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Sagami-FamilyMart UNY Holdings: Can a Board Justify Selling a Subsidiary to the Low Bidder?

2016-10-04 posted by

Sagami Co. Ltd. (8201) is a Tokyo Stock Exchange First Section company, 56% of the shares of which are owned by FamilyMart UNY Holdings (8028), the holding company of the recent convenience store mega-merger between Family Mart and UNY (Circle K-Sunkus).  Sagami is a national chain of retail kimono stores established in the 1970s under the UNY corporate umbrella.  UNY converted Sagami into a “listed subsidiary” in the bubbly mid-1980s.

Needless to say, the kimono business is facing demographic and other headwinds.  Sagami’s revenues have declined steadily year to year.  At ¥100 a share, Sagami’s market capitalization is ¥2.87 billion.  By contrast, Family-UNY’s market capitalization is nearly ¥700 billion.  Sagami is a drop in the bucket.  Sagami’s thinly traded shares have bumped up and down between ¥50 and ¥80 over the last year.

Earlier this summer Family-UNY made the decision to dispose of Sagami as a non-core business.  Family-UNY entered into discussions with domestic private equity fund Aspirant Group in which it was agreed that Family-UNY would accept a discounted tender offer for its shares at ¥56 a share.  Part of the deal included an agreement by Family-UNY to forgive ¥1.6 billion of parent company loans to Sagami.  The tender offer expires on October 11, 2016.

Enter New Horizon Capital, a rival domestic private equity fund, which in September offered Family-UNY better terms– ¥70 a share.  Family-UNY has yet to indicate how it will respond to the higher bid, but recent news reports leave the strong impression of distress and hesitation within Family-UNY.

The fact that the situation is creating distress and hesitation should be viewed as evidence of progress in Japanese attitudes about corporate governance and shareholder rights over the last decade.  In 2004, in the much larger but parallel case involving competing bids by the Mitsubishi Tokyo Bank and Sumitomo Mitsui Bank for UFJ, the Japanese establishment and press were largely oblivious to the UFJ shareholder issues raised by Mitsubishi Tokyo’s pre-emptive bid that foreclosed a higher bid by Sumitomo Mitsui. (See p. 159 of the attached article for a more detailed description of that case.)

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VIDEO: Global Agenda Debate – ”Abenomics at the Crossroads”

2016-10-04 posted by

”Nearly 4 years have passed since Japanese Prime Minister Shinzo Abe launched the series of economic policies, dubbed “Abenomics”. It is centered on “three arrows”: Bold monetary policy to end the deflation, Flexible fiscal spending to stimulate the economy through large-scale public works projects, and Growth strategy to nurture industries. Today, Abenomics is drawing both praise and criticism. Though the profits of TSE’s First Section-listed companies hit record high for 3 straight years, the economy is still suffering from low growth rate. The unemployment rate dropped as 1 million jobs were created, but inflation-adjusted wages remain low. With the increasing social security costs due to the aging and shrinking population, government debt is ballooning. Can Abenomics revive the Japanese economy? 5 experts from economics, politics and business attend a Global Agenda forum at The University of Tokyo to discuss how the world rates the policies and what it expects from them……”

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”The ‘Safe’ Zone and Other Challenges to Japan’s Cybersecurity Governance Efforts”

2016-10-03 posted by

There has been notable increased concern about protecting ICT systems from cyber attacks not only in Japan but over the globe the past years given that using IT is now even more important for corporate profitability.  Cyber attacks can cause serious financial loss through theft of information, disruptions and other unlawful actions. Protecting ICT systems and their contents is  crucial for any 21st Century business or company. In response to this, companies now have to invest more in cybersecurity as a corporate strategy.

Progress in Japan’s cybersecurity activities is underway. For example, The Ministry of Economy, Trade and Industry (METI) formulated the Cybersecurity Management Guidelines with the Information-technology Promotion Agency, Japan (IPA). It is expected that these measures for cybersecurity will be promoted under the leadership of corporate managers based on the Guidelines. [ To facilitate this process, BDTI will hold a Japanese-language seminar on 10/5. Speakers will include the head of METI’s division handling cyber-security matters, a BDTI director sitting on the key committee; and lawyers familiar with global cyber-security legal risk issuess.  See: https://bdti.or.jp/news/10-05-cyber-seminar/  to sign up for the seminar. ]

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BDTI’s “Director Boot Camp in SF” Report – Next Course, 27th October!

