Japan yesterday 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.
Photo: AFP
Issuing timely, market-sensitive information in English and Japanese, acting in investors’ interests by redeploying cash more effectively and whistleblower protections are among the other changes.
The code, which officially came into effect yesterday, is seen as a key part of Japanese Prime Minister Shinzo Abe’s broader bid to kickstart 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 firms 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.
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, said Tony Tan, head of the CFA Institute’s Asia-Pacific standards and financial market integrity division. “It will move the needle.”
Insider-controlled boards have been blamed for a lack of oversight linked to a series of accounting scandals, including the one at camera giant Olympus Corp.
The proportion of independent outside directors out of all directors at more than 1,700 firms listed on the Tokyo bourse’s first section was about nine percent in 2013 — compared with about 70 percent in the US and 50 percent in Britain.
The reforms “can and will be a conduit for corporate change,” Board Director Training Institute of Japan representative director Nicholas Benes told a corporate governance seminar in Tokyo last month. “The purpose of the code is to change mindsets.”
However, 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 mid-to-long term by nature,” Daiwa Institute of Research senior researcher Jun Yokoyama said.
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