GoToData by BDTI: Japanese Disclosure, by All listed Firms, Now Easily Accessible in English!

Why wade through 100+ pages of unusable PDF-formatted Japanese jungle, when you can jump directly to the parts you want, read them in English, and quickly cut and paste both text and tables you want to analyze and compare? Why not save 70% of your time and conveniently review the official source documents submitted by all 3,600+ Japanese listed companies?  Click on the center of the image below to view in full screen “flipbook” mode, and contact us at info@bdti.or.jp if you are interested to know more. Qualifying parties may receive demonstrations and trial accounts.
Ready or not, Japanese disclosure has now entered the age of machine-readable digital data! The dream that I presented to Japanese lawmakers in February of 2014 [1] can now be realized: a world where a Corporate Governance Code requires detailed disclosure of the inner workings of companies’ governance black boxes, and that information is seamlessly available to all investors, thus making it possible for them to do the analysis they must do to be good “stewards”.  As a result, the Stewardship Code will be able to function in reality, not just in theory.

[1] 2月6日に自民党の日本経済再生本部の金融調査会に呼ばれて、コードの概念、政策としての位置付け、入れるべき内容の例を「日本経済の復活のため、コーポレート・ガバナンス・コードの早期制定を」というプレゼン資料を使って説明した。その後、議員らにさまざまなアドバイスと提供させていただいた。

Nikkei Asia: Activist Funds Defeated at Kirin and Toshiba Machine

“IFP’s challenge, however, highlighted weaknesses at Kirin, whose expansion has produced mixed results, analysts said. One of the director nominees recommended by IFP, corporate governance expert Nicholas Benes, won 35% of shareholders’ votes despite opposition from Kirin, suggesting some shareholders agreed the board needed more change.

Memo to Shareholders of Kirin HD, from a Director Candidate

Independent Franchise Partners (IFP) has submitted a shareholder proposal nominating Kanako Kikuchi (an experienced global pharmaceutical executive) and myself as independent directors. Glass, Lewis supports electing both of us, but it seems that ISS has “split the baby” and only supports me. If investors could vote for Ms. Kikuchi as well, it would greatly help ensure that the board makes a fully informed, objective and independent assessment of the strategy on an ongoing basis.

Both of us have no past relations with IFP, and take an approach that is completely agnostic and independent of IFP’s dividend proposal. We both believe that if shareholders do not opt for that proposal, – or in any case – it is most prudent to withhold any decisions about the strategy until such time as when we are on the board and can ask questions and are privy to all internal analysis and confidential information. Therefore, we would both join the board with no pre-decision(s) made before knowing all the facts. This is the only logical position to take as a truly independent director. I have informed IFP in no uncertain terms that my philosophy and legal duty is to answer to all shareholders, and that I may well not agree with positions that IFP has taken or may take in the future. IFP has no problem with this.

Many investors may not realize that unless Ms. Kikuchi is elected, there will be no one with global biopharma experience on this board just at the time when that skill set is most needed. Given the company’s proclaimed strategy to “bridge” into health science products (which could be a good one for all I know), this is not wise and is of great concern to me.

CITINDEX 11 : “Our Opinion on Toshiba Machine’s Implementation of Buyout Defense Mechanisms that Do Not Take into Account Shareholder Opinions”

Conclusion paragraph: “We believe that Toshiba Machine’s implementation of its New Buyout Defense Mechanism that does not take into account (but rather opposes) shareholder opinions hinders the development of corporate governance in Japan, which has been built on the efforts of various parties including governmental agencies and self-regulation organizations such as the Ministry of Economy, […]

Correlation and Causation: Good Governance Practices and Firm Performance in Japan

On December 11, 2019, I gave a lecture on BDTI’s analysis about corporate governance practices and and firm performance in Japan. Since then we have added indicators of statistical significance to our materials. To view the entire presentation as translated into English, click here: Presentation to Securities Analyst Association 2019.12.11. Those who read Japanese can read the full speech here, and can download the Japanese version of the presentation materials.

