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Stock prices closed higher amid low trading volume. TOPIX and JPX400 market indices rose 0.26% and 0.27% respectively from the end of the previous month. CG Top 20 stocks slightly underperformed against the both indices, closed up by 0.16% in September.
We have been observing that life cycles of the companies are shortening every 5 years. The visionary companies are time tested and standing tall and withstanding the headwinds and adversaries in the journey of the Company Life Cycle of even 100 years! Who are such visionary companies? What they do and How they do? What is that core substance which get them glued from “Top to Bottom” with the same mission? How a company can be distinguished as a “VISIONARY COMPANY” from other peer following company?
On September 13th, 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.
While overseas investors’ ownership decreased a year ago, activist investors are now likely to focus on Japanese companies. Corporate governance in Japan has improved since the Corporate Governance Code was introduced in June of 2015, but progress is much slower than foreign investors hoped. At this time, we analyze the relationship between % ownership held by overseas investors and key governance criteria. The following table shows the result of our regression analysis of the 13 governance factors that METRICAL uses as criteria and two performance measures, ROE and ROA. Of the 15 factors, 14 factors are significantly correlated with level of ownership by overseas investors.
Executive Summary
More than a quarter of assets under management (AUM) worldwide are invested in “sustainable” strategies, strategies that consider environmental, social, and governance (ESG) factors in pursuit of financial sustainability and/or environmental or social sustainability. Investors – both individual and institutional and at all wealth levels – are increasingly interested in integrating these strategies into their financial plans and investment portfolios, and asset managers and global financial institutions are embracing the approach and expanding related services and product offerings.
Interest in sustainable investing and sustainably invested AUM are growing rapidly in Japan. But despite this enthusiasm and growth, few mainstream investors, financial advisors, and investment consultants in Japan are embracing the practice.
When you squint closely at the facts, not as much as you might think. Mostly, it is the difference between individual self-dealing and collective self-dealing.
As corporate policy, many Japanese companies re-hire their executive directors as “advisors (“sodanyaku” or “komon“) immediately after they retire from the board. The re-hiring occurs automatically, and the work expected from such “advisors” in their contracts (if any) is usually vague to the point of being non-existent.
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.
In our July ratings, a more nuanced pictured emerged for Japanese companies. The significantly positive correlation of financial performance with the percentage of INEDs and the number of Female Directors disappeared this month, suggesting that an increasing number of non-superior performers are “copying” other companies in this respect, and/or have only only done so recently so no positive impact (should there be any) is discernible.
In Western countries, many companies have introduced “clawback clauses” that require executives to return performance-linked compensation to the company in certain cases. In Japan, very few companies have such clauses. There are dissident voices saying things like “compensation of Japanese executives is less than in Western companies, so there is no need to do that,” or “if you want to demand the return of paid compensation, you can file a derivative lawsuit.” In this article, I would like to review the arguments that have been made so far about clawback clauses, and consider the arguments that should be made in the future.
On January 31, 2019, the Cabinet Office Order on Disclosure of Corporate Affairs was amended, and the format of for securities reports was changed. With regard to the securities reports for the fiscal year ending March 2019, it is said that the employees in charge of dealing with the new format were put under considerable stress and extra work. The most troubling item was probably the section on executive compensation.
The revision of the Cabinet Office Order was made in response to the Financial Council Disclosure Working Group (DWG) report published on June 28, 2018. Mr. Carlos Ghosn was arrested in November of the same year, and executive compensation, which has been a subject of much debate for some time, once again disturbed the public mind. The new format, modified under these circumstances, calls for broader and detailed information disclosure. However, the top executives of many companies view disclosure of compensation as undesirable, because it has carries the potential for divisiveness or embarrassment. Mr. Ghosn’s false statement of compensation was attributable to this sense of aversion. Not only him, but also many other executives, desire as a basic human emotion to avoid disclosure of the amount of their compensation.
What were these two contradictory vectors, – requirements from Cabinet Office Order, and the company leaders’ intentions – reflected securities reports? Although we should wait for the thorough analysis on many securities reports published at the end of June 2019, in this article I would like to convey the initial impression that I obtained by surveying a few of them.