Some research organizations reported that Japanese companies have enhanced the corporate governance and others say the improvement wasn’t higher than expectations. Then, how fast has the corporate governance in Japan made progress for a few years? There would be different perspectives on which criteria each person focus. We would like to show one of the easiest ways that we can see the progress. It is the % of Independent Outside Directors (INEDs) of the board of directors (BOD) that shows very well how fast corporate governance in Japan has improved.
Please see the following 2 charts. The first pie chart shows the number of companies of >50% INEDs and =<50% INEDs in the BOD, respectively as of November 2019. The total number of companies was the companies METRICAL INC. covers as the core research universe (most of companies are listed TSE-1st Section and/or JPY10 billion market cap). A number of companies are included in the =<50% INEDs if other small companies than METRICAL’s universe are included. In case, the % of the >50% INEDs in the pie chart will decrease significantly.
The following line chart shows the transition of the number of the companies >50% INEDs. The number of >50% INEDs increased 14 companies from 61 companies in March 2018 to 85 companies in November 2019. The increase isn’t large enough in the total 1,764 companies of the universe. Of course, INEDs didn’t exist in most of the companies until Corporate Governance Code of Japan launched in 2015. There would be certain significance if we see that many companies hire multiple INEDs right now. However, considering the corporate governance practice, it would be little meaning if the number of INEDs increases from only an INED to 2 (or from 2 INEDs to 3) and the INEDs stay minority in the board. Not only the number of INEDs but also the real independence of the INEDs is also important issue. In this sense, needless to say, it’s still a long way to enhance corporate governance in this country.
Download the full report: Linkage Between CG and Value Creation-10-2019
Please see detail research the following links.
Please feel free to contact the below email address if any interest or query.
Aki Matsumoto, CFA