and termination) of executives. This change would enable management to be speedier and more effective, while at the same time improving oversight and supervision by Japanese boards.
5. Fifth, a new type of labor contract should be introduced in order to increase the “labor share” of value-added generated by Japanese companies.
I understand that you are highly interested in this issue. As previous studies have shown, and consistent with my own management experience, I believe that deregulations of the labor market that increase “labor matching efficiency,” “labor mobility,” and “compensation and promotion based on merit, not seniority,” are one key to increasing the labor share of value-added. At the same time, another key aspect is that labor policies must promote investment in human capital. In all of these cases, the same mechanism is at work: workers who have gained “bargaining power” in the marketplace are the most effective drivers of increases in labor share.
To take advantage of this mechanism, what is needed is a second type of “long-term ” labor contract. The concept is to create an entirely new form of 「期間の定めのない」“regular employee” contract in the labor law, one that requires payment of fair severance compensation in the event of termination, based on the employee’s years of service. (I am enclosing a Policy Viewpoint that proposed this approach.). This way, matching and job mobility would be more efficient, labor productivity would increase, and companies would have an incentive to compete for the best talent and pay higher wages overall — while reducing inequalities at the same time.
Thank you for this opportunity to clearly share these perspectives with you and key members of your Cabinet. I apologize that I am doing so in an abrupt letter that arrives “out of the blue”.
I would be pleased to have the opportunity to meet with you to discuss any of these policy-related subjects in detail, at any time.
 Here is my detailed CV: [ not included in this version. Contact the author if appropriate.].
 That story was never reported by the media, but it is set forth here in English: “How Japan’s Corporate Governance Code Was Born”, https://bit.ly/3zVDVtp, and here in Japanese: 「ガバナンス・コードの生まれ方､残っている課題」(2016) , https://bit.ly/3pjjKAQ. The latter includes background about the ACCJ Growth Strategy Task Force, all my memos to Mr. Shiozaki, and my presentation to the LDP committee.
 Here are memos I submitted to Mr. Shiozaki to propose the concept of a CGC in October of 2013:「ニコラス・ベネシュが塩崎氏にCGCを提唱したメモ」, https://bit.ly/3PWw5Ww . One of these memos is where the concept of「車の両輪」(“the two wheels of a cart”) comes from.
 Our major donor and supporters who we can publicly disclose are listed here: https://bdti.or.jp/about/our-supporters/. Disturbingly, this list is that it does not include a single major Japanese institutional investor.
 Including the principle about director training and disclosure about the company’s policy for it.
 See: 「改訂CGSガイドラインの解説」、METI（CGS研究会）、2022.08.18, https://bit.ly/3ec6pbg, page 31: 「企業アンケートによれば、社外取締役へのトレーニング機会の提供について取り組んでいると回答する企業は2割程度にとどまる」。「独立社外取締役の選任・機能発揮に関し、自社で取り組んでいる事項 (複数回答可」のに対する回答の中、７番目でした。）
 ”Survey of Japanese Asset Owners on ESG/Sustainability Investment 2021″, Investment Japan, 2022.01, https://bit.ly/3wnsGcf : …“acceptance of the Code among corporate pension funds remains disappointingly low.”
 従業員退職所得保証法（ERISA: Employee Retirement Income Security Act of 1974.
 See:（1）「株主との対話をもっと柔軟に」、ニコラス・ベネシュ、日本経済新聞（私見卓見）、2021.11.09、https://bit.ly/3Az6sqc. See also: “A crucial change is needed to improve corporate governance in Japan”, Financial Times, 2021.09.13, https://bit.ly/3puQxmu.
 「VUCA」 stands for 「Volatility（変動性）・Uncertainty（不確実性）・Complexity（複雑性）・Ambiguity（曖昧性）」.
 See this Viewpoint submitted subsequently:「コーポレート・ガバナンス改革の 強化を促進するための会社法改正案 / Proposed Amendments to the Companies Act to Further Strengthen Corporate Governance Reform, ACCJ, 2017, https://bit.ly/3AWsOC8.
 「労働契約法の柔軟化による社会的格差の解消と経済成長 / Add Flexibility to the Labor Contract Law to Address Burgeoning Social Inequality While Spurring Economic
Growth」, 在日米国商工会議所（ACCJ）2017.06, https://bit.ly/3dJCyXc .