“Efficient Engagement” in Japan: A Sample Engagement Letter

A while back I spent some time writing an engagement letter (in both English and Japanese) that I myself would use if I was the head of governance and proxy voting at an investing institution that held positions in more than a handful of Japanese companies, and did not have enough time to meet with all of them, say, six or more times a year so as to do detailed “engagement” mainly via face-to-face meetings.   This actually includes most institutional investors, when you think about it.  I thought it might be helpful for friends of mine.

It has always seemed to me that in order for engagement to be efficient, you need to write down in detail your suggestions for companies, and send it out to them as early as you can – giving them a year or more of lead time to put new practices in place, if that is what one hopes.   Otherwise, in Japan very much gets “lost in translation”, and even less will reach the board.  Many governance practices are new in Japan, and just referring to them verbally will usually not be sufficient to fully communicate.  (As the person who proposed Japan’s corporate governance code in order for effective “stewardship” to occur, and having sat on a number of boards,  I have done a lot of thinking about this topic.)

To me, therefore, “efficient engagement” means that: a) you will send a letter or letters to the company’s board, one that will be largely or wholly standardized; but b) you may meet, or may never meet with the company, as you choose. You do not have to have multiple meetings with multiple companies, which for most investing institutions would be a very inefficient way to “engage”, particularly if little is put in writing.

APEC Report: Corporate Governance Plus Market Development

In 2016,  Europacifica Consulting delivered the case study, Financial Services Sector Reform in Japan, for inclusion in the APEC Economic Policy Report, published in November 2016.

In the case study, we argued that corporate governance was a vital area of potential structural reform in PM Abe’s economic agenda, which at the time had yet to show clear results.  Since then, there have been clear signals of improvement in corporate Japan’s balance sheets and governance practices, as well as a rise in Return on Equity among many of Japan’s largest companies.

Signals of bona fide structural reform are comforting, but we underscore the importance of another of the report’s key arguments; that Koizumi-era reforms in the financial sector did not go far enough in engendering self-sustaining financial market reforms.  Both financial reform and investor education may go further to promote households’ move “from savings to investment”, in other words, a move toward greater household participation in financial markets.

The case study may be found in Annex A of the report.  The case study was also prepublished by Columbia University’s APEC Studies Center as well (link to report).

October 26th Director Boot Camp – Another Successful Program! Next Course: January 25th, 2018

  On October 26th, BDTI held its English Director Boot Camp , attended by a number of experienced participants. 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 […]

September CG Stock Performance

CG Top 20 stocks raised its outperformance, hitting all-time high Top 20 CG Score Index continued outperformance for September 2017 in favor of stock market rally for September. CG top 20 stocks hit its all time high of June 2015 when Corporate Governance Code was launched. This would be due to a sign that an increasing number of long-term investors are coming […]

“A New Dawn for Japanese Governance” by Frank Curtiss

Steady progress is indeed being made as a result of the efforts being made to improve corporate governance in Japan now that remarkable changes are  observed.  “Japan is the land of the rising sun, but as far as corporate governance is concerned, it has been more a land of false dawns over the past 15 years or so. However, some significant […]

Cross-Shareholdings: “Enjoying the Quiet Life: Corporate Decision-Making by Entrenched Managers”

This excellent working paper by Naoshi Ikeda, Kotaro Inoue and Sho Watanabe describes their research that leads to the conclusion (similar to BDTI’s own research) that cross-shareholdings in Japan negatively impact risk-taking, investment for growth, and the frequency of restructuring activities.  Conversely, when managers are monitored more heavily by investors and independent directors, they are positively affected.

August 30th “Director Boot Camp” …Next Course: October 26th!

BDTI’s August 30th English Director Boot Camp was a great success, with active participation by a diverse group of Japanese, American、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 Thursday, October 26th. Sign up now to secure your spot!

Company Law Reform in Japan:  Losing its Mojo?

by Nicholas Benes

This year, Japan’s governance reform drive will either keep going, or run out of steam. Judging from the amendment of the Company Law that is now underway by an advisory council of the Ministry of Justice (MOJ), the latter is likely.

Strikingly absent is a clear over-arching vision of the most important themes that amendment of the Company Law should address now that the country has a corporate governance code. In other words, what is missing, that can only be addressed via the Company Law?

If the government were truly intent on bringing about behavioral change on the part of all Japanese boards and executives, it would focus on harmonizing key aspects of the confusing array of three different corporate governance models which listed companies can adopt, and moving towards a more consistent version of the “monitoring model” for governance that has become internationally accepted and is now embodied in its own corporate governance code.

To do this, it would change the law to enable boards to flexibly appoint capable (and legally accountable) senior executives from a much wider range of candidates than is currently possible. It would also establish rules that require boards to fulfill the independent supervisory and oversight roles envisioned for them under the corporate governance code, unaffected by managerial self-interest, if they wish to delegate wider authority to executives and pay them incentive compensation determined solely by the board.

Event on ‘The Third Arrow’: Reforming Corporate Governance in Japan (Chicago Booth Insights)

Chicago Booth Insights, a series of global events where leaders address the complex issues facing businesses today, will be organizing one of such events here in Tokyo. It will be hosting the event on Tuesday, July 4th 2017 to discuss the effectiveness of recent efforts to improve corporate governance in Japan.

If you are interested in being a part of this event, please see details and guidelines on how to register here.