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| Next Director Boot Camp is January 31st! |
November stocks surged on global upswing.
CG Top 20 stocks under performed slightly against TOPIX and JPX400.
Stock prices rose Jumped in November on expectations of an economic recovery after Pfizer filed for a new coronavirus vaccine and further liquidity expansion following the U.S. FOMC meeting.
TOPIX and JPX400 indices gained 10.67% and 11.72%, respectively, during the month, while the CG Rating Top 20 ended the month with a 9.16% gain, which was not as large as the two indices.
After an upward trend through the previous months, stock prices fell toward the end of the month in October on concerns about the rising number of coronavirus cases in Europe and North America. The CG Rating Score Top 20 stock indexes significantly underperformed the two indices. CG Top 20 stock prices fell 5.41% in October, while TOPIX and JPX400 closed down 2.81% and 2.75% respectively. However, the cumulative return of CG Top 20 stock prices kept significant outperformance against the both indices (see chart below).
The next Boot Camp this year will be on Wednesday, December 2, 2020. Course will be on ZOOM, so anyone in the world can join. Few seats remaining, so make sure to sign up now!
This one-day intensive program teaches participants key legal and corporate governance knowledge they need to responsibly serve on, report to, or analyze boards of Japanese companies, both public and private. The course consists of short lectures interspersed with time for interactive discussion and Q&A about real-life situations that occur on boards, and how to handle them. The course is usually good fun for everybody, since we learn from each others’ experiences, as well as from BDTI. The course covers topics such as:
September stocks edged slightly higher after surged in the previous month. CG Top 20 stocks gained with solid outperformed against TOPIX and JPX400.
Stock prices kept positive return in September, followed by the rally in the previous few months.TOPIX and JPX400 closed slightly higher +0.52% and +0.11% respectively for the month. CG Top 20 stocks average climbed 2.28% for the month, increasing the outperformance against the both market indices.
In the previous article, based on the study classified the 3 groups of the universe companies by the ownership of major shareholders: (a) Companies with major shareholders that hold >=50% of shares, (b) Companies with major shareholders that hold >=20% and <50% of shares and (c) Companies without major shareholders that hold >=20% of shares. A subsidiary and an affiliate company owned by a parent company or founder’s family company show superior performance in the key performance measures such as ROA and ROE and Tobin’s Q. In this point, it would be an effective way for a listed parent company to raise the return measures such as ROA and ROE of the parent company by consolidating the subsidiary or the affiliate company with relatively higher return. Such a case is increasingly occurred. We introduced investment strategies to buy listed subsidiaries (and affiliated companies) in anticipation of the acquisition of listed subsidiaries with high profit margins of the parent company.
At this time, on the contrary, we focused on family companies whose stock prices have remained lower. There are several purposes for going public, but if one of the purposes is the diversification of funding measures, the purpose wouldn’t’ be achieved in this situation where the stock price is low. There would be an option to reconsider listing on the stock market. From the management side, going private would be an alternative through MBO etc. The table below shows the family companies in our universe with Tobin’s Q less than 0.8, divided into 2 groups of family’s ownerships more than 50% or more than 20% and less than 50%. For a company that suffered low ROA and ROE, the low performance would be a reason for the low share price. However, some companies that have high ROA and ROE are traded at low. For a company in which there is no problem with return performance, but the share price remains low, it may be an option to consider “going private.” Aside from whether or not an investor actually acts such an effort in the engagement, this is an investment strategy to focus on such a viewpoint.
“Earlier this summer, the Corporate Counselor covered amendments to Japan’s foreign direct investment laws that lowered the government approval threshold from 10% to a mere 1% for share acquisitions of publicly-traded companies that engage in a wide range of business activities deemed critical to Japan’s national security, unless an exemption applies. Attached for ease of reference is our June newsletter, which has been updated.
Our June newsletter specifically left for another day a discussion of the shareholder rights ramifications arising from the amendments to Japan’s foreign direct investment laws. This edition of the Corporate Counselor bridges this important gap.
The impact on shareholder rights arising from the amendments to Japan’s foreign direct investment laws is a game change for investments into Japan. The Japanese government now has veto rights over fundamental corporate governance rights throughout the investment cycle. The amendments apply retroactively, so overseas investors may no longer be able to effectively control their existing investments in Japan.”
