Tag: Corporate Governance Code

Public Comment to the Proposed Revisions to Japan’s Governance Code – Nicholas Benes

2018-05-04 posted by 1 Comment
by Nicholas Benes (as an individual)
April 30, 2018

1. Regarding the Overall Revision Process
2. Regarding Principle 2-6 (Activating the Function of Corporate Pension Funds as Asset Owners)
3. Regarding Principle 1-4 (“Policy Shareholdings”)
4. Regarding Principles 4-1③,4-3② and 4-3③ (Appointment and Termination of the CEO)
5. Regarding Principle 4-10① (The Use of Optional Structures)
6. Regarding Principle 4-14 (Training of Directors and Kansayaku)
7. Regarding Revision of the Machine-Readable Format of Corporate Governance Reports

(Note: This is a translation of a public comment which was originally written in Japanese and submitted in that form to the JPX/TSE.  The original version of the public comment is available here.)

1. Regarding the Overall Revision Process

I would like to express my thanks and appreciation for the hard work of the members of the Followup Committee with respect to this review of the Corporate Governance Code (the “CG Code”) . However,I would note that four years have elapsed since the initial drafting of the Code. As you know, in Germany there is a commission which monitors the effectiveness of the governance code on an ongoing basis, and proposes changes on a yearly basis if and as necessary.

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Draft Revision of Japan’s Corporate Governance Code: Public Comment Period Begins

2018-03-30 posted by

The Council of Experts Concerning the Follow-up of Japan’s Stewardship Code and Japan’s Corporate Governance Code (Chairman: Kazuhito Ikeo, Professor of Economics and Finance, Keio University) has  published its proposals for “Revision of the Corporate Governance Code” and  “Guidelines for Investor and Company Engagement”. Both are being put out for public comment until April 29, 2018.  Full information from the FSA is available here.   The documents themselves are available the links below.

Revision of the Coporate Governance Code and Establishment of Guidelines for Investor and Company Engagement（including Appendix1 and Appendix2）

（Appendix1）Japan’s Corporate Governance Code (Draft Revision)

（Appendix2）Guidelines for Investor and Company Engagement (Draft)

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METRICALs CG Analysis Now Covers 1,808 Companies, Up From 511, Yielding More Robust Results

2018-03-15 posted by

As of February 2018, METRICAL now covers more than 1,800 companies, having increased its scope from 500 companies. Our research now covers all TSE 1st section companies that have a market capitalization greater than Yen 10 Billion, which is to say almost all TSE1 companies. METRICAL has analyzed the corporate governance of Japanese companies for three years, using 10 criteria and more than 20 sub-criteria. The analysis focuses on both board practices as well as the corporate actions that should be closely affected by CG practice and should ultimately improve financial performance of companies.

“Efficient Engagement” in Japan: A Sample Engagement Letter

2018-02-20 posted by 1 Comment

A while back I spent some time writing an engagement letter (in both English and Japanese) that I myself would use if I was the head of governance and proxy voting at an investing institution that held positions in more than a handful of Japanese companies, and did not have enough time to meet with all of them, say, six or more times a year so as to do detailed “engagement” mainly via face-to-face meetings.   This actually includes most institutional investors, when you think about it.  I thought it might be helpful for friends of mine.

It has always seemed to me that in order for engagement to be efficient, you need to write down in detail your suggestions for companies, and send it out to them as early as you can – giving them a year or more of lead time to put new practices in place, if that is what one hopes.   Otherwise, in Japan very much gets “lost in translation”, and even less will reach the board.  Many governance practices are new in Japan, and just referring to them verbally will usually not be sufficient to fully communicate.  (As the person who proposed Japan’s corporate governance code in order for effective “stewardship” to occur, and having sat on a number of boards,  I have done a lot of thinking about this topic.)

To me, therefore, “efficient engagement” means that: a) you will send a letter or letters to the company’s board, one that will be largely or wholly standardized; but b) you may meet, or may never meet with the company, as you choose. You do not have to have multiple meetings with multiple companies, which for most investing institutions would be a very inefficient way to “engage”, particularly if little is put in writing.

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APEC Report: Corporate Governance Plus Market Development

2018-01-07 posted by

In 2016,  Europacifica Consulting delivered the case study, Financial Services Sector Reform in Japan, for inclusion in the APEC Economic Policy Report, published in November 2016.

In the case study, we argued that corporate governance was a vital area of potential structural reform in PM Abe’s economic agenda, which at the time had yet to show clear results.  Since then, there have been clear signals of improvement in corporate Japan’s balance sheets and governance practices, as well as a rise in Return on Equity among many of Japan’s largest companies.

Signals of bona fide structural reform are comforting, but we underscore the importance of another of the report’s key arguments; that Koizumi-era reforms in the financial sector did not go far enough in engendering self-sustaining financial market reforms.  Both financial reform and investor education may go further to promote households’ move “from savings to investment”, in other words, a move toward greater household participation in financial markets.

The case study may be found in Annex A of the report.  The case study was also prepublished by Columbia University’s APEC Studies Center as well (link to report).

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“A New Dawn for Japanese Governance” by Frank Curtiss

2017-09-22 posted by

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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Company Law Reform in Japan:  Losing its Mojo?

2017-08-26 posted by

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.

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Progress: GPIF Refers to “Corporate Governance Codes” for the First Time

2017-06-19 posted by

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!)

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What Correlates with Superior Corporate Performance? (Summary of Research)

2017-04-06 posted by

BDTI and METRICAL conducted joint research regarding the governance structure/practices and related corporate actions that correlate with superior firm performance in Japan, and reported on the preliminary results at seminars hosted by BDTI on March 16th and by Goldman Sachs on April 4th. Our research is still underway, but the preliminary results are intriguing and provide useful guidance for the next stage of analysis.

BDTI and METRICAL believe that corporate governance is not functioning effectively unless it leads to superior strategy, fine-tuning of capital allocation and capital structure, and other value-creating corporate actions.  Therefore, in our research we have sought to identify the apparent linkages and correlations between board practice, key corporate actions, and value creation.

In Phase 1 of our analysis, we studied the TOPIX100 Index composite (large 100 companies) to see whether scores we assessed for each company’s nomination policy, training policy, compensation policy, board evaluation policy, and the % of independent directors significantly correlate with ROA and ROE.

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A Study of Cross-Shareholding

2016-10-30 posted by

Cross share holding is still a big issue in Japan, as the cancellation of shares and return on shareholders equity remain slower to improve. This report shows this evidence clearly, using analysis of 500 companies of core research universe as of August 2016. Average ROE and CG scores for 50 largest cross share holdings/sales companies were lower than those for overall 500 companies. A half of 50 companies are banks and those holdings have not really decreased for a year. Due to accountability to shareholders, companies should disclose cost/benefit on the holdings that put downward pressure on ROE by earning only dividends. Detail is shown as link below.

http://www.titlisgroup.com/mwbhpwp/wp-content/uploads/Cross-share-holdings20160905.pdf

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