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

 

Japanese Institutional Investors- Serious About ESG? Or Just a PR Line to Increase AUM?

Amid the hoopla about Nissan and other scandals, NOT ONE of the major Japanese asset managers on this list have supported non-profit BDTI in its mission to improve governance in Japan via training and analysis of governance practices, at any time over the past nine years. Some of the foreign asset managers have supported us (thanks!), but none of the domestics. ESG is the fad of the month here in Japan, but mainly as a PR line to use in gathering AUM, it seems to me.

November 22nd “Director Boot Camp” – Another Successful Program! Next Course: February 12th, 2019!

On November 22nd, 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 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.

Letter from a Person Who is Concerned about the Nissan Affair:  a View from the Inside of Another Company

As you might imagine I have been besieged by inquiries from the press when I have little knowledge of what is going on, or went on, a Nissan.  I also received this spontaneous email from a friend who is concerned about the Nissan-Ghosn affair.  Having “sanitized” it, with permission I am posting it.  This particular person worked in matters related to legal compliance for 10 years at a major Japanese company.

Dear Mr Benes:

I retired nine months ago ago and after a long vacation, recently I have finally got around to looking for an outside director or other similar position.

Anyway, I wanted to write because I was floored by the whole Ghosn spectacle.  I am not close to that company, but was astounded that they chose to turn over and have arrested two foreign senior staff (Chairman and his aide) for redirecting assets to his own account “over several years.”  I was floored because:

a) Neither of them is likely that spiffy at Japanese and would need other staff to prepare the transactions for them.  Indeed even had they been Japanese staff themselves this would have required a certain amount of nemawashi at least the way the companies I am familiar with are now run.  Gone are the days when 10,000 here and 100,000 there can be disbursed at some executive’s personal discretion…..

How Many Shares are Actually Held by “Allegiant Shareholders [1]”?

By Ken Hokugo[2]
Director, Head of Corporate Governance, Pension Fund Association
Director, The Board Director Training Institute of Japan

There has always been confusion surrounding this topic.  From the point of view of those who want to help foreign investors understand the realities of the Japanese market, the most troubling number that is thrown about is the seemingly magic number of “10% or less”.   This number is frequently referred to by the media, with the source given as being the reports by a certain analyst at a research institute that is affiliated with a prominent securities firm.

Quite often, we encounter foreign investors who casually believe this widely-touted number of “10% or less” and therefore are not concerned very much (if at all) with the issue of “cross-shareholdings”  in Japan, in light of recent improvements in Japan’s corporate governance.  Needless to say, it takes a lot of energy to convince such investors that the reality of the Japanese market is different.  In this post, I am not trying to scare foreign investors away from Japan’s stock markets, but rather trying to encourage them to invest based on an accurate understanding of the situation in the context of history, culture, and the overall current environment.

Corporate Governance of Japan – Linkage Between CG and Value Creation (October 2018)

BDTI/METRICAL updated their research series on “Corporate Governance in Japan – Linkage Between CG and Value Creation” as of October 2018. The joint research has analyzed how board practice criteria and action criteria statistically correlate with value creation measures such as ROA, ROE and Tobin’s Q.  An increasing number of criteria or factors of CG show statistically significant correlation with ROE, ROA and Tobin’s Q.  Also, the analysis of the correlation between the percentage of INEDs and the performance measures revealed a J-curve relationship (layered structured, in three groups).  We will keep a close eye on how board practice and actions impact on performance.

Japan CG Top20 Stock Performance: Gap with Market Indices Widens (August 2018)

CG Top 20 stocks continued solid performance in August

August stock prices have continued low trading volume. Topix and JPX400 indices tumbled in the middle of the month, but recovered toward the month end. Meanwhile, CG Top 20 prices also recovered their losses toward the end of the month. The gap between CG quality stocks and the market indices is widening. The stock price charts for in the indices and the composite of CG top 20 companies are shown in the following link.

All About Board Portals – A primer through the lens of Boardvantage

Board portals have established themselves as a must-have in board communications. The current generation allows boards to go entirely paperless.

A board portal is a secure app or website designed specifically for the purpose of improving communication between a company and its directors. The current generation allows boards to go entirely paperless.

Contents

  • Board Portals: An Overview
  • Evolution of the Board Portal
  • What to Look for in Board Portal Technologya
  • Ready to Learn More?

“What do the Japanese think of non-Japanese CEOs of Japanese companies?” – (One Answer)

by Hide Izumi

I have had the honor of working directly with a few, and I think they bring something to the table that is badly lacking right now in this country.

It is a mean but common joke that “world’s strongest army would be run by American generals, German officers and Japanese soldiers.” For me, it really isn’t funny, because it points to a fundamental problem in this country that has been a constant – lack of competent high level leadership.

Value proposition of integrated reporting and the price-book ratio model: Evidence from Japan

by Dr. Ryohei Yanagi, CFO, Eisai and Visiting Professor, Waseda University

How can we connect non-financial capitals and corporate value? A new book, ‘Corporate Governance and Value Creation in Japan‘, which was launched in May 2018 as my first English book, provides a conceptual framework for integrating intangibles with ROE as well as empirical evidence and case studies supporting this model.  (Here is the Japanese version of this book.)

Inconvenient truth: No meaningful value creation although Japanese companies tout ESG

In Japan, ESG and non-financial reporting are booming with 341 listed companies, according to KPMG, having adopted integrated reporting in 2017. Japanese corporate managers are traditionally inclined to tout their companies’ intangibles such as human resources and social contribution rather than financial metrics like ROE.

In recent years, however, Japan’s PBR (price-book value ratio: market capitalization to equity book value) has been stagnant and hovering around one without meaningful “market value added” (MVA, market cap above equity book value).