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Steady progress is indeed being made as a result of the efforts being made to improve corporate governance in Japan now that remarkable changes are observed. “Japan is the land of the rising sun, but as far as corporate governance is concerned, it has been more a land of false dawns over the past 15 years or so. However, some significant […]
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This excellent working paper by Naoshi Ikeda, Kotaro Inoue and Sho Watanabe describes their research that leads to the conclusion (similar to BDTI’s own research) that cross-shareholdings in Japan negatively impact risk-taking, investment for growth, and the frequency of restructuring activities. Conversely, when managers are monitored more heavily by investors and independent directors, they are positively affected.
August CG Score inched up 0.7pt YoY
CG Rating Monthly Letter
1. CG Score attribution analysis (08/2016-08/2017)
CG score of core research universe of 489 companies for 1 year period from August 2016 to August 2017 rose 0.7 pt to 61.7 pt from 61.0 pt a year ago. Core universe increased 30 companies to 489 from 459 companies as JPX400 composites have been renewed in the month. The rise in average score keeps improving at modest rate, whereas the change in score from the previous month of 459 companies from July 2016 to July 2017 rose 0.8 pt.
We are reviewing CG enhancement in Japan before / after AGM in June 2017, but that shows modest improvement after AGM. The analysis will be released soon after review.
BDTI’s August 30th English Director Boot Camp was a great success, with active participation by a diverse group of Japanese, American、and European persons! Participants from various companies heard lectures about corporate governance and related topics by Nicholas Benes and Andrew Silberman of AMT, and exchanged experiences and opinions at a spacious, comfortable room kindly donated for our use by Cosmo Public Relations, a leading communications and PR firm in Tokyo.
Thank you all for coming!
The next course will be held on Thursday, October 26th. Sign up now to secure your spot!
by Nicholas Benes
This year, Japan’s governance reform drive will either keep going, or run out of steam. Judging from the amendment of the Company Law that is now underway by an advisory council of the Ministry of Justice (MOJ), the latter is likely.
Strikingly absent is a clear over-arching vision of the most important themes that amendment of the Company Law should address now that the country has a corporate governance code. In other words, what is missing, that can only be addressed via the Company Law?
If the government were truly intent on bringing about behavioral change on the part of all Japanese boards and executives, it would focus on harmonizing key aspects of the confusing array of three different corporate governance models which listed companies can adopt, and moving towards a more consistent version of the “monitoring model” for governance that has become internationally accepted and is now embodied in its own corporate governance code.
To do this, it would change the law to enable boards to flexibly appoint capable (and legally accountable) senior executives from a much wider range of candidates than is currently possible. It would also establish rules that require boards to fulfill the independent supervisory and oversight roles envisioned for them under the corporate governance code, unaffected by managerial self-interest, if they wish to delegate wider authority to executives and pay them incentive compensation determined solely by the board.
We were amiss…in that we recently discovered this video interview of Nicholas Benes made some months ago, has been kindly made public by Econvue.com . (Econvue provides succinct, timely, evidence-based research and commentary on economic topics that matter, delivered to your inbox. ) In it, Mr. Benes explains how a number of major steps […]
Yes, it is true. Secom’s pension fund is the only one. Following the report of a government study group urging private pension funds to sign the Stewardship Code, it is an open secret that many firms in industrial Japan are now waiting for either Panasonic or Toyota to sign the Stewardship Code. If one of these iconic companies’ pension funds signs, it is said there will be an avalanche of other corporate funds that sign. Conversely, if neither of them signs, everyone can use that as an excuse for why they did not sign, e.g. “even mainstream companies like Toyota or Panasonic did not sign it yet.”.
Oddly, Japanese companies pride themselves on the strength of their covenant to employees, yet neglect employees’ pensions by failing to sign the stewardship code and report how they have handled those funds. Why is this? Quite simply, Japanese companies are afraid that if their pension funds become more proactive, those same governance and proxy voting practices might come back and hit them in the face at their own shareholders meeting. What is in the best interests of employees’ pensions may not be in the self-interest of corporate executives. This breaks the most important link in the investment chain – asset owner voice.
Here is an article from Bloomberg focusing on this increasingly interesting situation:
https://www.bloomberg.com/news/articles/2017-06-26/an-unusual-manager-defies-peers-in-870-billion-pension-world
” “The only way you can explain this behavior pattern is to say that, let’s face it, senior executives don’t want active proxy voting and engagement in the market,” said Nicholas Benes, the Tokyo-based head of the Board Director Training Institute of Japan. He said they fear “blowback” at their own shareholder meetings. Judging by their actions, “they care more about that than they do about their employees’ funds,” he said.”
Chicago Booth Insights, a series of global events where leaders address the complex issues facing businesses today, will be organizing one of such events here in Tokyo. It will be hosting the event on Tuesday, July 4th 2017 to discuss the effectiveness of recent efforts to improve corporate governance in Japan.
If you are interested in being a part of this event, please see details and guidelines on how to register here.
The GPIF should be highly commended for including reference to “the corporate governance codes of each country” to its recent statements regarding its stewardship policy and its proxy voting policy. This is a major step forward, considering the politics that it faces and the long-standing and unfounded claim by leaders in the industrial community who claim that if the GPIF had its own “principles and guidance for governance and proxy voting”, that would be “intervening in managerial decision making. Even though the reference in the recently-released principles bends over backwards to encourage “giving a full hearing to explanations of non-compliance”, if you know the full background, this is significant progress. (For the first time, the GPIF has uttered the words “corporate governance code” in writing!)