What Correlates with Superior Corporate Performance? (Summary of Research)

BDTI and METRICAL conducted joint research regarding the governance structure/practices and related corporate actions that correlate with superior firm performance in Japan, and reported on the preliminary results at seminars hosted by BDTI on March 16th and by Goldman Sachs on April 4th. Our research is still underway, but the preliminary results are intriguing and provide useful guidance for the next stage of analysis.

BDTI and METRICAL believe that corporate governance is not functioning effectively unless it leads to superior strategy, fine-tuning of capital allocation and capital structure, and other value-creating corporate actions.  Therefore, in our research we have sought to identify the apparent linkages and correlations between board practice, key corporate actions, and value creation.

In Phase 1 of our analysis, we studied the TOPIX100 Index composite (large 100 companies) to see whether scores we assessed for each company’s nomination policy, training policy, compensation policy, board evaluation policy, and the % of independent directors significantly correlate with ROA and ROE.

(Orrick) – “Corporate Governance Features for Silicon Valley and San Francisco Bay Area Public Companies”

(17-page report  Ed Batts, Global Chair of Orrick’s M&A and Private Equity group.)   – ”Corporate governance features have Executive Summary become increasingly prominent for public companies. This has accelerated as economic-oriented activist investors team with institutional investors to serve as catalysts for change. We are often asked by clients in the course of our practice:

What do other companies do?

We thought it would be useful to compare the three primary governance documents – certificate/ articles of incorporation, bylaws and corporate governance guidelines – of Silicon Valley and San Francisco Bay Area publicly traded companies.

We focused on three general areas:
• Board of Directors
• Shareholder Actions
• General Provisions

HBS Professors: American Managers Seek to Avoid Legitimate Shareholder Proposals

In this paper, HBS Professors Suraj, Srinivasan, and Vijayaraghavan analyze the period 2003-2013 and conclude that US managers often seek to avoid listing legitimate shareholder proposals in the proxy materials.  This is a stark contrast to the situation here in Japan, where executives must include virtually any shareholder proposal in the proxy, even if strange or rude.

Hoang C. C. et al : ”Institutional Investors and Trends in Board Refreshment”

”As many institutional investors have concluded, prevailing governance policies and practices have not produced desired board refreshment, which these investors would support in order to strengthen expertise, promote diversity and provide fresh perspectives in the board room. At the same time, companies and investors alike appreciate that term and age limits, as they have been typically applied, may not be the solutions, because they force the arbitrary retirement of valuable directors.

Yumiko Miwa et al ”Professional Asset Managers and the Evolution of Corporate Governance in France and Japan: Lessons from a Questionnaire Survey”

”Abstract – A corporate governance system consists of a set of mechanisms which restrict managerial discretion. The constraints on managerial discretion in the Anglo-Saxon environment, considered as a benchmark, are usually described as being primarily driven by shareholder interests, whereas the French and Japanese systems are traditionally thought of as more stakeholder oriented. However, the increasing share of international ownership has had a significant impact on corporate governance in both countries over the last two decade

”Shareholder Activism & Engagement 2016”

”At the end of another record-breaking year for shareholder activism activity, it is appropriate that we ring in the publication of this, the inaugural edition of Shareholder Activism & Engagement, part of the Getting the Deal Through series. We are pleased to serve as editors of this volume because we believe that shareholder activism is and will remain in sharp focus in financial markets, in the C-suite and in the boardroom, and that shareholder engagement is, and will continue to be, a leading and increasingly sophisticated priority. The international approach of the Getting the Deal Through series is especially apt for this topic, which we expect to become increasingly global over time, with ‘imports’ and ‘exports’ of shareholder activism and engagement between jurisdictions. Although the United States remains its dominant market, such activism and a heightened sensitivity to shareholder engagement is truly a global phenomenon.

ISS’ 2016 Benchmark Policy Consultation – Japan

To ensure its voting policies take into consideration the perspectives of the corporate governance community and the views of its institutional clients, ISS gathers broad input each year from institutional investors, issuers, and other market constituents through a variety of channels and mediums. Following the release last month of its 2016 policy survey results, ISS is now making available for public comment certain proposed voting policies for 2016.