Abstract
Asian Corporate Governance Association White Paper (2008) and global investor surveys (Yanagi in The ROE revolution and financial strategy. Chuokeizai-Sha, 2015.) have revealed that foreign investors have harsh views and deep dissatisfaction with Corporate Japan in connection to its value-destruction arising out of the lack of corporate governance (CG) and capital efficiency (ROE) in comparison with the other advanced nations in the world. This situation is deeply rooted in the historical bank-dominance culture in Japan as evidenced by significant cross-shareholdings. However, in the wake of a collapse of the bubble economy and ensuing unwinding of cross-shareholdings, Japan has been transitioning from debt-governance to equity governance. Having learned from the voices of foreign investors who replaced cross-holdings, the Abe administration in Japan finally adopted the Stewardship Code (SC) in 2014 and the Corporate Governance Code (CGC) in 2015. This will be the dawn of Japan’s CG improvement. This chapter serves as an introduction to this change.
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Notes
- 1.
ACGA (Asian Corporate Governance Association ), the headquarters of which is located in Hong Kong, is an NPO that promotes improving corporate governance of Asian corporations and is an opinion leader of corporate governance. The ACGA white paper is signed by ten prominent, long-term oriented investors: Aberdeen Asset Management (Singapore), Alliance Trust Asset Management (Hong Kong), British Columbia Investment Management Corporation (Canada), California Public Employees’ Retirement System (U.S.), California State Teachers’ Retirement System (U.S.), F&C Asset Management (UK), Hermes Fund Managers (UK), PGGM (Netherlands), Railway Pension Investments (UK), and Universities Superannuation Scheme (UK.).
- 2.
The research design employed in this book is based on global investor surveys supported by UBS Securities . The author could successfully obtain valid responses from more than 100 companies around the world every year. The total amount of Japanese stock investment of respondents is basically about 100 trillion yen (estimated amount at the end of March 2015 by UBS Securities ). As a tendency, overseas investors are more severe and vocal than Japanese investors.
- 3.
- 4.
A symbolic about-face or dramatic makeover example of the impact of introducing corporate governance is as follows: After FANUC Corporation’s stock prices rose sharply, in an article interviewing the CEO of FANUC corporation in Nikkei newspaper on March 13, 2015. CEO Yoshiharu Inaba said, “We will think highly of dialogue with investors, and we are intending to promote shareholders’ return.” The share price hike of FANUC may be attributable to the fact that was disclosed at the beginning of February: Third Point LLC, a prominent shareholder activist , acquired FANUC stock, and request of share buyback was reported. However, rather than the stock acquisition and request by Third Point LLC, it is pointed out that root cause of the FANUC’s change was “Corporate Governance Code.” On April 28, 2015, the Nikkei stated the decision made by FANUC resulting from the dialogue: largely, shareholder returns aimed to double the dividend payout ratio and introduction of an outside director. With that, FANUC stock prices are rising sharply again.
- 5.
Data of the flash report in FY2013 by Nomura Securities Co. Ltd. Cross-shareholding ratio, in a broad sense, is the total ratio of shareholdings by listed companies (excluding life insurance companies), that is, mutually holding stock of other companies including property and casualty insurers.
References
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Financial Services Agency, Tokyo Stock Exchange, Inc. (2015). Japan’s Corporate Governance Code [Final Proposal] Seeking Sustainable Corporate Growth and Increased Corporate Value over the Mid-to Long-Term.
Kondo, K., Yanagi, R. (2013). Financial, IR & SR strategies for improvement of Corporate value. Chuokeizai-Sha.
Life Insurance Association of Japan. (2015). Survey results on approaches toward enhancing equity values FY2014. Life Insurance Association of Japan.
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Yanagi, R. (2015). The ROE revolution and financial strategy. Chuokeizai-Sha.
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Yanagi, R. (2018). Dawn of Corporate Governance: Japan Must Change. In: Corporate Governance and Value Creation in Japan. Springer, Singapore. https://doi.org/10.1007/978-981-10-8503-1_1
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DOI: https://doi.org/10.1007/978-981-10-8503-1_1
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