Firms must heed calls for reform of governance
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.