Discussion Forum | The Board Director Training Institute of Japan (BDTI) - Part 2

METRICAL: April – Prices Rose But CG Top 20 Slightly Underperforming

The market price in April 2020 has recovered significantly from the previous month when it continued to decline significantly due to concerns over the spread of new corona infections. The world market price turned to an increase as the US stock prices rose from expectations for good clinical trials of corona drugs. Both Topix and JPX400 stock indexes have risen for the first time in four months since January, recovering 4.54% and 4.60% respectively in the last month. CG rating score Top20 stock price was slightly underperforming with 4.15%. The volatility (standard deviation) for the current month is 7.65%, 7.74%, 4.11% for Topix, JPX400, and CG Top20 stocks, respectively.

April 20th “Director Boot Camp” Course Held by Video Conference! Next Course: July 8th, 2020!

On April 20th, in the midst of the Corona virus pandemic, BDTI held its English Director Boot Camp via a teleconference arrangement. The day-long intensive course was attended by 10 highly-experienced participants, including two Ambassadors, one General Counsel, and senior executives. The participants heard lectures about corporate governance by Nicholas Benes, and Andrew Silberman of AMT, and exchanged experiences and opinions. Despite the IT challenges everything went smoothly, with breaks for everyone to stretch their legs or review materials in more depth.

We are planning to hold the next course on Wednesday, July 8, 2020. Sign up early! Please see a description of our director training course here or click the button below for further information.

Japan’s FSA is Planning to Postpone the Deadline for Submission Annual Report for March-end (Accounting Term) Companies Until the End of September.

According to the FSA on the 10th, the Financial Services Agency will postpone the deadline for submitting annual reports for the companies closing in March for three months, until the end of September, considering the effects of the new corona virus. The coucil composed of the Japan Institute of Certified Public Accountants, Tokyo Stock Exchange and Keidanren announced on the same day. It is expected to be officially decided next week. Financial Services Agency has begun to consider postponing the deadline for submitting annual reports required for listed companies, including the reporting of companies as of end of March and quarterly reports of companies as of end of December last year.

The New Whistle-blower Protection Bill, from the Perspective of the Olympus Case

The current Whistleblower Protection Act was enacted in 2004 and was enforced in 2006. It was said that the scandals of the recall cover-up by Mitsubishi Motors and the disguised beef origin by Snow Brand Foods brought the new Act. However, from the beginning, it was criticized that the range of target facts was too narrow, prevention measures for retaliation were not effective, etc. Based on the supplementary resolutions of the Diet and the supplementary provisions of the Act, the Consumer Commission Whistleblower Protection Special Research Committee was established, and discussions were underway for revision. However, the speed was very slow. The Committee finally issued the report in December 2018. Public comments were solicited for the new appendix table to the Act regarding the target laws. The amendment bill was approved by the Cabinet on March 9, 2020. It is now planned to submit to the National Assembly.

METRICAL: Willingness to Change

We have observed the number of female directors as a key factor on board practices to measure how a company is willing to change. The table below shows the correlation analysis between the number of female directors and performance key measures such as ROE (actual), ROA (actual) and Tobin’s Q on the 1,755 companies as of March 31, 2020. We have seen the statistically significant positive correlation between ROE (actual or results) and the factor since we started the correlation analysis with correlation analysis with BDTI in 2017. Now, the factor shows the sign of significance to ROA (actual or results) in this month, updating the data of December fiscal year end companies after AGMs.

METRICAL: March – Prices Fell Sharply But CG Top20 Stocks Outperformed

The market price in March 2020 continued to fluctuate with high fluctuations due to concerns about the spread of the Coronavirus around the world. Approximately half of the sharp decline by mid-month recovered at the end of the month. Both Topix and JPX400 stocks have fallen sharply in March for the month of -6.46% and -6.79% respectively. The Top20 CG rating score was -6.22%, outperforming the previous month at -0.30% compared to the two main stock indices, with a lower rate of decline. By the way, the stock prices of the ten companies with the top 10 CG rating scores were -1.44%, which was even smaller.

BDTI Announcement: Telework and e-Learning

To All of BDTI’s Supporters and Participants

Thank you for your support of our many programs and activities at BDTI. As you know, many organizations are switching to telework, and so we think now is a good time for companies to use the transition to telework as an opportunity to train managers in low-cost ways–for example by purchasing our “unlimited-use” e-Learning. ( https://bdti.or.jp/en/e-learning/ ) For a low price of 300,000 yen, the “unlimited use” e-Learning package enables all employees (any number!) at a company or its subsidiaries to learn the most important aspects of the Companies Law, Securities Law, and Corporate Governance (general module, and practice module). This is a total of almost 10 hours of instruction which can be done at one’s own pace at home, and–if we say so ourselves–is very good value for money.    

Starting tomorrow, we will be leading by example as we move to a telework arrangement for all of our employees. Someone (myself) will remain in the office during most regular working hours to answer the phone and all employees will be able to respond to your e-mail communication in a normal manner. As we transition to this new working arrangement, we do ask for your patience and understanding and apologize in advance for any inconvenience.

Additionally, you may look forward to several webinars and online training opportunities over Zoom which we will announce as plans are finalized.

Professor Hideaki Miyajima: Activist Shareholders and Companies: Improving the Effectiveness of Management Reform

“…the probability of the success of activism (as described above) accompanied by official requests for activity has not yet reached that of Europe and the United States but has risen to 40%. In addition, the cumulative abnormal return (CAR) when such requests are accepted is about 6%, the same as in the United States and Europe….

Finally, let us consider the keys to improving corporate governance in Japan in the future…..

Why Modern Corporate Structure Results in Large Ethical Lapses

I was recently asked by the Japan Society of Greater Cincinnati to give the keynote speech at their conference event on the theme of “Why Good People Do Bad Things”. I decided to liven things up a bit by attempting to answer the self-posed question: “how might we design corporations if we were inventing them today [not in 1600 -1900]… in an age of huge capital pools, global warming, and an increasing number of other large externalized risks and informational (and other) asymmetries?”

See what you think of my “concept for discussion” on pages 16-19, and my reasons for throwing it out for consideration on the earlier pages. I realize some people will think this concept is a strange and unnecessary, as if the basic legal structure of the corporation is immutable, or hoping ESG integration by itself will solve most of the problems it is concerned with. However, I suspect that in the next few decades corporate law will be evolving much more so as to address the issues and concerns that I raise… even if it addresses them in a different manner. I do not believe that the present legal form of “the corporation” itself is sustainable. Over the past 100 years, too many agency problems, market distortions, asymmetries, and externalities have emerged.

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