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.
When you squint closely at the facts, not as much as you might think. Mostly, it is the difference between individual self-dealing and collective self-dealing.
As corporate policy, many Japanese companies re-hire their executive directors as “advisors (“sodanyaku” or “komon“) immediately after they retire from the board. The re-hiring occurs automatically, and the work expected from such “advisors” in their contracts (if any) is usually vague to the point of being non-existent.
In our July ratings, a more nuanced pictured emerged for Japanese companies. The significantly positive correlation of financial performance with the percentage of INEDs and the number of Female Directors disappeared this month, suggesting that an increasing number of non-superior performers are “copying” other companies in this respect, and/or have only only done so recently so no positive impact (should there be any) is discernible.
Many companies set the fiscal year to end at the end of March and hold their AGM in June. Those companies file Yuho financial reports by the end of June. According to the Yuho reports, we are able to lots of new data at this time. Among the data, in this post we will focus on ”policy stock” holdings, also known as “allegiant shareholdings”.
The average holding of “policy stocks” was JPY34,861 million for 1,775 companies, which has come down 13.7% from JPY40,389 million a year as the average of the 1,794 companies in our universe. Of course, we should carefully analyze these numbers, but the decrease of the stock holding was larger than the change in the stock index Topix for the same period. The Topix fell 7.3% from 1,716.30 on March 31 2018 to 1,591.64 on March 31 2019.
Chair of the Board of Directors
We would like to highlight the function of the chair of the board. Of about 1,800 companies, only 27 companies are chaired by an outside director. This indicates just how resistant inside directors are in entrusting the position of chair of the board to an outside director. The table below shows the 27 companies.
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.
March stock prices recovered after sharp drop in January. The quality CG stocks expanded outperformance during the continuing uncertain market environment toward the end of March. This month, we highlight capital allocation.
The term governance refers to a system by which an organization is run. Corporate governance is the module for fixing a liability on corporate entity. Corporate Governance is the application of best Management Practices, Compliance of Laws in true letter and spirit and adherence to ethical standards for effective management and distribution of wealth and discharge of social responsibility for sustainable development of all stakeholders.
Frequent visitors to our blog are likely aware of Japan’s major corporate governance reforms, but not everyone is familiar with the story behind how these reforms were crafted. The eminent Steven K. Vogel (Professor of Political Science at the University of California, Berkeley), recently wrote a concise and easy-to-follow history of the major reforms to Japanese corporate governance practices since the 1990s, describing how and why they came to pass.