1. To begin with, please introduce yourselves.
Benes –“I am a Representative Director of BDTI. After receiving a JD-MBA degree and becoming a lawyer in the U.S., I joined JP Morgan and worked in a number of investment banker roles over the course of 11 years. After that, I started a firm specializing in providing M&A advisory services in the Japanese market, and have now lived in Japan for a total of 37 years. Including the post-scandal board of Livedoor, I have served on a boards in Japan for more than 15 years, including both listed and unlisted companies.”
Osugi -“After serving as a director, I became a Representative Director of BDTI in 2013. I succeeded after Professor Takaaki Wakasugi in this position. I teach commercial law and corporate law at Chuo Law school, to students who aspire to become lawyers. I also conduct research focusing on corporate law, corporate governance, and securities law.”
2. Why did you establish BDTI, a “public interest” organization?
Benes –“Ever since the bursting of the bubble, Japanese economic growth has been sluggish. Moreover, on top of a decline in the population and hollowing out caused by the off-shoring of manufacturing production, Japan’s public debt has bloated. It will not be easy to revive the economy under these conditions.
But Japan still has much advanced, superior technology, and excellent human resources. I wanted to make my own contribution so that the country could take better advantage of these aspects, and offer exciting jobs to youth, lower their future tax burdens, and revitalize its economy. To do this, based on my own experience sitting on boards in Japan, I knew that it would be essential to use training to improve corporate governance. People have to internalize more effective practices, and they can only do that based on knowledge and understanding. I reached out to other experts and practitioners who had similar concerns, and created an organization to do what my own experience on boards told me was .”
Osugi –“Japanese companies have achieved spectacular results in the area of manufacturing by working together so as to make many incremental improvements. On the other hand, one cannot say that the economic metabolism of this economy is active enough, when one looks at the low rates of return compared to other countries, and the low rate of firm entry and exit.”
3. The importance of corporate governance is often noted, but how does it relate to economic development?
Benes –“No matter how you look at it, ‘trust’ is the most important ingredient in our modern economy. Whether you are buying a product or a bank is lending money to you, or whatever, ‘trust’ forms the basis for every single type of transaction. In the same way, when an investor puts his money down to invest in a company, he takes it on faith – on trust – that the company will put that money to its best use so to return his money or pay dividends, and not damage society. That trust is the premise of the whole investment process. To improve corporate governance is to increase the level of this trust. If we cannot continuously improve management and corporate governance, this will lead to distrust of the Japanese economic system, and both domestic and international investors alike will cease to invest in Japanese companies. If that were to happen, economic activity would decline.
On the other hand, if improvements in corporate governance and improve efficiency can be achieved, this will bring about new investment and employment in domestic Japan, and part of the huge mass of assets that are now tied up in savings accounts will be shifted to the stock market.”
Osugi -“Myself, I am not sure there is always a direct connection between economic development and the improvement of corporate governance. But it does seem that many Japanese companies are failing to achieve an overall “optimality”, and this is related to the fact that are operated sort of as federations of departments comprising employee groups, resulting in a complex interconnecting web of different self-interests. Since corporate governance is a method for achieving – or striving for- an optimality for the whole company by means of clarifying responsibility and accountability, over the long term improving it should contribute to the vitality of Japanese companies and the Japanese economy.”
4. In order to improve both corporate governance and management at the same time, what approach is needed here in Japan?
Benes– “Nothing is more important than to strengthen the board of directors and its functions, because it plays such a central role in corporate governance. When we speak of a “strategic board”, we do no merely mean a group that mechanically approves proposals that are on the agenda because that is required by the Company Law. We are talking about a board that debates all issues sufficiently, is able to make strategic decisions on a dynamic basis, and actively participates in – often, leads – the formation of corporate policy on a transparent basis.
Moreover, a “strategic board” has a framework for conducting evaluations of itself, perhaps including using the services of outside consultants, in order to see if it is fulfilling its duties as effectively as possible. The board can only fulfill all of its fiduciary duties to shareholders if it is objectively analyzing its own processes and taking steps to improve them. It is this sort of accountability that increases the trust and confidence of shareholders and improves the share price, thereby making capital-raising easier and less costly. Such a board is a priceless asset to the company and shareholders alike.
In order to create such a board, it goes without saying that the contribution of independent outside directors and statutory auditors is important. But it is equally essential that “inside” directors, statutory auditors and executives understand the role and purpose of having a united “strategic board”. In order to work together as a team, all participants in the governance process need to share a common understanding of the nature of effective management and monitoring that is expected by shareholders. They also need a common “toolkit” of the knowledge and skills. For this to happen in reality, we believe that it is also very important that employees acquire such knowledge and skills at an early stage – in other words, before they become board members.”
Osugi –“Most of all, I think we need to spread a “common language”. Within companies, things do not go well when each of the respective teams for sales, products development, and manufacturing do not speak in the same “language”. In the same way, at the level of the board, inside directors, outside directors, and statutory auditors need to share common values and a similar mindset. To make this a reality, more than just “on-the-job” (OJT) employee training is needed. Companies need to consciously and deliberately use “off-the-job” training in order to develop managerial talent in these respects.”
6. Looking forward, what will be BDTI’s principal activities?
Benes– “We hope to train and develop the leaders of Japan’s future economy, the people who will grow it in the years to come. To do this, such persons need to become familiar with the topics corporate governance, corporate ethics, compliance, and global business practices at an early stage in their careers. It is too late to acquire this knowledge after one has become a member of the board. Moreover, if training takes place at an earlier stage, young managers will able to fully support their seniors and help the board of directors function as robustly as it should. They will be an asset to their company, contributing to its development.
We would like to put an emphasis on general education of the public and information sharing, in addition to training. Corporate governance is not something which ‘only board members and the legal department need to know about.’ Understanding this concept is essential for the Japanese economy to recover and transition. Therefore, we would like to provide a forum for the active exchange of opinions, constructive debate, and the dissemination of information – not just to directors, but to the general public as well. If through activities such as this we can increase awareness of corporate governance throughout Japan, we believe that awareness will benefit the Japanese economy.”
Osugi – “In addition to our regular training programs, we would like to offer more “drill-down” seminars on specific emerging topics. Corporate governance is not just something that just is the concern of the people in charge of preparing materials for board meetings; all sorts of other persons need to expand their understanding of it. There is a big gap between governance concepts, knowledge and practices in the West and practices in Japan. so determining exactly how to preserve the good aspects of Japan while improving things at the same time is not an easy task. For that reason especially, we ourselves would like to create a variety of opportunities to study and borrow from the knowledge of outside lecturers in order to gain insights as to how each company improve its governance.”
Benes and Osugi – “We hope you will support our activities and look forward to meeting you!”