Author: Nicholas Benes

Japan’s “Asset Owner Principles”: A Step Forward, But More is Needed

2024-09-06 posted by

(Translation-) I support Japan’s new Asset Owner Principles, but am a little disappointed that they are weak. It seems clear that one of the major purposes is to urge asset owners to sign the Stewardship Code (SC), which they should be doing already. But even that request is weak: “When fulfilling stewardship responsibilities, asset owners should consider accepting Japan’s Stewardship Code and then take actions in accordance with the Code, based on the size of their AUM and capabilities.” I would have hoped for stronger language, at least for pension funds. (Something have been suggesting since 2016. See below.)

And even though the Principles are not binding and do not more strongly ask asset owners to sign the Stewardship Code, they do not mention or clarify that overseeing their fund managers’ voting activities is one of their responsibilities, included in their fiduciary duties.

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What Needs to be Added to the “Action Program for Accelerating Corporate Governance Reform: From Form to Substance”

2024-08-23 posted by

Nicholas Benes
Representative Director, The Board Director Training Institute of Japan (BDTI)
(The following is my personal opinion and not that of any organization. This is a translation of the original article.)

As sent to prospective candidates to be the next Prime Minister, in no particular order:
Chief Cabinet Secretary Yoshimasa Hayashi, Minister for Foreign Affairs Yoko Kamikawa, Minister of Economy, Trade and Industry Ken Saito, Minister for Digital Transformation Taro Kono, Minister in Charge of Economic Security Sanae Takaichi, Secretary-General of the Liberal Democratic Party Toshimitsu Motegi, House of Representatives Member Shigeru Ishiba, House of Representatives Member Shinjiro Koizumi, House of Representatives Member Takayuki Kobayashi, House of Representatives Member Seiko Noda, House of Representatives Member Katsunobu Kato.

CC: Prime Minister Fumio Kishida, Deputy Chairman of the Liberal Democratic Party’s Political Research Committee Masahiko Shibayama, Parliamentary Vice-Minister of Health, Labor and Welfare of the Liberal Democratic Party Akihisa Shiozaki, Deputy Secretary-General of the Liberal Democratic Party Seiji Kihara, House of Representatives Member Kenji Nakanishi.

Japan’s Corporate Governance Code (CGC) and the investor Stewardship Code need to function as “two wheels” of a cart. I had advocated this since 2013, and when I had the opportunity to formally propose the establishment of the CGC to the Liberal Democratic Party in 2014[1], I insisted that the most important thing was to “promote the disclosure of information that enables one to verify governance structure and substance” at firms.

“Governance and oversight are more likely to function effectively on a board that has a majority of truly independent and qualified independent directors.” As of 2014, this dynamic had been recognized in many countries around the world. At the time, I thought that if companies disclosed their actual governance practices and stewardship by investors started functioning well, Japan, as a developed country, would naturally adopt a similar stance within the next five years or so.

Ten years later, however, there is still no serious discussion of these two issues in Japan. Now that global investors are paying more attention to the Japanese stock market, I believe it is time for us to confront these core issues and take the following steps to speed up Japan’s governance transformation.

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Aptly Titled, a Great Book to Read About “Whither Japan?”

2024-01-01 posted by

This being New Year’s Day, I will recommend one book to read in 2024 to learn about not only about the challenges that Japan faces, but how the country is evolving to cope with them (and even thrive) in the global economy.  Richard hits the nail on the head in many ways, but to summarize a major theme;  if Japan is to fare better during next 15years than its past 25 years would seem to indicate, it will not be because the business models and management thinking of  its large firms are simply updated.

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Outside Director Lessons #11: Committees Need Rules

2023-10-16 posted by
Outside Director Lessons　Nicholas Benes

At Livedoor, I soon proposed that we set up committees of the board to oversee the granular matters in areas such as M&A, finance, and so forth, thinking that this would allow us to specialize to some extent, so that not all of us would have to oversee minor details.  But since there was little trust between the new outside directors, everyone immediately wanted to be a member of all committees, and it was impossible to deny anyone that opportunity. The end result was simply to make it unnecessary to reflect some important discussions in the formal board minutes, because the “committee” meetings were not actual “board” meetings.

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Outside Director Lessons #10: Directors Set Direction

2023-10-16 posted by
Outside Director Lessons　Nicholas Benes

In Livedoor’s case, before I joined the board it seemed clear to me that eventually, the company would most likely have to be liquidated.  It had acquired a lot of companies in addition to operating its portal web site, but there were no synergies between them, and there was very little oversight of subsidiaries. It had no strategy, and its brand name had been destroyed. If anything, being affiliated with the Livedoor name actually reduced the value of its businesses and subsidiaries to some extent, in terms of their ability to get business.

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Outside Director Lessons #9: Appointing the CEO

2023-10-16 posted by 2 Comments
Outside Director Lessons　Nicholas Benes

If you are ever in the situation I described in “Outside Director Lessons #8” (see link below), here is what you can do. To begin with, in that situation, you might begin before the AGM, by quietly asking the person that investors supposedly want as the new CEO, if he or she really wants the position and why. Being a CEO is always a lot of work, especially if you have other activities. The person may respond without a lot of clarity, or even signal a sort of reluctance.  That is vital information.

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Outside Director Lessons #8: The Role of the Board

2023-10-16 posted by
Outside Director Lessons　Nicholas Benes

Before Livedoor’s December 2006 AGM, one of the other newly nominated “independent directors”,  asked me whether (if elected) I would vote to remove the current CEO. I replied that I could not answer that question, because I was not on the board yet and had no direct knowledge about what was going on inside the company, including the performance of the CEO.

In response, this director candidate responded, “But if the shareholders want that, how can we not fire him?”

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Outside Director Lessons #7: If No D&O…Get It Yourself

2023-10-16 posted by
Outside Director Lessons　Nicholas Benes

In my view, at the end of 2006 I had been nominated in the Livedoor proxy materials for the December AGM without my agreement. This was partly because just saying in quick email that one may be “interested” does not mean one has “decided”.  But more importantly, two of the conditions I had clearly set forth, which were dependent on Livedoor itself taking action, had not been fulfilled at all: specification of compensation, and assurance of D&O insurance.  When I inquired about the latter, I was told by a senior “advisor” at the company that Livedoor had tried to get D&O insurance from more than 20 insurance companies in Japan, and had been turned down by everyone.

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Outside Director Lessons #6: Insist on Total Independence!

2023-10-16 posted by
Outside Director Lessons　Nicholas Benes

When Livedoor was delisted in the spring of 2006, its shareholder composition suddenly became a big issue.  Why? Because the majority of its stock were held by a large group of funds (mainly hedge funds) who never thought that their stock would be delisted by the TSE so soon and become untradeable. Another large portion was held by a combination of ordinary institutional investors and a corporation or two. The rest was held by a very large number of individuals, many of whom had spend large amounts of their limited savings on the stock because the company had done so many stock splits that the low price made it easy to buy, and made it look cheap, at the same time.

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Outside Director Lessons #5: Being a Whistleblower Hotline

2023-10-16 posted by
Outside Director Lessons　Nicholas Benes

At one company where I served as an outside director, I was on good relations with several people who served in administrative functions that involved them in working closely with the board secretariat. Of course they all knew my email address.

One day I was asked somewhat secretively to have lunch with one of them.  Two persons showed up.  They told me that a certain senior manager was was making inappropriate comments to one particular woman, – a form of sexual harassment. The problem was, this senior manager was the head of Planning, was otherwise well-qualified, and was working on a very important transaction at the time.

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