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Message from the New Representative Director

”2016 Global Board of Directors Survey” Conducted by Dr. Boris Groysberg et al

2016-05-24 posted by

”The growing demands on corporate boards are transforming boardrooms globally, with directors taking on a more strategic, dynamic and responsive role to help steer their companies through a hypercompetitive and volatile business environment. Economic and political uncertainties make long-term planning more difficult. The proliferation of cyber attacks — and their consequences for business in financial losses and reputational damage — increases the scope of risk oversight. A rise in institutional and activist shareholder activity requires boards to identify vulnerabilities in board renewal and performance and, in some cases, establish protocols for engagement. And all of these demands have pushed issues around board composition and diversity to the fore, as boards cannot afford to have directors around the table who aren’t delivering value.

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Glenn Davis: ”Prioritizing Cybersecurity: Five Questions for Portfolio Company Boards”

2016-05-23 posted by

”As the frequency and severity of cyber attacks against global businesses continue to escalate, both companies and their investors are coming to terms with a grim reality: Data breaches, or cyber incidents, are no longer a matter of if but when. Having put to rest rose-colored notions of eliminating this threat, investors are looking to boards for leadership in addressing the risks and mitigating the damage associated with cyber incidents.

Cybersecurity is an integral component of a board’s role in risk oversight. Directors have the authority, capacity and responsibility to make pivotal contributions in this area by ensuring adequate resources and management expertise are allocated to robust cyber risk management policies and practices, and ensuring disclosure fairly and accurately portrays material cyber risks and incidents.

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Citywire: ”Japanese value is not dependent on a weak yen”

2016-05-20 posted by

”The Japanese equity market has been under pressure recently from a strengthening currency, a weakening global economy and the uncertainty caused by the Bank of Japan’s introduction in late January of a negative interest rate policy. We recognise these concerns, but think that the fears of many market participants are overdone.

As value investors we still see Japan as a fertile hunting ground.

A far greater percentage of listed companies have net cash on their balance sheets in Japan than in any other major market and net cash represents a greater percentage of market capitalisation, as shown below. Furthermore, many of those companies have significant unrealised gains on real estate holdings; and many have large holdings of listed equities, some for strategic business purposes, but some for no reason other than historic relationships.

The question that has occupied the minds of value investors like us has been how that value can be unlocked, used more efficiently and returned to investors when not needed for operational purposes. In that regard, we think that 2015 was a pivotal year for listed Japanese companies.

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The Washington Post: ”A Maverick Founder Wins Enemies in Japan With Move to Dump Board”

2016-05-19 posted by

An excerpt from an article on the somewhat unique situation at Cookpad. We don’t think we have seen a story like this before, at least not recently.

”(Bloomberg) — A spat is rocking one of Japan’s most popular Internet companies after the founder moved to kick out the board, enraging staff and sending shares tumbling.

Akimitsu Sano, who owns 44 percent of Cookpad Inc., shocked investors in January by calling on them to dump all other directors of the recipe-sharing site, saying the company was neglecting its main business. The stock fell 23 percent in one day and has whipsawed with each new skirmish in a battle to control a firm with more than 85 million monthly website users.

Facing exile, as Sano’s stake in effect meant he could unilaterally replace them, the then board sought to negotiate a compromise, and by February reached an agreement for some members to retain roles. Nine directors — Sano, five of his picks and three others from the previous board — were anointed by shareholders at the annual meeting in March.

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Prof. Osugi: ”Corporate Governance – No Longer Somebody Else’s Problem”

2016-05-17 posted by

An article by BDTI’s Representative Director Professor Kenichi Osugi:

”1. Introduction

Up until very recently, discussion of corporate governance was only relevant to certain academics and the IR representatives of listed companies. However, since the Japanese government cited improvements to corporate governance as being a part of its “Abenomics” policy, corporate governance has become a broad-reaching topic that cannot be ignored by listed companies and their executives. Specifically, organizations such as the Financial Services Agency and Tokyo Stock Exchange have formulated the ”Stewardship Code” (February 2014) and the  ”Corporate Governance Code” (June 2015), and listed companies and institutional investors were forced to respond to these codes of conduct………”

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Research Report by Kohei Soga ”Scale of ESG investment in Japan”

2016-05-16 posted by

‘‘Summary: This paper will introduce the overview of the results of a questionnaire survey of Japanese domestic investment managers that have signed the United Nations Principles for Responsible Investment (UNPRI) conducted by Nikko Research Center , for the purpose of clarifying the state of environmental, social, and government (ESG) investment in Japan. Until now, ESG investment market research has focused on investment products designed for individual investors and the state of investments including those by institutional investors was never fully understood. From the results of this survey, we learned that ESG investment assets in Japan amount to 46.0 trillion yen, which is an amount that greatly exceeds the scale of individual investor-focused financial products known up until now. In addition, among the ESG investment approaches , the engagement/proxy voting was dominant. After examining the personnel structure related to ESG investment institutions, it was revealed that many institutions have the most personnel devoted to proxy voting operations. Furthermore, an examination into the characteristics of the clientele revealed that institutional investors such as pension funds are the main players in Japanese ESG investment.

