Category: Governance

METRICAL: Study on Committees

2020-05-05 posted by

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.

Read More

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

2020-05-05 posted by

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.

Read More

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

2020-04-07 posted by

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.

Read More

METRICAL: Willingness to Change

2020-04-02 posted by

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.

Read More

METRICAL: March – Prices Fell Sharply But CG Top20 Stocks Outperformed

2020-04-02 posted by

The market price in March 2020 continued to fluctuate with high fluctuations due to concerns about the spread of the Coronavirus around the world. Approximately half of the sharp decline by mid-month recovered at the end of the month. Both Topix and JPX400 stocks have fallen sharply in March for the month of -6.46% and -6.79% respectively. The Top20 CG rating score was -6.22%, outperforming the previous month at -0.30% compared to the two main stock indices, with a lower rate of decline. By the way, the stock prices of the ten companies with the top 10 CG rating scores were -1.44%, which was even smaller.

Read More

Professor Hideaki Miyajima: Activist Shareholders and Companies: Improving the Effectiveness of Management Reform

2020-03-30 posted by

“…the probability of the success of activism (as described above) accompanied by official requests for activity has not yet reached that of Europe and the United States but has risen to 40%. In addition, the cumulative abnormal return (CAR) when such requests are accepted is about 6%, the same as in the United States and Europe….

Finally, let us consider the keys to improving corporate governance in Japan in the future…..

Read More

Why Modern Corporate Structure Results in Large Ethical Lapses

2020-03-22 posted by

I was recently asked by the Japan Society of Greater Cincinnati to give the keynote speech at their conference event on the theme of “Why Good People Do Bad Things”. I decided to liven things up a bit by attempting to answer the self-posed question: “how might we design corporations if we were inventing them today [not in 1600 -1900]… in an age of huge capital pools, global warming, and an increasing number of other large externalized risks and informational (and other) asymmetries?”

See what you think of my “concept for discussion” on pages 16-19, and my reasons for throwing it out for consideration on the earlier pages. I realize some people will think this concept is a strange and unnecessary, as if the basic legal structure of the corporation is immutable, or hoping ESG integration by itself will solve most of the problems it is concerned with. However, I suspect that in the next few decades corporate law will be evolving much more so as to address the issues and concerns that I raise… even if it addresses them in a different manner. I do not believe that the present legal form of “the corporation” itself is sustainable. Over the past 100 years, too many agency problems, market distortions, asymmetries, and externalities have emerged.

Read More

Memo to Shareholders of Kirin HD, from a Director Candidate

2020-03-15 posted by

Independent Franchise Partners (IFP) has submitted a shareholder proposal nominating Kanako Kikuchi (an experienced global pharmaceutical executive) and myself as independent directors. Glass, Lewis supports electing both of us, but it seems that ISS has “split the baby” and only supports me. If investors could vote for Ms. Kikuchi as well, it would greatly help ensure that the board makes a fully informed, objective and independent assessment of the strategy on an ongoing basis.

Both of us have no past relations with IFP, and take an approach that is completely agnostic and independent of IFP’s dividend proposal. We both believe that if shareholders do not opt for that proposal, – or in any case – it is most prudent to withhold any decisions about the strategy until such time as when we are on the board and can ask questions and are privy to all internal analysis and confidential information. Therefore, we would both join the board with no pre-decision(s) made before knowing all the facts. This is the only logical position to take as a truly independent director. I have informed IFP in no uncertain terms that my philosophy and legal duty is to answer to all shareholders, and that I may well not agree with positions that IFP has taken or may take in the future. IFP has no problem with this.

Many investors may not realize that unless Ms. Kikuchi is elected, there will be no one with global biopharma experience on this board just at the time when that skill set is most needed. Given the company’s proclaimed strategy to “bridge” into health science products (which could be a good one for all I know), this is not wise and is of great concern to me.

Read More

METRICAL: February prices fell sharply due to concerns about the spread of Coronavirus. CG Top20 stock outperforms last month, keeping pace with Topix and JPX400

2020-03-03 posted by

In February 2020, prices fell sharply in the world’s major stock markets by the end of the month, fearing that the spread of the coronavirus could spread to various parts of the world. Both Topix and JPX400 stock indices have fallen sharply to -0.59% and -0.57% respectively in the month of February. The Top20 CG rating score was -0.38%, outperforming the previous month, keeping the decline rate lower than both major stock indices. The stock prices of the 10 companies with the top 10 CG rating scores fell even less, at -0.34%.

Read More