On June 14th, 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.
Chair of the Board of Directors
We would like to highlight the function of the chair of the board. Of about 1,800 companies, only 27 companies are chaired by an outside director. This indicates just how resistant inside directors are in entrusting the position of chair of the board to an outside director. The table below shows the 27 companies.
I recently gave a presentation in which I tried to answer this question. Here are the top-line conclusions:
- Investors are finding their voting voices
- Now they need to find to find their asking voices
- There is a way to tear down the “allegiant shareholder ” wall
- Factors that correlate with superior performance include: >= independent directors, low “allegiant” holdings, >15% female directors, and age of firm <45 years
- Activism is becoming more effective
These conclusions are based on a huge amount of time-series data we have collected. We are now building a comprehensive time-series database that includes not only financial data, but all text and numerical data from financial reports and CG Reports, as well as tabulated AGM voting results for each resolution. The data will be organized so that one can zero in on exactly the data one needs. Here is a simple example showing board practices parameters, historical AGM participation and CEO approval rates, and the trend of ownership of “allegiant shareholdings”:
At BDTI we liked these pieces written by Konsuke Matsushita so much that we (BDTI) jointly translated them and got permission from PHP Institute to re-publish.
It turns out that “the God of Japanese management” (and the founder of Panasonic) was leery of cross-shareholdings… and was rather modern in his thinking.
Out of more than 700 defined-benefit corporate pension plans in Japan, only five non-financial corporate pension plans have signed the SC. Second, a major portion of Japan’s asset owners are the companies themselves, in the form of direct “policy holdings” of the shares issued by other companies. Japan’s dual walls of “conflicted pension governance” and “allegiant shareholders” need to be torn down. Here is how it can be done.
On April 18th, 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.
March stock prices recovered after sharp drop in January. The quality CG stocks expanded outperformance during the continuing uncertain market environment toward the end of March. This month, we highlight capital allocation.
Nice to see that my personal push that resulted in the CG Code revision re pension fund governance mentioned in the article below, has now led to 14 pensions of non-financial corporates that signed the Stewardship Code…. up from one two years ago. https://www.al-in.jp/investmentjapan/2922/ But as to independent directors on boards, keep in mind that […]
By Nicholas Benes
The short story: it will not be so hard if institutional shareholders really want to topple it, and use the technique suggested here. But first, the background.
This is still the biggest defect of Japan’s equity market, and recent reforms have only made a small dent in it. At the average listed company, between 35% and 50% of the stock is owned by such holders if one includes not only firms in “cross-shareholding” relationships but also firms that unilaterally hold stock in order to win business; most holdings by
banks and insurance companies; and parent companies, subsidiaries, and affiliates. Consistent with this estimate, when Japanese listed companies were asked, “what percent of your shareholders can you count to support management?” in late 2017, fully more than two-thirds of companies responded with numbers in the 30-60% range.
These “policy holdings” by “stable shareholders” represent a massive misallocation of capital that is being put at risk largely for the purpose of protecting executive teams at other companies. In 1967, Japan’s one of Japan’s most venerated managers and the founder of Panasonic, Konosuke Matsushita, minced no words in noting his concern about the then-recent rise of “stable” cross-shareholdings in these words: “If this situation continues, I think it is in no way desirable, because of the risk that once again a maldistribution of capital in our country will occur. I believe that this is not a sign of progress in capitalism; rather, it should be considered as a sign that we are moving backwards.”