On September 3rd, in the midst of the Corona virus pandemic, BDTI held its English Director Boot Camp via teleconference. The day-long intensive course was attended by 8 highly-experienced participants, including one Chief Executive Officer, two Consultants, one Statutory Auditor, Managing Directors and senior executives. The participants heard lectures about corporate governance by Nicholas Benes along with a guest lecture by Andrew Silberman of AMT, and exchanged experiences and opinions. Even during a pandemic, training continued smoothly, with all participants able to review materials in more depth.
We are planning to hold the next course via teleconference on Wednesday, December 2nd, 2020. Sign up early! Please see a description of our director training course here or click the button below for further information.
“In all three transactions, minority shareholders face a decision. Either accept the offered price or resist, by refusing to tender their shares or petitioning a Japanese court to review the price. The most significant question facing Japanese corporate governance today is whether Japanese courts will intervene and backstop special committees and boards of directors that are not doing their jobs.”
“Corporate purpose is now the focus of a fundamental and heated debate, with rapidly growing support for the proposition that corporations should move from shareholder value maximization to “stakeholder governance” and “stakeholder capitalism.” This Article critically examines the increasingly influential “stakeholderism” view, according to which corporate leaders should give weight not only to the interests of shareholders but also to those of all other corporate constituencies (including employees, customers, suppliers, and the environment). We conduct a conceptual, economic, and empirical analysis of stakeholderism and its expected consequences. We conclude that this view should be rejected, including by those who care deeply about the welfare of stakeholders.
Stakeholderism, we demonstrate, would not benefit stakeholders as its supporters claim. To examine the expected consequences of stakeholderism, we analyze the incentives of corporate leaders, empirically investigate whether they have in the past used their discretion to protect stakeholders, and examine whether recent commitments to adopt stakeholderism can be expected to bring about a meaningful change. Our analysis concludes that acceptance of stakeholderism should not be expected to make stakeholders better off.
Furthermore, we show that embracing stakeholderism could well impose substantial costs on shareholders, stakeholders, and society at large. Stakeholderism would increase the insulation of corporate leaders from shareholders, reduce their accountability, and hurt economic performance. In addition, by raising illusory hopes that corporate leaders would on their own provide substantial protection to stakeholders, stakeholderism would impede or delay reforms that could bring meaningful protection to stakeholders. Stakeholderism would therefore be contrary to the interests of the stakeholders it purports to serve and should be opposed by those who take stakeholder interests seriously…”
“At the center of a fundamental and heated debate about the purpose that corporations should serve, an increasingly influential “stakeholderism” view advocates giving corporate leaders the discretionary power to serve all stakeholders and not just shareholders. Supporters of stakeholderism argue that it would address growing concerns about the impact of corporations on society and the environment. By contrast, critics of stakeholderism object that corporate leaders should not be expected to use expanded discretion to benefit stakeholders. This Article puts forward novel empirical evidence that can contribute to resolving this key debate.
During the hostile takeovers era, stakeholderist arguments contributed to the adoption of constituency statutes by more than thirty states. These statutes authorize corporate leaders to give weight to stakeholder interests in considering a sale of their company. We study how corporate leaders in fact used the power awarded to them by these statutes in the past two decades. In particular, using hand-collected data, we analyze in detail over one hundred cases governed by constituency statutes in which corporate leaders negotiated a sale of their company to a private equity buyer.
We find that corporate leaders have used their bargaining power to obtain gains for shareholders, executives, and directors. However, despite the risks that private equity acquisitions posed for stakeholders, corporate leaders made very little use of their power to negotiate for stakeholder protections. Furthermore, in the cases in which some such provisions were included, they were largely practically inconsequential or cosmetic. We conclude that constituency statutes failed to deliver the benefits to stakeholders that they were supposed to produce.
Beyond their implications for the long-standing debate on constituency statutes, our findings also provide important lessons for the ongoing major debate on stakeholderism. At a minimum, stakeholderists should identify the causes for the failure of constituency statutes and examine whether adoption of their proposals would not suffer from a similar fate. After examining several possible explanations for the failure of constituency statutes, we conclude that the most plausible explanation is that corporate leaders have incentives not to protect stakeholders beyond what would serve shareholder value. Therefore, we argue, the evidence we put together indicates that stakeholderism should be expected to fail to deliver, as constituency statutes did: on the basis of the currently available evidence, stakeholderism should not be supported, even by those who deeply care about stakeholders.”