2016-09-20 posted by

sf-director-training-for-web-site

BDTI’s first overseas “Director Boot Camp” was successfully held on Tuesday, 13th September in San Francisco. Almost every participant was a fluent speaker of Japanese, which bodes well for the future of Japan’s director pool.

We would like to thank our co-sponsors, the Japan Society of Northern California, and the donor of the wonderful conference room we used, the law firm of Morgan, Lewis & Bockius.

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Paper by Naoto Isaka – When Are Uninformed Boards Preferable?

2016-09-18 posted by

Abstract

In this paper, I analyze the optimal choice of board of directors using the dual role model of boards in Adams and Ferreira (2007). In my model, shareholders choose either an informed board that brings additional private information to the firm or an uninformed board that merely considers the inside information already available within the firm. The board then randomly chooses a good chief executive officer (CEO) with inside information or a bad CEO without such information, and the CEO decides whether to consult with the board when making a project decision. I show that shareholders generally choose the informed board to maximize firm value by utilizing the private information available to the board. However, the shareholders optimally select the uninformed board if the CEO is reluctant to communicate with the informed board for fear it will reject the CEO’s decision. The uninformed board is also optimal when the board has a sufficiently large private benefit of monitoring the CEO, the shareholders feel burdened by any conflict between the CEO and the board, or the firm is involved in many unrelated businesses, especially when the inside information is valuable and the firm needs many outsiders to observe useful outside information. I use some of these implications and casual observation of real-world data to discuss recent trends in the board structure of Japanese firms.

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Intensive Mediation Skills Training, by Doshisha Law School and Pepperdine School of Law

2016-09-15 posted by

For the first time in Japan, Doshisha Law School and Pepperdine School of Law’s Straus Institute for Dispute Resolution are jointly offering an international version of Straus’s acclaimed Mediating the Litigated Case ™ program.

An intensive course delivered from November 28-December 3 (no class on November 29), this program is an ideal opportunity for lawyers, administrators, conflict resolution specialists, educators and other professionals to learn U.S.-style mediation and the ways it is different from Japanese-style mediation and conciliation techniques.

The venue is Doshisha University’s Tokyo seminar center, conveniently located near Tokyo station and easily accessible to professionals working or staying in Tokyo.

You can download the program here.

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

2016-09-12 posted by

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.

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”Thoughts on the Business Roundtable’s Principles of Corporate Governance”

2016-09-12 posted by

Following the release of the ”Commonsence Principles of Corporate Governance ”  by a diverse, twelve-member coalition of executives of major corporations, asset managers and one shareholder activist in America in July 2016, the influential Business Roundtable (“BRT”) recently released a set of corporate governance principles which are to provide guidance on governance disclosure.

Whereas the Commonsence Principles of Corporate Governance are mainly 8 recommendations on roles and responsibilities of the board, companies and shareholders, the BRT Principles extensively cover the key governance issues such as board responsibilities, roles of key corporate actors, committee responsibilities and other, elemental, governance concerns historically addressed by the organization.

In his article, Michael W. Peregrine, of McDermott Will & Emery LLP shares his thoughts on the BRT Principles that articulate these governance issues on  long term value sustainability, shareholder engagement, board diversity, committee practices and succession matters.

Read full article here.

Source: Havard Law School Forum on Corporate Governance and Financial Regulation

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Report: Investor Obligations and Duties in Asian Markets

2016-09-11 posted by

By Peter Knight, President, Generation Investment Management, Fiona Reynolds, Managing Director, PRI,  Nick Robins, Co-Director, UNEP Inquiry into a Sustainable Financial System and Eric Usher, Head, UNEP Finance Initiative

Executive Summary:

In China, Hong Kong, India, Malaysia, Singapore and South Korea there are compelling national interest reasons for policy makers to promote the incorporation of environmental, social and governance factors into investment practice. Issues include addressing air quality, improving citizens’ long-term health, reducing inequality, providing for an ageing population and attracting the international capital necessary to meet economic growth targets. Investing prudently requires ESG factors to be considered in investment decision-making and to be part of the dialogue between investors and companies. This is consistent with the legal framework in all the markets studied in this report.

However, despite growing awareness of responsible investment, many investors have yet to fully integrate ESG factors into their investment decision-making processes. Public policy and regulation are a key influence. Currently, these markets have few formal requirements to integrate ESG factors, but investor obligations and duties are dynamic concepts that continuously evolve as society changes.

By working together, policy makers and investors can shape investment frameworks to clarify the obligations and duties investors owe to beneficiaries – obligations to embed ESG factors into investment decision-making, ownership practices, and ultimately, the way in which companies are managed.

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