Governance Progress in Japan, – Pension Governance – Next, Rules for Listed Subsidiaries?

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 […]

PREPARATION: YOUR SECRET WEAPON FOR RECORDING BOARD MEETING MINUTES

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.

“Linkage Between Corporate Governance and Value Creation” (METRICAL/BDTI) – Update as of January, 2019

Our joint research – “Linkage Between Corporate Governance and Value Creation” – between BDTI and METRICAL has been updated as of January 31. The most important inferences are summarized below.

(1) Correlations: Board Practices
and Performance

Significant correlation between board practices and performance continues.

(a) ROE: Nominations Committee existence, the number of female directors and percentage of INEDs show a significant positive correlation.

(b) Tobins Q: Nominations Committee, retired top management “advisors” (ex-CEO “advisors”), and percentage of INEDs show significant positive correlation.

(c) ROA (actual): Compensation Committee existence (negative correlation), Incentive Compensation Plan disclosure, and retired top management (ex-CEO) serving as advisors show significant correlation.

松下幸之助の言葉

今から40年前、50年前に松下幸之助が語ったコーポレートガバナンスとスチュワードシップの考えが、今注目されています。昨年月刊誌『Voice』で松下幸之助の「株式の大衆化で新たな繁栄を」と題する文章が紹介されました。 同氏の『実践経営哲学』からの引用と併せて紹介します。

曰く、株式会社は、社長や重役のものではなく、 株主のものであると同時に、社会の「公器」でもある。 決算期ごとに株主総会で業績を報告し、業績が良いモノは 株主から称賛とねぎらいの言葉を頂戴する。 充分な成果が上がらなかった時には、 謹んでお叱りを被る。これが、本来の姿であり、 株主は経営者の御主人である事を決して忘れてはならない。 株主は短期的な売買姿勢をとらず、むしろ「主人公」として毅然とした態度を保つ事が大事である。 単に株式を保有して配当を受け取るだけでなく、株主としての権威、見識をもって 経営者を叱咤激励する事も望ましい。(BDTIによる要約。以下は各出典本文から引用。)

RIETI Paper: “Corporate Governance, Employment, and Financial Performance of Japanese firms: A cross-country analysis”

Abstract:  “This study examines whether the sustained lower profitability and market valuation of Japanese firms compared to global peer firms can be explained by the structure of insider dominate board of directors and the employment system which hinders flexible employment adjustments by using cross-country data. Firstly we show that level of outside director ratio and flexibility of employment adjustment both differ consistently across 27 countries in the analyzed period. We show that these two factors significantly explain observed variation of financial performance across countries significantly. In addition, we show that not only do these two factors have significant explanation power over the relatively poor performance of Japanese firms, but also over the better financial performance and growth rate of US firms. ”

Authors: ARIKAWA Yasuhiro (Waseda University) / INOUE Kotaro (Tokyo Institute of Technology) / SAITO Takuji (Keio University)

Download the paper:  “Corporate Governance, Employment, and Financial Performance of Japanese firms: A cross-country analysis” 

Related page on RIETI web site:  https://www.rieti.go.jp/en/publications/summary/18120006.html

 

Engagement in Japan: How to Discuss Director and Executive Education – the Most Necessary Thing!

Executive training is badly needed in order for independent directors to perform their expected role 

When I proposed to the LDP and the government in 2013 that Japan promulgate a corporate governance code, one of the most important principles that I advised should be included in it was a requirement for director and pre-director training.  To anyone who has ever sat on an average Japanese board, the need for this is obvious.  Without more training of both executives and external directors in Japan, it will continue to be very difficult for independent directors to perform the roles that are now expected of them. From personal experience, I know that it is simply not possible to convince engineers who do not understand finance that their company could very easily go bankrupt in two years.

Three Years of Policy Advocacy Worked! Now Five Non-Financial Corporate Pension Funds in Japan Have Signed the Stewardship Code

I was very pleased to see in the FSA’s updated list of signatories to the Stewardship Code, that Mitsubishi Corporation’s pension fund recently signed on.  This makes five major non-financial corporate pension funds that have signed the S.C.:  Secom, Panasonic, NTT, Eisai, and now Mitsubishi Corporation. Secom had signed from the start, but the others came after I urged the Prime Minister on this topic, and then the Minister of Health, Labour and Welfare (MHLW, in charge of corporate pensions), then wrote a proposal for a change of the regulations by MHLW…. which resulted in a joint study group between MHLW, the Pension Fund Association, pension experts, and the FSA (as observer) for the express purpose of encouraging pension funds to sign the S.C.

https://www.fsa.go.jp/en/refer/councils/stewardship/20181115/en_list_02.pdf 

This major progress for Japan, and these companies should be commended. There is an extreme disconnect between the way in which Japanese companies claim to care about their employees (and often do! ) but so far, have not seemed to care about the assets (retirement funds) of those same employees.  This is especially so when one considers that corporate pensions in Japan have no government guarantee, so as the company veers towards bankruptcy it first forces employees to agree to a big cut in benefits (a la JAL), and if it goes bankrupt and the pension is underfunded….well, “it is what it is”.

If anyone is interested, here is the “comply and explain” proposal that I submitted to the MHLW.
https://bdti.or.jp/2016/08/20/pengovrprop/ 

Nicholas Benes
Representative Director, BDTI

Networking forum for non-Japanese executives at Japanese firms and their Japanese counterparts

Recently, many major Japanese companies have been bringing non-Japanese executives to Japan to fill key roles in their global operations. Diversifying the ranks of senior executives is an important step forward for Japanese firms. But it also represents a significant change in terms of how communication and decision-making works at the highest levels of the organization.
Non-Japanese executives working in Japan have few chances to meet their peers at other Japanese firms. There are also few chances to have in-depth and meaningful conversations about the unique issues faced by Japanese companies in the process of becoming truly global entities.

Based on its long experience organizing forums for Japanese executives, the well-regarded Business Research Institute is establishing a new forum designed for non-Japanese executives in Japan and their Japanese counterparts to participate in together. This new forum will provide an important opportunity for networking and discussion. It will be held entirely in English, and will provide the opportunity for frank and in-depth exchange of opinions in a confidential setting.