Letter to Prime Minister Fumio Kishida from Nicholas Benes on New Capitalism

September 2, 2022

Nicholas Edward Benes
(Writing as an individual. Please see below.)
Setagaya-ku, Tokyo
benesjp22@gmail.com
(Please feel free to email me to receive a PDF copy of this letter.) 

Prime Minister Fumio Kishida
Prime Minister’s Residence
2-chōme-3-1 Nagatachō
Chiyoda-ku, Tokyo 100-0014

cc:
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.

How to Revive Japan’s Economy

To Those Who Agree with BDTI’s Mission to Improve Governance In Japan

The Board Director Training Institute of Japan (BDTI) is the most influential provider of director training and data on corporate governance in Japan. I am pleased to share this report on the growth of our activities during FY2021 (please click). Notably, more than 32% of our participants in non-corporate programs were women.

While our training activity has increased, we are still dependent on donations from foreign investors for our survival so that we may continue to make an outsized impact in improving corporate governance in Japan. For the past few years, I have reduced my own salary to a minimal level to make this possible. (In fact, over the past 12 years, after subtracting my own donations to BDTI, I have literally worked for zero compensation.)

BDTI is regulated by the Japanese government. I intentionally created BDTI in 2009 as a non-profit and later obtained special government certification that its director training activities serve the “public interest”, to create the most eminently “supportable” platform for spreading governance best practices and the custom of director training in Japan. Especially after I proposed the Corporate Governance Code to the government in 2013 (which requires director training), I believed that this format would make it easy for Japanese institutional investors to support our activities, in view of their responsibilities under the Stewardship Code and their proclaimed dedication to ESG and sustainability. After all, the quality of “G” (the board) is the pillar that ensures whether “E” and “S” will create value for shareholders, stakeholders, and society over the long term, rather than simply as reactive PR.

However, during the past 12 years, not a single large Japanese investing institution has supported BDTI or cooperated with our activities in any way, despite many meetings. Instead, 99% of BDTI’s donations have come from foreign asset managers and institutions, including some of the most respected investing organizations in the world.

“How We Saved Our Planet”, by Nicholas Benes

In this article and video published in Ethical Boardroom, I urge a much deeper discourse about #ESG and the structure of profit-seeking corporations – one that considers ways to install the right incentive drivers. As summarized in the video, in my article aliens from another planet (the Vilcans) visit Earth and advise us to think much harder about key questions that we are not fully grappling with – such as: 1) who is best able to assess ESG factors that affect sustainability? 2) does our system provide enough incentives for them to think 20 years ahead, but act now? Does it do that throughout the entire investment chain? 3) why does ownership need to be non-transparent much of the time? Is that healthy?  5) what are the implications of giving FULL limited liability to corporations? 6) does it make sense that those who bought no stock, bear a large part of externalized risk? etc. etc.

The article then describes exactly how the Vilcans reconfigured their equity markets to address these and a host of other issues that (in my view) current #ESG initiatives and debates are not effectively coping with.

How Japan’s Corporate Governance Code Was Born

On October 3rd, 2013, I wrote this article in the Asian Wall Street Journal, proposing that Japan promulgate a corporate governance code as part of its growth strategy. Soon after that I met with a senior official of the Bank of Japan, and then several times with Yasuhisa Shiozaki, one of the most senior politicians in the ruling party (the LDP), to propose that Japan promulgate a corporate governance code as part of its emerging growth strategy.  Mr. Shiozaki was a senior member of the LDP’s growth strategy committee, and was close to Prime Minister Abe.

It was the optimal time to do this because earlier in the year the Japanese government had announced its first “Abenomics” growth strategy, which was largely modeled off of the White Paper published by the American Chamber’s “Growth Strategy Task Force, which I had proposed and led in 2010.  This Task Force was far more successful than I every dreamed it could be. Almost all of the themes in the “third arrow”, including the very concept of a coherent analysis-based growth strategy for Japan, the vital need to enhance productivity growth and economic metabolism, the importance of corporate governance and labor mobility, were identical to to the central themes of this White Paper. This was not surprising, because the LDP had even hired the same economist that we had hired, Professor Kyoji Fukao of Hitotsubashi University.  (See: “Charting a New Course for Growth: Recommendations for Japan’s Leaders.)

The report was very widely read, and its concepts seeped into the bedrock of policy-making circles.  A book written by Professor Fukao based on the analysis we had commissioned, won the most prestigious prize for an economics book in Japan. In particular, the fact that by 2013 many in the government had come to agree that reigniting productivity growth was essential, made this the ideal time to propose significant corporate governance reform.

I then wrote an article about describing my proposal in the Japanese-language Asahi Journal -法と経済 at the end of January, 2014. This followed upon my October, 2013 article on the same topic in the Wall Street Journal.

Subsequently, I was asked to make a formal presentation of my ideas to the LDP’s growth strategy committee (the Japan Economic Revival Headquarters), and did so on February 7th, 2014.  Here are my presentation materials, with the most important first two pages translated into English.

It was the optimal time to do this because earlier in the year the Japanese government had announced its first “Abenomics” growth strategy, which was largely modeled off of the White Paper published by the American Chamber’s “Growth Strategy Task Force, which I had proposed and led in 2010.  This Task Force was far more successful than I ever dreamed it could be. Almost all of the themes in the “third arrow”, including the very concept of a coherent analysis-based growth strategy for Japan, the vital need to enhance productivity growth and economic metabolism, the importance of corporate governance and labor mobility, were identical to the central themes of  our ACCJ White Paper; and the LDP even hired the same economist that we had hired, Professor Kyoji Fukao of Hitotsubashi University.    (See: “Charting a New Course for Growth: Recommendations for Japan’s Leaders“.)

The report was very widely read, and its concepts seeped into the bedrock of policy-making circles.  A book written by Professor Fukao based on the analysis we had commissioned, won the most prestigious prize for an economics book in Japan. In particular, the fact that by 2013 many in the government had come to agree that reigniting productivity growth was essential, and was on track to put in place a “Stewardship Code”,  made this the ideal time to propose significant corporate governance reform.

Later that month, I proposed to a senior person at the BOJ and then to key LDP dietmen (mainly Mr. Yasuhisa Shiozaki, who was a leader of the LDP’s growth strategy “Headquarters”) that the LDP create a corporate governance code in order to (a) expand upon (many times over) the comply-or-explain principle that was about to be set forth in the new Company Law in a very limited context; and (b) ensure that the Stewardship Code would have its intended positive impact, by requiring standardized, comparable disclosure about governance practices at each company.  I proposed that the new governance code should be drafted by a panel organized by the FSA , the agency that should logically be held accountable for the result because the FSA’s Establishment Law puts it in charge of investor protection, capital markets efficiency, and regulation of the stock exchanges (the listing rules of which are the place where most CG codes principles are reflected). I presented a detailed memo proposal to the dietmen. (Here are the memos that I submitted to Mr. Shiozaki: