Guest post offering an account of interviews conducted with investors and governance experts
My recent trip to Tokyo was quite productive and eye-opening ‒ not only figuratively, but also literally given that I had to overindulge in my caffeine intake to combat the jet lag.
After several days of intense discussions with Japanese IR intermediaries and corporate issuers, I heard the same sentiment over and over again: many Japanese companies have become very interested in improving their IR and corporate governance efforts.
This trip was very different from my many previous trips as I felt change is starting to happen. Despite my very minimal understanding of Japanese, we were speaking the same language – improving IR! During the long flight back I thought, ‘I’ve heard from Japanese companies, let’s see what their major shareholders have to say.’
What foreign portfolio managers and analysts had to say:
I spoke with a number of leading portfolio managers/analysts who echoed the same sentiment. Nearly all of the investors said they are always bullish toward Japan – but they find it very difficult to find companies to invest in. They are looking for well-managed, good businesses that treat shareholders as owners. Future expected returns on capital is another important criterion for these investors.
They would like Japanese companies to demonstrate that their business strategy is geared toward maximizing shareholder returns. One portfolio manager said ‘returns are usually below average and growth strategies are not resulting in genuine returns to owners.’
The fund managers all suggested Japanese companies begin to show shareholders that they care about them. As I probed further, asking how they would like this to be achieved, they encouraged increased outreach, via press releases, the IR sections of corporate websites (written in English) and company visits.
What the proxy/governance experts are saying:
We recently spoke to three leading corporate governance experts, two in the US and one based in Europe. The three expressed specific concerns toward Japanese companies.
They would like to see more transparency from Japanese companies. Leading up to the AGM, they would like to receive the proxy materials translated into English in a timely fashion. Rather than having to get the materials translated in-house and then having to analyze the contents, they would prefer that English versions be made readily available, which would allow them ample time to evaluate the agenda items.
Considering that they have only around two weeks to expedite the voting of proxies, any efforts to make the review process more seamless would be much appreciated.
While they did not want to be viewed as egotistical, they proposed that Japanese companies shift more toward governance practices accepted by major countries in Asia and Europe, as well as the US.
The governance experts appreciated that the governance structure in Japan is moving to institute three independent directors on boards, but they would ultimately like to see 50 percent of boards as independent.
They emphasized that Japanese companies need to understand the importance of the independence of outside auditors as well as outside directors, adding that their firms will normally vote against auditors that are not independent as this potentially creates major conflict of interest.
They understood that what they are asking for has to be adopted by law and hoped the regulatory body in Japan hears their plea.
Having these intense discussions with members of the investment and governance community helped me to adjust rather quickly back to the eastern US time zone. Clearly, the participants were extremely candid in their responses, conveying their concerns and suggestions to Japanese corporates.
Julian Cassells is president of Alpha Advisory Associates.
