Mr. Ghosn’s criminal cases are ongoing. But the criminal cases alone will not put a close to this entire ordeal. It is a matter of time for Nissan to face civil cases filed by investors. Due to Mr. Ghosn’s understated compensation, it is anticipated that a considerable amount of assets will flow out of Nissan. The largest part of this outflow will be accounted for the damages claimed by and awarded to investors in civil lawsuits. What amount of assets will flow out of Nissan? This memo is an attempt to estimate the probable size of these damages.
We are pleased to note that against the backdrop of the recent events at Nissan, the Institutional Corporate Governance Network (ICGN) has submitted a letter to Japan’s Council of Experts for the Follow-up of Japan’s Stewardship Code and Corporate Governance Code, stressing the importance of independent directors, independent board committees, director training, use of a “skills matrix”, capital allocation, disclosures, and a number of other issues that BDTI has been stressing for many years, – ever since its establishment in 2009, in fact. On the topic of director training, Kerrie Waring of the ICGN wrote:
” ICGN encourages the introduction of high quality training for independent directors in Japan to help build an understanding of what their role entails, particularly in relation to monitoring management and public disclosures. This would help ensure objective decision-making in response to business issues and in alignment with the company’s vision, mission and strategy. We also stress the importance of financial literacy to ensure that independent directors are able to challenge management on issues such as capital efficiency, the use of cross shareholdings and CEO remuneration.” (emphasis added)
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…..
by Nicholas Benes (as an individual)
April 30, 2018
1. Regarding the Overall Revision Process
2. Regarding Principle 2-6 (Activating the Function of Corporate Pension Funds as Asset Owners)
3. Regarding Principle 1-4 (“Policy Shareholdings”)
4. Regarding Principles 4-1③,4-3② and 4-3③ (Appointment and Termination of the CEO)
5. Regarding Principle 4-10① (The Use of Optional Structures)
6. Regarding Principle 4-14 (Training of Directors and Kansayaku)
7. Regarding Revision of the Machine-Readable Format of Corporate Governance Reports
(Note: This is a translation of a public comment which was originally written in Japanese and submitted in that form to the JPX/TSE. The original version of the public comment is available here.)
1. Regarding the Overall Revision Process
I would like to express my thanks and appreciation for the hard work of the members of the Followup Committee with respect to this review of the Corporate Governance Code (the “CG Code”) . However,I would note that four years have elapsed since the initial drafting of the Code. As you know, in Germany there is a commission which monitors the effectiveness of the governance code on an ongoing basis, and proposes changes on a yearly basis if and as necessary.
”Russell Reynolds Associates recently interviewed numerous institutional and activist investors, pension fund managers, public company directors and other governance professionals about the trends and challenges that public company boards will face in 2017. Our conversations yielded a wide array of perspectives about the forces that are driving change in the corporate governance landscape.
BDTI is happy to share a Research Paper titled ”Japanese Corporate Governance from the Perspective of Family Firms” by Hokuto Dazai (Independent), Takuji Saito (Waseda University), Zenichi Shishido (Hitotsubashi University Graduate School of International Corporate Strategy; Independent) and Noriyuki Yanagawa (University of Tokyo – Faculty of Economics).
The research attempts to answer the questions: why have the performances of the Japanese Model of corporate governance (J-form firms) deteriorated since the Japanese economic bubble in the mid-1980s, and why have J-family firms generally outperformed non-family firms? It goes on to analyze and compare J-form and J-family firms on general issues of corporate governance, including internal and external governance, internal promotion rules, long-run reward systems, and incentive mechanisms.
”Social Science Japan newsletter 54 takes up where it left off last issue and continues to explore the theme of governance. This time, the focus is on corporate governance. Six ISS scholars discuss the topic from various angles.
Tanaka Wataru summarizes the ISS research project and the book that inspired this issue’s featured theme. He explains what corporate governance entails and the history of its transformation in Japan. Cato Susumu analyses the dynamics of the wage structure in firms and shows how firm-specific human capital affects wages under a seniority system. Focusing on middle managers as actors in corporate governance, Owan Hideo looks at how they affect firm productivity and what measure can be used to evaluate their performance. Sasaki Dan highlights the concurrent passage, in 2014, of amendments to corporate and school educational law and argues that the reforms have reduced autonomy and increased externally-imposed or topdown control. He raises concerns about the consequences of mandating the inclusion of “neutral,” external members to the executive boards of large corporations. Nakamura Naofumi and Nakabayashi Masaki explore corporate governance in its historical context.
”Public companies are beholden to align long-term interests of executive officers with those of their shareholders, and this balance often manifests in how executives are paid in relation to company performance. Many companies address this through use of equity packages, but because executives can still sell or hedge these shares, their incentives to make long-term decisions for the company are not always clear. To avoid this, many companies implement stock ownership guidelines, requiring executives to own a certain amount of equity in the company.