Discussion Forum | The Board Director Training Institute of Japan (BDTI)

METRICAL: Corporate Governance Report in English

The AGM season for the March fiscal year end companies is approaching as most of Japanese companies hold it in June, while some companies cannot have finalized the financial reporting yet due to the spread of novel coronavirus infectious diseases (COVID-19). In recent years, an increasing number of companies have moved the date of the AGM up from the end of June (historically majority of companies have held it on Thursday of the last week in June), and many companies are providing and disclosing notices of convocation of general meetings of shareholders in English. Also, although the articles of incorporation must be changed, an increasing number of companies are allowing electronic voting. These are very good initiatives for shareholders and investors. Metrical evaluates how the companies enhance the IR information disclosure as well as such above items as the AGM/IR criteria. For reference, the correlation between AGM/IR factor and key performance measures such as ROE (actual), ROA (actual) and Tobin’s Q is shown below. Especially in Tobin’s Q, the significant positive correlation of this factor is remarkable. Obviously, a company with a higher AGM/IR scores, such as higher IR information disclosure and accessibility to annual general meeting of shareholders would be traded at a higher share price in the market. This result could encourage those who are in charge of IR at a public company above all.

METRICAL: May – Stock Prices Rose Sharply and CG Top20 Stock Price Rises

The market price in May 2020 was favorable to the resumption of economic activity and continued to rise sharply from the previous month. The stock market rose sharply for the second straight month following the rise in US stock prices, which was greatly appreciated by the news of the progress of the new corona vaccine clinical trial. Both Topix and JPX400 stock indexes have risen 6.75% and 7.17%, respectively, over the past month. CG rating score Top 20 stock price is 3.54%, underperforming both stock indexes.

GoToData by BDTI: Japanese Disclosure, by All listed Firms, Now Easily Accessible in English!

Why wade through 100+ pages of unusable PDF-formatted Japanese jungle, when you can jump directly to the parts you want, read them in English, and quickly cut and paste both text and tables you want to analyze and compare? Why not save 70% of your time and conveniently review the official source documents submitted by all 3,600+ Japanese listed companies?  Click on the center of the image below to view in full screen “flipbook” mode, and contact us at info@bdti.or.jp if you are interested to know more. Qualifying parties may receive demonstrations and trial accounts.
Ready or not, Japanese disclosure has now entered the age of machine-readable digital data! The dream that I presented to Japanese lawmakers in February of 2014 [1] can now be realized: a world where a Corporate Governance Code requires detailed disclosure of the inner workings of companies’ governance black boxes, and that information is seamlessly available to all investors, thus making it possible for them to do the analysis they must do to be good “stewards”.  As a result, the Stewardship Code will be able to function in reality, not just in theory.

[1] 2月6日に自民党の日本経済再生本部の金融調査会に呼ばれて、コードの概念、政策としての位置付け、入れるべき内容の例を「日本経済の復活のため、コーポレート・ガバナンス・コードの早期制定を」というプレゼン資料を使って説明した。その後、議員らにさまざまなアドバイスと提供させていただいた。

Amendments to Japan’s Foreign Direct Investment Law—Heightened Review of Inbound Investments

(Summary by Stephen Bohrer of Nishimura & Asahi)

“From June 7, 2020, overseas investors may no longer be able to purchase shares of certain Japanese companies. The Japanese government passed amendments to its foreign direct investment laws that lower the government approval threshold from 10% to a mere 1% for share acquisitions of publicly traded companies that engage in a broad range of business activities deemed critical to national security, public safety, public infrastructure, or Japan’s economy (the “FDI Amendments”). The Japanese government claimed that its foreign direct investment laws required a major overhaul because it lacked legislation to effectively screen foreign direct investment to the same recent extent as other developed countries. In particular, Japan’s Ministry of Finance noted the 2018 passage of the Foreign Investment Risk Review Modernization Act in the United States and European Union regulations adopted in 2019 establishing a framework for monitoring foreign direct investments as examples of how Japan’s foreign direct investment regime lagged behind international standards. As a result, practically every share acquisition by an overseas investor of a publicly traded company now deemed critical to Japan will require government approval, unless an exemption applies.

This edition of the Corporate Counselor outlines the broad reach of the FDI Amendments and the exemptions that curtail its application, and then proceeds to highlight issues that prospective overseas investors should consider through a question and answer format. Given the complexity of the FDI Amendments, decision tree diagrams are included in annexes to provide a visual flow of how the FDI Amendments apply to a transaction.

