Posts Tagged 'Japan'

Corporate Japan Answers to Nobody

by William Pesek for Bloomberg View

It’s been a dreadful week for Japanese corporations. Toshiba is facing questions about its accounting practices, Sharp is asking lenders for another bailout and Takata can’t escape bad news about its airbags.

Each of these problems is bad enough on its own. Together, they raise serious questions about the state of Japan’s corporate governance. And at a time when the Nikkei stock exchange has been rising (it’s up 36 percent over the past year), those questions are in urgent need of answers. If Japan’s leading companies are managed as poorly as this past week’s events suggest, there’s little reason to believe the country’s stock market surge is sustainable.

Prime Minister Shinzo Abe has certainly tried to improve Japan’s corporate governance. Last year, Tokyo introduced a stewardship code encouraging investors to pressure underperforming CEOs, and launched an index of 400 domestic companies that regulators believe use their cash stockpiles well. Next month it will release a national code of conduct for executives: Companies will be asked to include at least two outside directors on their boards or explain why they shouldn’t have to. Abe is also asking companies to invite more women into the executive suite. Diversity in the boardroom, the government hopes, will enhance oversight.

In theory, says Nicholas Smith, Tokyo-based strategist at CLSA, “this should trigger a flurry of fevered business and balance sheet restructuring.” In practice, corporate Japan has barely budged in response to Abe’s reforms — after decades of running their affairs free of outside interference, their inertia has proven too powerful. Read more here.

Understanding Japan’s New Corporate Governance Code

by George T. Hogan for Investopedia

In December 2014, Japan’s Financial Services Agency (FSA) published a draft for public commentary of a new corporate governance code (hereafter referred to as “the code”). The voluntarily adopted code, which the government hopes will come into effect in June 2015, takes aim at a number of prickly issues such as the rights of shareholders, capital policy, cross-shareholdings, anti-takeover measures, whistleblowing, disclosure, board diversity and structure, just to name a few. Long viewed by investors as a global pariah for its poor treatment of corporate shareholders, the Japanese government hopes this new initiative will help improve the image of corporate Japan, and make its markets more palatable to foreign capital. But can it really work? This article aims to take a closer look. (To read of another initiative being undertaken by Japan’s government to improve the country’s economic standing, see article: Japan’s Strategy To Fix Its Deflation Problem.)

Corporate governance is defined as a system of rules, practices and processes by which a company is directed and controlled. It entails balancing the interests of the many stakeholders in a company, and involves a large array of parties, often with conflicting interests. Hence, what constitutes “good practice” in this context is very much a matter of perspective. In this article we make no secret that we are addressing this debate from the perspective of the shareholder, if for no other reason than that this is the very group of people whose concerns the code appears to address. (See video: Corporate Governance.)

Unfortunately, from this perspective the picture has generally been considered rather bleak. Though Japan is a global powerhouse in manufacturing and technology, with brands that are instantly recognizable almost anywhere in the world (e.g. Toyota (TM), Sony (SNE), Panasonic, Sharp, Hitachi, etc.), ask just about any long-term observer of Japan how they feel about the country’s governance record, and they won’t be short of negative anecdotes. Take Olympus as an example, where the company sacked its new foreign president after only six months when he began asking questions about management’s attempts to conceal massive investment losses dating back to the 1980’s. Read more here.

Japan’s reforms push companies to unlock cash

by Jean-Christophe de Swaan for The Financial Times

Decades from now, if Abenomics turns out to be successful, economic historians will probably pinpoint Japanese prime minister Shinzo Abe’s corporate sector initiatives of 2014-15 as the era’s seminal reforms.

This set of self-reinforcing changes is fast gathering pace in pressuring corporate leaders to unlock their dormant cash. Few initiatives could be more effective in revitalising Japan’s economy.

The reforms are undervalued. Corporate governance reforms generally tend to be looked upon as peripheral to a government’s central policy thrust. Foreign investors have also lost interest in Abenomics, having seen the consumption tax rise erode growth and the initial laundry list of “Third Arrow” restructuring reforms peter out.

Rather than mandating change, Mr Abe’s corporate reforms forcefully nudge companies to focus on their capital efficiency by deploying one of the most effective tools in Japanese society — the threat to become, as the Japanese saying goes, the proverbial nail that sticks out and ends up being hammered.

