Youngest Japan Boards Beating Oldest With Stocks Rising 139%Masaaki Iwamoto
Youth is beating experience in Japan’s stock market, where only 4 percent of companies have boards where the average age is less than 50, generating returns twice those of corporations with older directors.
Of the companies listed in Japan where Bloomberg compiles data on the board ages, 68 have an average age of below 50. Their shares surged 139 percent in the three years through Sept. 6, a period spanning the plunge following Japan’s biggest earthquake, and the steepest rally in a quarter century after the election of Prime Minister Shinzo Abe. Among the 80 firms with boards aged 65 or older, returns were 52 percent.
“I prefer to invest in companies managed by younger people, especially young founders, because the data shows these companies tend to perform well,” said Kenichi Kubo, a senior fund manager at Tokio Marine Asset Management Co., which oversees $62 billion. “Younger people in Japan are more responsive to changing consumer tastes and technological advances.”
Younger directors are rare in Japan, where corporate culture puts a premium on seniority and 26 percent of the population is 65 or older, compared with a world average of 8.3 percent, according to data compiled by Bloomberg. Superior returns for the more youthful directors reflect bigger gains in areas of the market where they dominate, from website operators such as CyberAgent Inc. to startups including Start Today Co.
Companies directed by younger boards jumped 63 percent this year through Sept. 6 amid a rally fueled by optimism central bank stimulus and Abe’s policies will spur growth. That compares with a 34 percent increase for the Topix index, the broadest measure for Japanese equities and best performer among developed markets. The Topix rose 1.5 percent to 1,190.22 today in Tokyo, extending its 2013 advance to 38 percent.
In the U.S., younger executives trailed their older peers, according to data compiled by Bloomberg. Companies on the New York Stock Exchange with directors averaging below 50 years saw shares fell 3.4 percent in the past three years, compared with a 60 percent gain for those 65 or older. On the Nasdaq, the younger group returned 34 percent against 55 percent for the older in the same period.
“Leaders of American companies are not afraid of aggressive changes, no matter how old they are,” said Tatsunobu Maita, who heads Tokyo-based consultancy HR Business Partner Inc. “Older executives in Japan tend to avoid risks and maintain the status quo, because they were promoted through seniority and second chances are rare.”
There are 1,782 companies listed in Japan where Bloomberg compiles data on their three-year returns and the age of their boards. Directors below 50 oversee corporations with a mean market value of 70 billion yen ($704 million), compared with 522 billion yen for their elders, the data show.
Even as the Topix fell into a bear market with a 22 percent plunge in the period between the record 2011 Fukushima earthquake and when elections were announced in November that returned Abe to power, companies with younger leadership gained 5 percent.
Japan Best Rescue System Co., founded in 1997 by the now 46-year-old Nobuhiro Sakakibara, surged 461 percent in the three years through Sept. 6. The Nagoya-based company takes care of everyday problems for clients, such as fixing locks and plumbing leaks. Net income rose to 90 million yen in the quarter ended June 30 from 50 million yen a year earlier.
“Our executives are promoted based on merit,” said Chief Financial Officer Yoshio Suzuki, 54. “We need to open up new markets, and young people with a flexible attitude who are sensitive to opportunities fit our business very well.”
The average age of the five board members is 43. Atsushi Kasai, the youngest at 35, worked his way up from part-time employee to heading a real-estate support division before being named director, according to Suzuki.
Yoshitaka Nojiri was 26 when he created Take And Give Needs Co. The wedding-planning firm, with a board that averages 45, posted net income in the year ended March 31 that more than doubled to 1.1 billion yen from a year earlier. Its shares surged 121 percent this year through Sept. 6.
Industries that emphasize technology and where the business environment is changing magnify the advantages offered by younger Japanese leaders, according to Yamato Sato, a professor of management at Keio University, the nation’s oldest private college.
Of the Japan-listed companies with boards in the younger group, 23 are in the information-technology sector, the Bloomberg-compiled data show.
At Start Today, directors have an average age of 40 and shares of the online clothing retailer have surged 209 percent in the three years through last week. CyberAgent, a blog media website operator, is directed by the youngest board in the sample group, with an average age of 36.
“A lot of Japanese companies are in need of drastic change and young people tend to manage well under current circumstances,” Sato said. “They have a better vision of where the global economy is heading and what people want.”
The company with the oldest board is Kubotek Corp. The maker of visual inspection devices has directors averaging 72 years of age, data compiled by Bloomberg show. Mamoru Hosaka, who has served on the board since 2000, is 93. Kubotek’s shares fell 16 percent this year through Sept. 6.
Japan’s 2010 population of 127 million was the world’s oldest and will shrink 17 percent by 2055, the fastest decline among developed economies, according to United Nations data. People 65 and older will rise to 39 percent of the total, the National Institute of Population & Social Security Research estimated this year. To control rising pension obligations, a law passed last year will allow full-time workers to stay on the job until they’re 65, past official retirement at 60.
“Many traditional companies in Japan are similar to village communities: strictly ordered according to seniority,” said Maita, the Tokyo consultant. “The age of directors will rise in accordance with the retirement age and organizations will become more ossified.”
Although youth tends to have the edge in Japan, experienced leadership isn’t always an impediment. Kosaido Co. has the 13th-oldest board in Japan, with an average director age of 68. The provider of commercial printing services has surged 277 percent in the three years through Sept. 6, compared with the Topix’s 37 percent advance.
“I feel more comfortable investing in companies directed by people who have lengthy business careers,” said Koji Uchida, a Tokyo-based money manager who helps oversee $61 billion at Mitsubishi UFJ Asset Management Co. “I prefer leaders who have seen success and failure, and older people tend to have experienced both.”
Higher returns can also come with more potential for losses. Three year annualized historical volatility, a measure of price swings, is 46 at Japanese companies where directors are younger than 50 versus 37 for those led by boards over 65.
Younger entrepreneurs tend to tap contemporaries for leadership, which may also help explain higher returns, according to Ichiro Takamatsu, a fund manager at Bayview Asset Management Co. Companies managed by the founder account for half of those where the board is 50 or below, according to data compiled by Bloomberg.
These leaders “have common interests with the shareholders and tend to take a more serious attitude toward improving earnings,” said Takamatsu, who helps oversee 129 billion yen at the Tokyo-based hedge fund.
The 159 corporations where the average age of board members is 50 to 54 gained 77 percent in the past three years, according to data compiled by Bloomberg. The share price of businesses directed by people older than 55 tend to have lower returns: 53 percent for the 55-59 group of 738 companies and 48 percent for the 737 firms in the 60-64 group, the data show.
“It’s hard for Japanese companies to be quick and dynamic if they can’t discard the outdated system of seniority,” said Takuya Yamada, a senior money manager who helps manage 140 billion yen for Astmax Asset Management Inc. in Tokyo. “Having young people on the board is more necessary than ever to prevent companies from facing a managerial crisis.”