METRICAL: Study on Committees

Over the past year, an increasing number of companies have set up nomination and compensation committees. In order to improve transparency and objectivity and considering the continuity of management, establishing these committees is a key issue in enhancing corporate governance. Due to the request of the Tokyo Stock Exchange, many companies have moved to set up advisory committees lately. On the other hand, only a limited number of companies have moved to the organization structure of a company with 3 statutory committees for the same period.

Based on the data of approximately 1,800 companies, we will show how far companies have progressed in setting up the committees for the past 2 years since March 2018. As shown the chart below, compared to March 2018 and April 2020, the number of companies with statutory nominating committee and compensation committee increased modestly from 65 companies/all 1,796 companies to 68 companies/all 1,753 companies in total. It obviously shows how difficult the companies consider moving to the structure with 3 statutory committees. On the other hand, as for the optional (advisory) committees, an increasing number of companies have set up the nomination committee and compensation committee. The number of companies with optional (advisory) nomination committee increased from 550 companies /1,731 companies (31.8% of all companies excluding the companies with structure having 3 statutory committees) as of March 2018 to 949 companies/1,685 (56.3% of all companies excluding the companies with structure having 3 statutory committees as of April 2020. Similarly, the number of companies with optional (advisory) compensation committee increased from 609 companies/1,731 companies (35.2% of all companies excluding the companies with structure having 3 statutory committees) as of March 2018 to 992 companies/1,685 companies (58.9% of all companies excluding the companies with structure having 3 statutory committees) as of April 2020.

METRICAL: April – Prices Rose But CG Top 20 Slightly Underperforming

The market price in April 2020 has recovered significantly from the previous month when it continued to decline significantly due to concerns over the spread of new corona infections. The world market price turned to an increase as the US stock prices rose from expectations for good clinical trials of corona drugs. Both Topix and JPX400 stock indexes have risen for the first time in four months since January, recovering 4.54% and 4.60% respectively in the last month. CG rating score Top20 stock price was slightly underperforming with 4.15%. The volatility (standard deviation) for the current month is 7.65%, 7.74%, 4.11% for Topix, JPX400, and CG Top20 stocks, respectively.

April 20th “Director Boot Camp” Course Held by Video Conference! Next Course: July 8th, 2020!

On April 20th, in the midst of the Corona virus pandemic, BDTI held its English Director Boot Camp via a teleconference arrangement. The day-long intensive course was attended by 10 highly-experienced participants, including two Ambassadors, one General Counsel, and senior executives. The participants heard lectures about corporate governance by Nicholas Benes, and Andrew Silberman of AMT, and exchanged experiences and opinions. Despite the IT challenges everything went smoothly, with breaks for everyone to stretch their legs or review materials in more depth.

We are planning to hold the next course on Wednesday, July 8, 2020. Sign up early! Please see a description of our director training course here or click the button below for further information.

Japan’s FSA is Planning to Postpone the Deadline for Submission Annual Report for March-end (Accounting Term) Companies Until the End of September.

According to the FSA on the 10th, the Financial Services Agency will postpone the deadline for submitting annual reports for the companies closing in March for three months, until the end of September, considering the effects of the new corona virus. The coucil composed of the Japan Institute of Certified Public Accountants, Tokyo Stock Exchange and Keidanren announced on the same day. It is expected to be officially decided next week. Financial Services Agency has begun to consider postponing the deadline for submitting annual reports required for listed companies, including the reporting of companies as of end of March and quarterly reports of companies as of end of December last year.

The New Whistle-blower Protection Bill, from the Perspective of the Olympus Case

The current Whistleblower Protection Act was enacted in 2004 and was enforced in 2006. It was said that the scandals of the recall cover-up by Mitsubishi Motors and the disguised beef origin by Snow Brand Foods brought the new Act. However, from the beginning, it was criticized that the range of target facts was too narrow, prevention measures for retaliation were not effective, etc. Based on the supplementary resolutions of the Diet and the supplementary provisions of the Act, the Consumer Commission Whistleblower Protection Special Research Committee was established, and discussions were underway for revision. However, the speed was very slow. The Committee finally issued the report in December 2018. Public comments were solicited for the new appendix table to the Act regarding the target laws. The amendment bill was approved by the Cabinet on March 9, 2020. It is now planned to submit to the National Assembly.

METRICAL: Willingness to Change

We have observed the number of female directors as a key factor on board practices to measure how a company is willing to change. The table below shows the correlation analysis between the number of female directors and performance key measures such as ROE (actual), ROA (actual) and Tobin’s Q on the 1,755 companies as of March 31, 2020. We have seen the statistically significant positive correlation between ROE (actual or results) and the factor since we started the correlation analysis with correlation analysis with BDTI in 2017. Now, the factor shows the sign of significance to ROA (actual or results) in this month, updating the data of December fiscal year end companies after AGMs.


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