Tag: Stewardship

METRICAL: What Investors and Companies Should Do to Make Engagement More Effective ….

2024-12-05 posted by

On June 7, 2024, the Financial Services Agency (FSA) disclosed a document regarding the “Action Program 2024 for Implementing Corporate Governance Reform.” I would like to provide an overview of “Substantiation of Stewardship Activities” in this document below and discuss the points raised in this document.

Substantiation of stewardship activities
Issues:
⚫It is pointed out that formal dialogues, such as checking boxes, are conducted, and that dialogues with constructive objectives based on a deep understanding of the portfolio company and two-way dialogues are not being conducted. Regarding collaborative engagement, it is also pointed out that it is important not only to collaborate but also to have meaningful dialogues focused on specific themes.
⚫It is also pointed out that effective engagement that integrates dialogue and exercise of voting rights is not being conducted, for example, because the divisions in charge of dialogue, exercise of voting rights, and investment management are separated and do not work together sufficiently.
⚫The report also pointed out that the authorities need to inspect actual efforts to comply with the Stewardship Code, since compliance with the Code has not been verified.

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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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Using BDTI’s High-Dimensional CG Big Data to Predict TSR in Japan (working paper)

2023-05-18 posted by
S&P-topix - BDTI director training

This is the first draft of a working paper led by two respected Japanese academicians who used governance and firm-specific big data to predict future equity returns in Japan . Conclusion: “we constructed a prediction model of firms’ future TSR and used it to show that the investment strategy based on the model’s predictions could generate non-negligible improvement in returns. These results suggest that high-dimensional corporate governance variables contain informative signals associated with future firm performance over and above reliance on purely financial data.”

The research was conducted using BDTI’s detailed, Japan-specific time-series database for all listed companies in Japan. The results are consistent with the fact that every fund manager that has backtested our data so far has bought a license, and every licensee has renewed so far. It would seem that Japan’s square peg of three different governance structures and peculiar practices does not seem to fit into the standard “global” round hole framework used by other data providers.

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Example of UK Pension Voting Policy – Japan Still Has Far to Go

2020-06-10 posted by

The London Borough of Camden Pension Fund recently updated its voting guidelines. I thought it might be interesting for Japanese readers to see how detailed such guidelines by foreign pension funds are.  It is interesting to note that if you applied these voting criteria to most Japanese companies, almost none of them would pass muster, and the result we would be that many resolutions (and many directors) would not be approved.  Japan is still far, far behind the level of “stewardship” and expected governance practices in many other countries.

London Borough of Camden Voting Guidelines 2020

Very few pension funds in Japan (none that I know of) have voting policies at anything near this level of detail.

 

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Nicholas Benes: Public Comment on Revision of the Stewardship Code

2020-01-06 posted by

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.

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Taking a Horse to Water – Prospects for the Japanese Corporate Governance Code

2019-08-09 posted by

This paper was originally published by Zeitschrift für Japanisches Recht (Journal of Japanese Law) in its 2019 Spring edition (Vol.24). It is reproduced here by kind permission of the Executive Editors.

SUMMARY

“In 2014–2015 Japan implemented a series of reforms to its corporate governance regime. The principal measures adopted were the country’s first Corporate Governance Code, revisions to its Companies Law, and a Stewardship Code, together with a report (the Itō Review) on corporate competitiveness and incentives for growth. In this paper we analyse the objectives of these reforms and make an assessment of their likely success.

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Japan’s Corporate Governance Conundrum, and How Investors Can Solve it

2019-05-12 posted by

Out of more than 700 defined-benefit corporate pension plans in Japan, only five non-financial corporate pension plans have signed the SC. Second, a major portion of Japan’s asset owners are the companies themselves, in the form of direct “policy holdings” of the shares issued by other companies. Japan’s dual walls of “conflicted pension governance” and “allegiant shareholders” need to be torn down. Here is how it can be done.

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Governance Progress in Japan, – Pension Governance – Next, Rules for Listed Subsidiaries?

2019-03-06 posted by

Nice to see that my personal push that resulted in the CG Code revision re pension fund governance mentioned in the article below, has now led to 14 pensions of non-financial corporates that signed the Stewardship Code…. up from one two years ago. https://www.al-in.jp/investmentjapan/2922/ But as to independent directors on boards, keep in mind that […]

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How Many Shares are Actually Held by “Allegiant Shareholders [1]”?

2018-11-17 posted by 1 Comment

By Ken Hokugo[2]
Director, Head of Corporate Governance, Pension Fund Association
Director, The Board Director Training Institute of Japan

There has always been confusion surrounding this topic.  From the point of view of those who want to help foreign investors understand the realities of the Japanese market, the most troubling number that is thrown about is the seemingly magic number of “10% or less”.   This number is frequently referred to by the media, with the source given as being the reports by a certain analyst at a research institute that is affiliated with a prominent securities firm.

Quite often, we encounter foreign investors who casually believe this widely-touted number of “10% or less” and therefore are not concerned very much (if at all) with the issue of “cross-shareholdings”  in Japan, in light of recent improvements in Japan’s corporate governance.  Needless to say, it takes a lot of energy to convince such investors that the reality of the Japanese market is different.  In this post, I am not trying to scare foreign investors away from Japan’s stock markets, but rather trying to encourage them to invest based on an accurate understanding of the situation in the context of history, culture, and the overall current environment.

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BDTI Update to Supporters, June 2018

2018-06-17 posted by

Notes: (1) On this page (at top right), you can sign up to receive our English Newsletter; (2) Sign up to receive the (separate) Japanese Newsletter here; (3) Anyone can support the “SEO” of our web site simply by mentioning BDTI on any web page with a link to this page; (4) For details about the chart, see the overview materials.

” Dear Supporter:   I am writing to update you, and to respectfully ask you or your institution to make a donation of 300,000 Yen or more this year, either as a Sustaining Donor or as a Corporate Participating Member. (As explained below in section 5, the latter category now allows donors which are investing institutions to receive 40% discounts on all BDTI courses/seminars that are open to the public, and to share these discounts with companies in their portfolio.)

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