The bet­ter cor­po­ra­tion

Financial Mirror (Cyprus) - - FRONT PAGE -

Around the world, the cor­po­rate gov­er­nance land­scape is shift­ing, as ef­forts to im­prove busi­ness prac­tices and poli­cies gain sup­port and mo­men­tum. The wave of re­form has be­come vis­i­ble ev­ery­where – from tough new reg­u­la­tions in Ja­pan to sov­er­eign wealth funds like Nor­way’s Norges Bank In­vest­ment Man­age­ment tak­ing a more ac­tive ap­proach to their in­vest­ments – and it is cer­tain to con­tinue to rise.

Three fac­tors are driv­ing these de­vel­op­ments. First, to­day’s deep eco­nomic un­cer­tainty has broad­ened or­di­nary peo­ple’s aware­ness of the in­flu­ence that com­pa­nies have on pol­i­tics, pol­icy, and their own daily lives. And, as I have noted pre­vi­ously, peo­ple are not only pay­ing greater at­ten­tion; they also have more power than ever be­fore to make their voices heard.

Sec­ond, there has been a bur­geon­ing aware­ness among gov­ern­ments that eco­nomic growth re­quires a proac­tive reg­u­la­tory ap­proach. Ro­bust and re­silient economies need strong busi­nesses, and to build strong busi­nesses, gov­ern­ments must play a role in en­sur­ing high-in­tegrity over­sight of busi­ness ac­tiv­ity. Com­pany stew­ard­ship and coun­try stew­ard­ship are in­creas­ingly linked, and author­i­ties now recog­nise that pay­ing to en­sure good gov­er­nance now is far less costly (both fi­nan­cially and po­lit­i­cally) than pay­ing for the con­se­quences of bad gov­er­nance later.

In Ja­pan, the Fi­nan­cial Ser­vices Agency en­acted a Stew­ard­ship Code in 2014, with a Cor­po­rate Gov­er­nance Code from the Tokyo Stock Ex­change en­ter­ing into force this June. By cre­at­ing a more equal en­vi­ron­ment among share­hold­ers, en­sur­ing more dis­clo­sure and trans­parency, spec­i­fy­ing the re­spon­si­bil­i­ties of com­pany boards, and re­quir­ing out­side in­de­pen­dent di­rec­tors on com­pany boards, the codes en­shrine changes that make Ja­pan more at­trac­tive for for­eign in­vestors. More gen­er­ally, Prime Min­is­ter Shinzo Abe has em­pha­sised that good cor­po­rate gov­er­nance is crit­i­cal to long-term eco­nomic growth and pros­per­ity.

Toshiba’s re­cent ac­count­ing scan­dal – the com­pany was found to have in­flated its prof­its by JPY 151.8 bln ($1.2 bln) over sev­eral years since 2008 – presents an op­por­tu­nity for Ja­pan’s gov­ern­ment to demon­strate its se­ri­ous­ness about the new reg­u­la­tions. Toshiba CEO Hisao Tanaka and other se­nior ex­ec­u­tives have had to re­sign; the in­terim CEO apol­o­gised to Abe’s of­fice; No­rio Sasaki, the com­pany’s vice chair­man and

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