IR30: A look back at summer 1990 – Japanese IR

‘Domestic investor relations in the western sense is practically non-existent, but the twin desires of foreign firms to tap Japanese capital markets and of Japanese corporations to attract foreign investment have come to the fore,’ wrote Paul Dionne and David Lake for IR Magazine with a story published in summer 1990. 

Focusing more on Japanese money flowing out to foreign companies than on IR at Japanese firms, the pair noted that at the time, Japan was generating too much capital to be absorbed by the domestic market – something that had quickly turned the country into the world’s largest capital exporter. ‘At first, Japanese institutional investors preferred US treasury bonds,’ the two authors wrote, ‘but as players have gained in experience in foreign markets, so the range of choices of selected investments has broadened to include everything from Spanish equities to Singapore warrants.’

Cross-border IR – in this case from Japan to the West – ‘is growing at a phenomenal rate,’ they said – and Maurice Colton, then head of the Dewe Rogerson Tokyo outfit, agreed.

‘In the future, we will see even more funds flowing to foreign markets, partly because of performance demands. I see no reason for that to stop,’ he told IR Magazine. ‘Companies must make sure the Japanese are happy with what they are buying. They must also not expect them to adopt our way of thinking. The Japanese will listen to what we say, and take the parts they like,’ he advised companies at the time.

But even as Dionne and Lake were putting together their summer 1990 cover story, and writing that ‘whether to list in Japan is one of the most difficult choices a firm must make in the global capital market,’ the bubble was getting ready to burst. 

By August 1990, the Nikkei stock index had plummeted to half its peak. By late 1991, asset prices had begun to fall and by early 1992, asset prices had visibly collapsed with the economy continuing to decline for more than 10 years – a period often referred to as the Lost Decade.

Stewardship and governance 

Today, Japan’s Government Pension Investment Fund (GPIF) is the world’s largest with assets of some 156 tn yen as of the end of March 2018 – with almost 24 percent allocated to foreign stocks, according to Reuters. And it seems that Colton’s prediction that the Japanese would not adopt a Western way of thinking was not entirely correct.

Back in 1990 Dionne and Lake wrote that ‘the most annoying problems brokers faced in getting information about non-Japanese companies included language difficulties, a time-lag in receiving information and cultural differences’. 

Now the conversation is all about stewardship and corporate governance.

There are growing signs that Prime Minister Shinzō Abe’s drive to improve the country’s economy by pushing to get more women into the workforce, improve corporate governance – and not just as a box-ticking exercise – and a renewed push for institutions to adhere to the country’s 2014 stewardship code, are finally starting to have an impact. 

Last year the MSCI launched two new Japan-focused Indexes – one of which was titled the MSCI Japan Empowering Women Index. Sarah Crawshaw, managing director for Asia Pacific at Taylor Bennett Heyman, writes that the firm is seeing a growing number of Japanese companies seeking strategic communications support and more foreign shareholder activists are launching campaigns against Japanese companies.

This last development is largely down to the GPIF’s renewed push for asset managers to follow the country’s stewardship code, says Hitoshi Sugibuchi, representative director at Tokyo-headquartered Sessa Partners – something that is giving foreign activists more confidence they can win support for their campaigns.

‘The GPIF has said it will allocate its money only to those that follow the stewardship code,’ Sugibuchi told IR Magazine in June. ‘As such, most asset managers in Japan have begun to follow the code.’

What this means for activism, he explains, is that support can be gathered where before a campaign might have fallen on deaf ears: ‘US activists understand that if they start a campaign at a certain company, Japanese institutions might support them if their demands are reasonable.’ 

And the effects are already starting to show, he adds: ‘Pressure from shareholders has started to work to improve corporate governance.’ 

As IR Magazine builds up to its 30th anniversary issue – the upcoming winter 2018 issue, which will be the 279th edition of the industry’s flagship magazine – we’ll be posting more throwbacks to old covers, revisiting some of the hot topics from the past 30 years of investor relations and hearing from some of the industry titans. 

You can look back over old covers and keep track of all things 30th anniversary at our dedicated hub.