The latest initiative, a new corporate governance code finalised on March 5, urges companies to engage with their outside shareholders, take on at least two independent board directors, and reconsider their cross shareholdings and anti-takeover measures. They can choose not to follow that advice, but will have to explain in detail why they are continuing to adopt policies the government is actively discouraging. Read more here.



Japan Flirts With Governance Reform

by Noah Smith for Bloomberg

Do you know what a “hostess” is in Japan? If you guessed that it’s a woman who greets you at the entrance of a restaurant, guess again. “Hostess” in Japan refers to a woman who works in a bar or a lounge and is paid to flirt with men. A French journalist once referred to them as “prostitutes who do not think they are prostitutes.”

Japanese corporate employees are the main customers at hostess bars. It’s a tradition in Japan to send (all-male) work teams to hostess clubs after hours, on the company dime. These sessions are often mandatory. Clients are also traditionally taken to hostess clubs by salesmen. Companies pay for these excursions , which  go under the heading of “entertainment expenses.”

These entertainment expenses are quite high. Decades of slow economic growth have squeezed corporate expense accounts, so in 2013, Shinzo Abe’s government introduced a plan to make “entertainment expenses” partially tax-deductible for large businesses (as they already are for small companies).

Needless to say, this is probably not a step in the right direction for Abe’s “Womenomics” initiative. But even more importantly, it illustrates one of Japan’s biggest structural problems: poor corporate governance. Fortunately, thanks to a new set of guidelines being introduced by Abe’s administration, governance may be about to experience a revolution. Read more here.

The Real Referendum on Abenomics

by Nicholas Benes for The Wall Street Journal

Japanese Prime Minister Shinzo Abe has framed the Dec. 14 “snap election” as a referendum on Abenomics, yet the real referendum will come afterward. In the months ahead, international and domestic investors will vote with their money to answer one main question: Will the “third arrow” of Mr. Abe’s growth agenda deliver real reform, or is Japan’s ruling party still under the sway of labor and corporate interests that like things as they are?

Investors will have a clear litmus test to use. During the next four months, Japan’s Financial Service Agency and the Tokyo Stock Exchange (TSE) will be finalizing the country’s first corporate-governance code, which with the right components would mean real economic-reform progress. Read more here.

Corporate Governance in Japan Inc. – It’s Not All Bad

By Isabella Steger, May 16th 2013, The Wall Street Journal

The history of shareholder activism in Japan might be littered with failures, but there are some signs, albeit small ones, that things could be changing.

An attempt by hedge fund Third Point LLC’s founder Dan Loeb to shake things up at Sony Corp.  is shining the spotlight once again on corporate governance in Japan. Long-time observers may remember past battles such as U.S.-based fund Steel Partners Holdings L.P SPLP versus Sapporo Holdings Ltd. and The Children’s Investment Fund versus Electric Power Development Co.  which didn’t end happily for the foreign funds, with Steel Partners withdrawing from the country. Continue reading…


Accelerating into trouble

by The Economist, February 11, 2010.

It is hard to overstate the importance of Toyota in Japan’s business psyche. The company has long been regarded as the pinnacle of Japanese innovation, manufacturing quality and industrial strength—particularly since it overtook General Motors in 2008 to become the world’s biggest carmaker. Its “lean” manufacturing techniques and culture of continuous improvement were the envy of the business world. Companies sent delegations to tour Toyota’s factories in the hope that some of its magic would rub off on them. Within Japan the firm was considered the nation’s industrial champion, as the sun seemed to set on other giants such as Sony and Hitachi.

But within a few weeks all this has changed. Problems with “unintended acceleration” of its cars, which the firm has only belatedly taken seriously, have triggered an escalating crisis and the recall of a whopping 8m vehicles. Toyota’s woes were compounded on February 9th when it said it would also recall 440,000 hybrid vehicles, including the celebrated Prius, to fix a problem with their brakes. The firm’s reputation for quality, on which the business was built, is shattered. Its market capitalisation has dropped by an amount roughly equal to the entire value of Ford. But the greatest damage has been done by its misreading and mishandling of the crisis (see article)…(continue reading)

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