Japan ushers in ‘shareholder friendly’ reforms
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.”
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.