Ja­pan ush­ers in ‘share­holder friendly’ re­forms

The China Post - - WORLD BUSINESS -

Ja­pan on Mon­day adopted a cor­po­rate gov­er­nance code that back­ers hope will usher in a new era of trans­parency for in­vestors and nudge firms to spend some of their mas­sive cash piles.

Long ac­cused of be­ing inat­ten­tive to mi­nor­ity and for­eign share­hold­ers, and of lack­ing strong over­sight from their boards, Ja­panese com­pa­nies are be­ing called on to com­ply with the changes — or ex­plain why they can­not.

The hope is that out­liers will be shamed into fall­ing in line with re­forms that in­clude calls for com­pa­nies to have at least two in­de­pen­dent di­rec­tors and bet­ter com­mu­ni­ca­tion with share­hold­ers.

Is­su­ing timely, mar­ket-sen­si­tive in­for­ma­tion in both English and Ja­panese, act­ing in in­vestors’ in­ter­ests by re­de­ploy­ing cash more ef­fec­tively, and whistle­blower pro­tec­tions are among the other changes.

Ja­pan has long lagged its over­seas peers in cor­po­rate gov­er­nance, some­thing crit­ics blame for hold­ing back in­vest­ment in the coun­try’s firms and hurt­ing Ja­pan Inc.’s rep­u­ta­tion abroad.

The code, which of­fi­cially came into ef­fect Mon­day, is seen as a key part of Prime Min­is­ter Shinzo Abe’s broader bid to kick-start Ja­pan’s econ­omy. Some firms have taken the hint. Cash- rich fac­tory robot maker Fanuc re­cently said it would dou­ble its div­i­dend pay­out and open its first- ever in­vestor re­la­tions depart­ment — send­ing its stock sky­ward.

Other com­pa­nies have an­nounced big share buy­backs — cau­tious Ja­panese firms have a whop­ping US$1.85 tril­lion in cash on their books and they face grow­ing calls to use it more ef­fec­tively.

Ja­panese firms “didn’t see a need” to change their ways be­cause they were not be­ing pushed hard enough, said Tony Tan, head of the CFA In­sti­tute’s Asia-Pa­cific stan­dards and fi­nan­cial mar­ket in­tegrity di­vi­sion.

Whole­sale change is “still a long way off,” he said, adding “but at least there is a mech­a­nism in place.”

‘Pos­i­tive mes­sage’

Last year, the JPX-Nikkei 400 in­dex was launched to high­light firms with the best re­turn on eq­uity and other share­holder-friendly cri­te­ria.

Tokyo has en­cour­aged Ja­pan’s na­tional pen­sion fund — the world’s big­gest — to in­vest in firms listed on the new in­dex.

“The (pen­sion fund) can play a huge role by with­hold­ing in­vest­ment” in non- com­pli­ant firms, Tan said. “It will move the nee­dle.”

In­sider-con­trolled boards have been blamed for a lack of over­sight linked to a se­ries of ac­count­ing scan­dals, in­clud­ing one sev­eral years ago at cam­era gi­ant Olym­pus.

The pro­por­tion of in­de­pen­dent out­side di­rec­tors out of all di­rec­tors at more than 1,700 firms listed on the Tokyo mar­ket’s first sec­tion was about 9 per­cent in 2013 — com­pared with about 70 per­cent in the United States and 50 per­cent in the UK.

The re­forms “can and will be a con­duit for cor­po­rate change,” Ni­cholas Benes, head of the Board Direc­tor Train­ing In­sti­tute of Ja­pan, told a cor­po­rate gov­er­nance sem­i­nar in Tokyo last month.

“The pur­pose of the code is to change mind­sets.”

But crit­ics warn that real change could be a long time in com­ing and say the ef­fect is di­luted be­cause the code is still vol­un­tary.

“It sends a pos­i­tive mes­sage to the mar­ket, but its ef­fect will not be seen im­me­di­ately — it’s midto-long term by na­ture,” said Jun Yokoyama, se­nior re­searcher at Daiwa In­sti­tute of Re­search.


Pedes­tri­ans pass be­fore a share prices board in Tokyo on Mon­day, June 1.

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