Firms must heed calls for re­form of gov­er­nance

The China Post - - COMMENTARY -

At the an­nual gen­eral meet­ings of share­hold­ers this year, there was sig­nif­i­cant growth in the num­ber of com­pa­nies who ap­pointed out­side di­rec­tors. Firms with two or more out­side di­rec­tors, who are be­lieved to be more in­de­pen­dent than other board mem­bers, now ac­count for 46 per­cent of all com­pa­nies listed on the First Sec­tion of the Tokyo Stock Ex­change, more than dou­ble the fig­ure a year be­fore.

A ma­jor fac­tor be­hind this is the in­tro­duc­tion of the Cor­po­rate Gov­er­nance Code, a set of guide­lines for the con­duct of listed com­pa­nies that took ef­fect this month. The code calls for strength­en­ing cor­po­rate gov­er­nance through such means as ef­fec­tively utiliz­ing out­side di­rec­tors.

Re­view­ing cor­po­rate man­age­ment from an ex­ter­nal per­spec­tive is ex­pected to help pre­vent cor­po­rate ir­reg­u­lar­i­ties from oc­cur­ring and ex­pe­dite a com­pany’s ag­gres­sive busi­ness oper­a­tions. Out­side di­rec­tors are also ex­pected to bring their judg­ment to bear on mat­ters that in-house ex­ec­u­tives tend to shy away from, such as the ad­vis­abil­ity of abol­ish­ing non­per­form­ing de­part­ments.

Need­less to say, it is mean­ing­less to bring in out­side di­rec­tors as at­trac­tive dec­o­ra­tions from among a com­pany’s busi­ness part­ners and re­lated quar­ters. Even more ques­tion­able is that many com­pa­nies like to se­lect out­side di­rec­tors from among celebri­ties, many of whom know noth­ing about run­ning a busi­ness. Ef­fec­tive from April this year, the Dai-ichi Life In­sur­ance Co. de­cided not to reap­point out­side di­rec­tors if their at­ten­dance rates at board meet­ings were less than 50 per­cent.

Nip­pon Life In­sur­ance Co. has de­cided to “put un­der scru­tiny” mat­ters at gen­eral share­hold­ers meet­ings if the com­pany’s re­turn on eq­uity — the amount of net in­come re­turned as a per­cent­age of share­hold­ers’ eq­uity — has been un­der 5 per­cent for a cer­tain pe­riod of time.

Cor­po­rate val­ues should be en- hanced through fruit­ful di­a­logue be­tween man­age­ment that has in­cor­po­rated view­points from out­side the com­pany on the one hand, and share­hold­ers who are well aware of their re­spon­si­bil­i­ties as in­vestors on the other. It is re­gret­table that this year also saw a con­spic­u­ous num­ber of com­pa­nies whose ex­ec­u­tives had to apol­o­gize at gen­eral share­hold­ers meet­ings over such prob­lems as cor­po­rate scan­dals and poor busi­ness per­for­mance.

At the gen­eral share­hold­ers meet­ings of such com­pa­nies as Toshiba Corp., which has been shaken by ac­count­ing ir­reg­u­lar­i­ties, and Sharp Corp., which has plunged into enor­mous debt, there were nu­mer­ous de­mands from share­hold­ers for the res­ig­na­tion of the firms’ ex­ec­u­tives. The com­pa­nies must ac­cept the share­hold­ers’ crit­i­cism with sin­cer­ity, to make the crit­i­cism pre­cious in­put. ————This is an abridged ver­sion of an ed­i­to­rial pub­lished by The Yomi­uri Shim­bun on June 28.

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