Our methodology is shown on page 23 . Our analysis suggests that the adoption of the following practices leads is followed by (appears to cause) improvements in ROA compared to the average for a firm’s industry over the next two years. Please see the charts on the left side of each page:

  • Adding an nomination committee of some sort (p. 27)
  • Appointing an outside director as the chair of that committee (p. 28)
  • The combination of nomination committee with a board composition with >33% independent directors (p. 30)
  • Adopting a performance-linked compensation plan for executives (p. 29)

Various other factors that appear to correlate with superior performance, are shown on page 22, and page 34. We will explore the direction of causation with some of these later.

Governance Practices and Firm Performance in Japan – Preliminary Analysis of Causation

On December 11, 2019, Nicholas Benes gave a lecture on Corporate Governance Practices and Firm Performance in Japan at the Securities Analysts Association of Japan. It was generally well-received and covered the following topics:

  • An Introduction to BDTI
  • General Trends in Corporate Governance
  • Correlation Analysis on Relationships Between Corporate Governance and Firm Performance, and the Direction of Causation
  • Advice for Investors and Prospects for Future Research
  • Appendix: Preview of our internal corporate governance relational database

Of note were the three main themes that were discussed: (1) There are visible relationships between certain corporate governance practices and financial performance (2) the direction of causation is most important to confirm, and so far, BDTI’s analysis suggests that a number of specific governance practices actually do seem to “cause” improvement rather than simply serve as evidence that management wants to “look good”; and (3) this information is vitally useful for analysts and investors alike, in order to improve the effectiveness of investor engagement that enhances profitability, growth and stock performance in a win-win cycle.

Nicholas Benes: Public Comment on Revision of the Stewardship Code

1) Pension Funds
2) Other Types of Investors
3) “ESG Factors”
4) Debt Instruments

1) Pension Funds

The proposed revisions to the Stewardship Code do not make it clear enough exactly how corporate pension funds, or smaller pension funds of any type, can sign the Code and comply with it without bearing excessive cost, work, or confusion.  Because this is not sufficiently clear at present, to date only an extremely small number of the defined-benefit pension funds at listed non-financial companies in Japan have signed the Code (only about 10, out of a total of 700 or more such funds). As a result, a rather odd situation exists in that most Japanese companies claim to care for their employees deeply, but judging from their actions, do not seem to care much about employees’ investments or post-retirement quality of life – or even, to care about preserving shareholder value by reducing the cash infusions needed to keep their pension plan fully funded. This makes a mockery of the language in the Corporate Governance Code about stewardship (Principle 2.6 企業年金のアセットオーナーとしての機能発揮), and of the Stewardship Code itself.

Activist Shareholders and Directors, Beware! (Nishimura & Asahi)

When exiting minority holdings, not only beware about insider trading rules, but also short-swing profit rules. “Similar to the securities laws of other jurisdictions, Japanese securities laws also have short swing profit rules that require directors (and equivalents thereto) or 10% or greater shareholders to disgorge profits earned from matching buy-sell transactions (i.e., purchases and sales occurring within a six month window of each other, subject to certain limited exceptions) regardless of whether they are in possession of material non-public information. To avoid a costly surprise, an investor should confirm that it has not acquired any Public Company shares during the six month period leading up to the proposed share sale in order to avoid the perfunctory short swing profit disgorgement rules under Japanese securities laws. “

Correlations Between Governance Factors and Foreign Ownership

While overseas investors’ ownership decreased a year ago, activist investors are now likely to focus on Japanese companies. Corporate governance in Japan has improved since the Corporate Governance Code was introduced in June of 2015, but progress is much slower than foreign investors hoped. At this time, we analyze the relationship between % ownership held by overseas investors and key governance criteria. The following table shows the result of our regression analysis of the 13 governance factors that METRICAL uses as criteria and two performance measures, ROE and ROA. Of the 15 factors, 14 factors are significantly correlated with level of ownership by overseas investors.