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I have had the honor of working directly with a few, and I think they bring something to the table that is badly lacking right now in this country.
It is a mean but common joke that “world’s strongest army would be run by American generals, German officers and Japanese soldiers.” For me, it really isn’t funny, because it points to a fundamental problem in this country that has been a constant – lack of competent high level leadership.
How can we connect non-financial capitals and corporate value? A new book, ‘Corporate Governance and Value Creation in Japan‘, which was launched in May 2018 as my first English book, provides a conceptual framework for integrating intangibles with ROE as well as empirical evidence and case studies supporting this model. (Here is the Japanese version of this book.)
Inconvenient truth: No meaningful value creation although Japanese companies tout ESG
In Japan, ESG and non-financial reporting are booming with 341 listed companies, according to KPMG, having adopted integrated reporting in 2017. Japanese corporate managers are traditionally inclined to tout their companies’ intangibles such as human resources and social contribution rather than financial metrics like ROE.
In recent years, however, Japan’s PBR (price-book value ratio: market capitalization to equity book value) has been stagnant and hovering around one without meaningful “market value added” (MVA, market cap above equity book value).
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.)
In light of the attention AVI’s shareholder proposal is drawing toward TBS’ huge “non-core” shareholdings in Tokyo Electron, and the light this is shedding on the continued practice of cross-shareholdings in Japan, we thought it would be helpful to screen for companies with similar characteristics.
AVI’s argument draws on solid corporate finance principles that companies should not be diversifying for shareholders when they can do so for themselves in a more efficient manner. Moreover, even when the company is suited toward asset management and has a solid track record for this (e.g., Softbank), investors expect to see behavior that shows that the (quasi) asset manager is exercising judgement as such on an ongoing basis. In other words, the company should exhibit buying and selling activity dictated by profitability and outside forces. In such cases, shareholders tend to view and value the company more as an asset manager than as a company in the originally-stated industry, and therefore expect such behavior.
“Tokyo Stock Exchange, Inc. (TSE) has partially revised the Securities Listing Regulations pertaining to the revision of Japan’s Corporate Governance Code (hereinafter the “Code”) (*) with effect from June 1, 2018.
This revision is based on the proposals made by the Council of Experts Concerning the Follow-up of Japan’s Stewardship Code and Japan’s Corporate Governance Code (hereinafter the “Council”). Jointly operated by the Financial Services Agency and TSE, the Council made proposals to revise the Code in order to advance governance reform not just in form but also in substance through dialogue between companies and investors.
On May 22nd, BDTI held its English Director Boot Camp , attended by a number of highly experienced participants. Participants from various companies heard lectures about corporate governance 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.
We are planning to hold the next course on Thursday, September 20th. Sign up early!
BDTI and METRICAL collaborate on researching the linkage between CG practices sand value creation. We have recently released our updated analysis as of April 2018 for the roughly 1,800 publicly traded companies with market capitalization exceeding about JPY10 billion.
In this analysis, by examining board practices (CG guidelines, practices, and composition of the Board of Directors) and specific actions (real actions by a company) separately, we try to identify statistically significant correlations with financial performance measures (ROE, ROA, Tobin ‘s q) for each of these respectively – i.e, for, board practices and action respectively.
We have observed a certain degree of improvement in board practices since the introduction of the Corporate Governance Code. However, assuming that one of the key goals of the corporation is value creation, in order to improve the effectiveness of engagement and stewardship it is very important to regularly analyze the way in which such improvement (and specifically, which improvements) appears to lead to value creation.
We can summarize the results of our recent analysis as follows:
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.
There is an excellent article in Rudlin Consulting’s newsletter about Nidec’s “work – style” reforms, that will probably “hit the spot” for many in Japan. A juicy excerpt: “One area Nidec tackled was unnecessary meetings. In just 4 months at one of their subsidiaries, Tosok, the number of types of meetings was reduced from 156 […]
BDTI’s April 10th English Director Boot Camp was a great success, with active participation by a diverse group of Japanese 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 Tuesday, May 22nd. Sign up now to secure your spot!