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May 12th “Director Boot Camp” – Another Successful Program! Next Course: July 14th

2016-05-14 posted by

2016-05-12 17.19.39

On May 12th, BDTI held  its English Director Boot Camp , attended by a number of highly experienced participants. Participants from various companies heard lectures about corporate governance by Nicholas Benes and Andrew Silberman of AMT, and exchanged experiences and opinions at a spacious, comfortable room  kindly donated for our use by Cosmo Public Relations, a leading communications and PR firm in Tokyo.

We are planning to hold the next course on July 14th. Sign up early!

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Discussion Paper by Miyajima & Ogawa: ”Convergence or Emerging Diversity? Understanding the impact of foreign investors on corporate governance in Japan”

2016-05-13 posted by

”Abstract: The increasing share of foreign institutional investors has been a global phenomenon for the past few decades. Corporate ownership in Japan shifted from an insider‐dominated to outsider‐dominated structure after the banking crisis of 1997. On the role of increasing foreign ownership and its consequences, there are two competing views. The first view, or convergence view, is that foreign investors have high monitoring capability, and encourage improvements in the governance arrangements of firms, resulting in higher performance. Conversely, the skeptical view insists that they have a strong bias in their investment strategies and are less committed to a firm. Even though a correlation between foreign ownership and corporate polices and high performance could be observed, it could be superficial. Higher stock returns can be induced by their order demand, while performance can simply reflect foreign investors’ preference for high quality firms. To answer which view is more persuasive, this paper analyzes the impact of dramatic changes in the ownership structure on corporate governance, corporate policies, and firm value, with a focus on the role of foreign investors, particularly in Japan…………..”

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Prof. Sean J. Griffith: ”Corporate Governance in an Era of Compliance”

2016-05-13 posted by

”Abstract: Compliance is the new corporate governance. The compliance function is the means by which firms adapt behavior to legal, regulatory, and social norms. Formerly, this might have been conceived as a typical governance matter to be handled at the discretion of the board of directors. Compliance, however, does not fit traditional models of corporate governance. It does not come from the board of directors, state corporate law, or federal securities law. Compliance amounts instead to an internal governance structure imposed upon the firm from the outside by enforcement agents. This insight has important implications, both practical and theoretical, for corporate law and corporate governance. This Article pairs a detailed descriptive study of the contemporary compliance function with a normative account of its incompatibility with current conceptions of corporate governance. It argues that compliance alters the political economy of American business, challenges governance efficiency, and makes old theories of the firm new again. Prescriptively, the Article calls for greater transparency and a more limited role for government in designing corporate governance mechanisms………”

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Study by Prof. Hiroshi Uemura: ”The Attributes of Japanese Corporate Governance Influencing the Quality of Internal Controls”

2016-05-13 posted by

”Abstract: This study examines the corporate governance characteristics that influence the improvement in the quality of internal controls. Previous studies suggest that corporate governance independence and expertise affect the quality of internal controls (Krishnan et al. 2005; Hoitash et al. 2009). In Japan, however, any company that discloses significant deficiencies (SD) in internal controls has the motive to increase the independence of corporate governance to mitigate any subsequent negative consequences. As a result, independent directors are made the scapegoats, rather than allowing them to fulfill the expectation of improvement in the quality of internal controls. On the other hand, directors with financial expertise that have a high status in a company do influence the improvement in SD in internal controls. This suggests that in Japan it is important to provide financial experts with the power and authority to improve the quality of internal controls in the short term, due to the difference in the provisions between the Financial Instruments and Exchange Act (J-SOX) and the Sarbanes–Oxley Act (SOX). The requirements in Japanese Corporate Law (JCL) for independent directors are not as strict as those within SOX. Therefore, companies in which the boards are able to promote expert directors to important positions improve the quality of internal controls more often than those that are not. It is thus revealed that auditors should be able to discuss with the financial experts as to what is required to improve any significant deficiencies that are detected in the process of internal control audits……..”

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