”Corporate Governance: Tools for the job” by Arthur Michael Mitchell

Despite the fact that many still doubt how successful the Abenomics corporate governance reforms in Japan that led to the introduction of the Stewardship and Corporate Governance Code and the amendment of the Companies Act, Arthur Mitchell, a senior counselor with White & Case in Tokyo strongly believes otherwise. He writes an insightful article explaining that while the effectiveness of the reforms will largely depend on the way they are implemented, the reforms will certainly enable market participants to change their corporate performance and overall corporate culture. (Note: Arthur Mitchell has taken BDTI’s director training course in Japanese, and currently sits on the board of Mitsui Sumitomo Financial Group.)

Read full article here.

”Can Abe’s third arrow reforms benefit investors?”

Although the “third arrow” in Japan still has mixed reviews, it can not be denied that with the shift to deliberate improved corporate governance, there is more shareholder involvement in Japanese companies.

In this article, Mr. Naoki Kamiyama of Nikko Asset Management, describes some of the positive changes that now benefiti nvestors.

Read full article here.

Source: FE Trustnet

Culture by Design – Interview with Sir Win Bischoff on Corporate Culture

Below is an insightful interview with Sir Win Bischoff, Chairman of the Financial Reporting Council and formerly Chairman at Lloyds Bank. He speaks to  Alexandra Jones, Editor of the Governance and Compliance Magazine on corporate culture and shares his experience on how a strong culture helped him lead Lloyds through the financial crisis. He explains how by its very nature , culture is not short term but much longer than a strategy of a business model.

He further shares his view on the responsibilities of management and the board, in terms of establishing the right culture and how long it takes to change a bad culture, among others.

The Future of Asset Management, by Jeroen van Oerle and Patrick Lemmens

Executive Summary:

 During the past decade, the asset management industry was mostly occupied with regulatory changes dictating costly compliance procedures. The increase in regulatory burden was mainly felt by small asset management firms. In addition to increased regulatory costs, fee pressure has had a large impact on the industry as well.

In the coming years we believe these two forces will remain top of mind, but they have different drivers now. Technology has entered the asset management industry. This will add costs because asset managers have to live up to ever-increasing customer demands regarding immediacy, connectivity and ubiquity. At the same time, this leads to an increase in fee pressure due to growing transparency, comparability and competition from nonfinancial companies. We think the asset management pie is still growing strongly, but not everyone is invited to take a piece.

“The Rise of Indices Is Changing the Face of Investing”, by Angana Jacob and Sunjiv Mainie, CFA


A confluence of factors including technology, regulation, investor skepticism of manager skill, and fee-consciousness, has favored the rise of index investing. The pace of growth and complexity of change make it difficult for investors and managers to stay informed about these critical trends. In this report, we provide an overview of the rise of indexing, as well as its impact, both realized and potential, on the asset management industry.

The first half of the paper outlines the key trends in indexing and fund management, specifically:

1. Fees are under pressure. Changes in technology and economies of scale have helped commoditize beta;

2. Product scope is continually broadening, with index-based investing making inroads into active management. Smart beta and the growing interest in hedge fund beta paves the way for further growth of passive index funds at the expense of active management; and

3. Technology advances allow for mass customization and an increased focus on outcomes. The outcomes required by individual and institutional market participants are becoming critical—index funds may benefit due to their low cost and heightened transparency.

”Insurance Is a Better Buffer Against Crises than Cross-shareholdings”

According to this recently-published discussion paper by the Foreign Non-Life Insurance Association of Japan, risk management provides a better barrier against crises than maintaining cross-shareholdings with friendly firms. The paper puts corporate governance in the wider context of economic growth and security and highlights the fact that management of Japanese companies is often not organized so as to to use risk management solutions that can be provided by insurance. An example mentioned is that only  around 17% of the losses from the 2011 Eastern Japan earthquake were recoverable by insurance, as compared with 75% recovery in the case of the Christchurch, New Zealand earthquake the same year.

The paper proposes supporting stronger corporate governance, fostering a culture of risk management and leveraging best industry practices.

Read the discussion paper here.

Source: Foreign Non-Life Insurance Association of Japan Inc.

”Will better corporate governance boost Japanese equity returns?”

Despite the fact that many folks are still pessimistic as to whether corporate governance reforms will bring a surmountable positive change to the Japanese economy, there has been some notable changes as the writer of this article, Louise Dudley, Hermes Global Equities Portfolio Manager, below puts it. It will take time and patience but will be worth it in the end.

Corporate Governance in Japan: Where Will It Go from Here? Where Should It? (Part 1 of a Series)

Japan has made significant steps forward in promulgating a stewardship code and a corporate governance code. Change and differentiation between companies (leaders vs. laggards) will accelerate from this point on; it is already accelerating. But how much impact will be made by the new “comply or explain”-based, potentially vastly-expanded disclosure regime, and menu of best practices that are being encouraged, will largely depend on how much investing institutions are willing to do the hard work of analyzing and comparing all this new information, assessing its true substance vs. the lack thereof, and proactively communicating with portfolio companies the kind of concrete practices and robust disclosure they would like to see next.

This Insight will be a series focusing on various issues that need to be understood and discussed deeply going forward, and will affect this process and the future evolution of governance in Japan.

”A Look at the Recent State of Corporate Governance in Japan”

Below is an interview on the recent state of Corporate governance in Japan that was held early this month. The interview is between Mr. Miyajima Hideaki (Faculty Fellow, RIETI / Waseda University),  interviewer and Mr. Colin Mayer (Said Business School, Oxford University), interviewee.

Mr. Mayer shares his opinions on the unique features of corporate governance in Japan, how to encourage companies to take risks, ownership structures, the role of outside directors, the comply and explain principle and the role of corporate governance in promoting strong economic performance.