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?
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.
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.
On July 12, 2019, I gave a presentation about Work Style Reform in Japan at a seminar organized by the Japan America Society of Washington DC in the beautiful meeting room of the Groom Law Group. The talking points in my presentation were the background of the reform (political background and male dominated office), the major points of amendment to laws, the problems and keys to improving productivity, the young generation’s view of employment activity and work-life balance, protection for non-regular employees, and some implications to businesses in Japan. The questions and opinions raised by the participants were as follows.
The Corporate Counselor – Insights into Japanese Corporate Law –
by Stephen D. Bohrer and Yusuke Urano, Nishimura & Asahi NY LLP
Summary: “Strategic investors owning more than 10% of the shares of a Japanese company often seek board appointment rights as a measure to protect their investment. Board appointment rights offer a strategic investor a number of significant benefits, such as permitting the strategic investor to obtain useful information about the business plans and key technologies of the company. Although the director nominated by a strategic investor could breach contractual commitments and fiduciary duties if such director relays certain confidential information to the strategic investor, it is inevitable in these arrangements that a strategic investor will obtain some key information that it ordinarily would not have obtained had its nominee not served as a director.
The receipt of confidential information is a double-edged sword for a strategic investor as such information can be very useful for investment monitoring and competitive purposes, but at the same time can result in a violation of Japanese securities laws if a strategic investor makes a purchase or sale while in possession of material non-public information (“MNPI”). Consequently, a strategic investor contemplating a securities transaction with a publicly traded portfolio company (a “Public Investee Company”) in which it has a nominee serving on the board should implement communication protocols to channel information flows to and from its director nominee and the Public Investee Company so the strategic investor does not breach Japanese securities laws (curiously, the prohibition under Japanese insider trading rules does not apply to a privately held company).”
A total of 719 companies listed on the TSE that close books in March, or 31 percent of the total, held shareholder meetings on June 27th, marking the peak day of this year’s season for such gatherings.
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.
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 […]
Preparing well for recording board meetings is not only a wise practice; it can serve as the foundation for accurate, concise minutes. Spending time before the meeting to get ready for note taking will help avoid confusion during board discussions, reduce errors in the recording process and increase overall efficiency. Follow these steps to take clear, forward-moving minutes.