Will the new Japanese prime minister continue to reform corporate governance?
KISHIDA FUMIO, the new Japanese Prime Minister, has expressed no opposition to Abe Shinzo’s corporate governance reforms. His predecessor’s efforts to make Japanese companies focus more on shareholder returns and less beholden to insider management were at the heart of his economic reforms. But Mr. Kishida hasn’t said much in their favor either. Proposals for tax breaks for companies that raise wages have been part of the manifesto of his ruling Liberal Democratic Party, as have references to the importance of stakeholders over shareholders. This will worry those who believe that Japanese shareholder capitalism has not gone far enough yet.
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New test will provide more evidence of Mr. Kishida’s attitude to change the behavior of Japan Inc. In September SBI Holdings, a financial conglomerate, made an unsolicited takeover offer that would increase its stake in Shinsei Bank, a regional lender, from around 20% to 48%. SBI has the ambition to create a Japanese mega-bank through alliances and acquisitions. The consolidation of the country’s countless small banks is precisely the kind of change that corporate governance reforms have been implemented to facilitate. Shinsei Bank opposes the offer as is, making it a hostile offer, an event that is still extremely rare in Japan. He is ready to defend himself with the help of a “poison pill” which would dilute SBI, subject to shareholder approval at a meeting on November 25.
This puts the government in a difficult position. She owns approximately 22% of the voting shares of Shinsei Bank through the Deposit Insurance Corporation of Japan and the Resolution and Collection Corporation. These institutions are involved as a result of a long-ago bailout of the former incarnation of Shinsei. The government cannot sell the stake because the rules prevent Japanese taxpayers from making a loss on the investment, but it can vote on the poison pill.
Approval, rejection or abstention would shed new light on the government’s willingness to move forward with reforms that have brought about a number of welcome changes. The prevalence of cross-holdings has decreased. Among the non-financial companies listed in the Topix 100 index, the total number of shares held in this way decreased by around 20% between March 2013 and March 2020. The proportion of all listed companies adopting anti-takeover measures is also increased by 19%. in 2012 to 8% last year. Over the same period, the share of companies without an external director fell from 45% to 1%. It seems to have worked. Profits (measured by a common Japanese accounting standard) as a proportion of sales reached 6% shortly before the pandemic, the highest level since records began in the 1950s.
There is still room for improvement, says Nicholas Benes of the Board Director Training Institute of Japan. He sees disclosure as a crucial area where a policy change could produce significant results. In June, the country’s corporate governance code was revised to require the list of skills and experience of directors as well as the expansion of disclosure requirements for large listed companies in areas such as environmental policy. . “It’s a jungle of largely unreadable, sometimes encrypted, data. [documents], written in a variety of different formats, ”says Benes. Standardizing these publications and making them machine-readable would be a simple way to improve investors’ access to information.
A closer look can yield results. In June, Toshiba chairman Nagayama Osamu was ousted by shareholders following a report claiming that company management and the Ministry of Economy, Trade and Industry had withdrawn. heard to pressure big investors to support management at an annual general meeting. (He expressed regret at the “unacceptable events.”) But reform efforts are often blocked by the Japanese bureaucracy. The Ministry of Finance, the Financial Services Agency, the Tokyo Stock Exchange and the Ministry of Justice all play a role in introducing and enforcing the new regulations.
Clear leadership from Mr. Kishida could help forge a path through the swamp. The outcome of Shinsei’s takeover attempt will show whether there is still enough momentum to improve corporate governance or whether the old impulses run deep. ■
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This article appeared in the Business section of the print edition under the headline “Poison-pill popping”