Japan Inc. Fights Back on Governance Overhaul as Waste of Time

  • Companies say asset managers are going through the motions
  • Institutional investors seen as too focused on short term

Many Japanese companies aren’t happy about the biggest overhaul of corporate governance in decades -- and they’ve been letting the world’s biggest pension fund know.

Investors have been wasting their time with pointless questions and meetings, some firms responded in a survey by the $1.3 trillion Government Pension Investment Fund published on Thursday in Tokyo. Not only that, asset managers are too focused on the short term, prioritizing dividends and share buybacks over sustainable growth, some companies said. As Prime Minister Shinzo Abe attempts to make Japan Inc. invest record cash hoards, more firms complained about investor questions on capital efficiency than those that welcomed them, the survey showed.

While about 60 percent of companies said they appreciated the changes in investor behavior after Abe started new codes for investors and firms, the responses show a groundswell of discontent about Japan’s attempts to move closer to the U.S. model of shareholder capitalism. GPIF has attempted to help accelerate this process by signing up for the stewardship code and asking its asset managers to explain what they’re doing to promote better behavior at the companies in which they invest.

“There are many companies which pointed out undesirable changes,” GPIF said in a statement on Thursday. They said investors are just ticking boxes, it said.

‘Amateurish Phase’

The survey, conducted Jan. 6-22, received answers from 260 of the 400 firms in the JPX-Nikkei Index 400, a measure designed to showcase Japan’s most efficient companies. About 21 percent of respondents said they found questions about capital policy desirable while 32 percent said they didn’t welcome them.

“These are supposedly Japan’s best companies,” said Nicholas Benes, representative director of the Board Director Training Institute of Japan, which offers director training and corporate governance advice. “I think there are gaps in understanding on both the asset manager and the corporate side. In many cases, we are still in an amateurish phase.”

Japan started a governance code for companies in June after creating principles for investors in 2014 to push them to meet their fiduciary responsibilities. GPIF, a signatory of the code, has been discussing ways it can make its external managers press companies to use their cash better. The fund will favor managers who actively engage more with companies by giving them more money, it said in January.

The Spirit

Thirty-nine percent of respondents said they saw no change in investors’ behavior after the introduction of the stewardship code, the survey showed. The report also cites an unnamed iron and steel producer saying many investors don’t care about medium to long-term growth and are instead focusing on dividends and share buybacks.

“Many asset managers aren’t as accustomed to this engagement stuff as they make out,” Benes said. “It’s hard to change behavior which for decades has been about scratching each other’s back. No company is going to say they love being told to change their behavior after 30 years.”

Before it's here, it's on the Bloomberg Terminal.