beyond corporate governance - what is expected of a company in the post financial crisis era?
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Nami Matsuko, Head of Corporate Citizenship Department - Nomura Holdings, Inc. - JapanTRANSCRIPT
Beyond Corporate Governance -What Is Expected of a Company in
the Post Crisis Era? -
Nami Matsuko
Head of Corporate Citizenship Department
Nomura Holdings, Inc.
May 27, 2010
© Nomura Holdings, Inc.
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l. Current Discussion and Rule Changes on Corporate Governance
ll. Where Have We Come so far?
!(Case 1) Takeover Defenses
(Case 2) Independence on the Board
lll. What is expected in Post-Financial Crisis Era?
TOPICS
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I. Current Discussion and Rule Changes
on Corporate Governance
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Discussion at government level has started
* Please refer to next pages for topics covered
General General shareholders’ shareholders’
meetingmeeting
General General shareholders’ shareholders’
meetingmeeting
20102009 2008
June
companies
June JuneDec
METI Report Released * (17/6/2009)
March
MOJ/
DPJ
2011-12?
MOJ-led discussion
for company law
TSE
FSA
Report Released
(23/4/2009)
Rules for Board*
and Disclosure (30/12/2009)
Report Released * (17/6/2009)
Rules for Disclosure
(Governance, Cross-Shareholdings, Compensation etc)
Report Released (30/6/2009)
?UK Takeover
Rule
Study Group
Public Comments (19/5/2009)
Rules for Placing *
(24/8/2009)
DPJ – draft of new company law for
“listed companies”
(*Introduction of independence (*Introduction of independence needs to be completed in 2011)needs to be completed in 2011)
General General shareholders’ shareholders’
meetingmeeting
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Comprehensive Topics are covered
TSE (Listing Rules) FSA (FEIL) METI DPJ (MOJ)
Main body of discussion
Comprehensive Improvement Program
for Listing System
Financial System Council's Study Group for Strengthening the Competitiveness of
Japan's Financial and Capital Markets
Corporate Governance Study Group
Advisory Committee
(Feb. 2010 -- )
Themes
Third Party Share Issuance (Placing)
Cash-Out via Reverse Stock
Proxy voting related matters, disclosure of voting results
Management Buy Out
(Takeover Defenses / Rights Plans)
Issues regarding Equity Finance / Capital Raising Third Party Share Issuance (Placing) Issuance of MSCB (Moving Strike
Convertible Bonds) Squeeze out of minority shareholders Subsidiary Listing Governance of Group Companies Corporate Governance (Structure of the
boards, Independence, Statutory Auditors)
Executive Compensation disclosure Proxy Voting, dialog between investors
and companies Cross-shareholdings (Defense Measures / Rights Plans)
Corporate governance structure
Independence of the Board (outside directors and statutory auditors)
Number of outside directors
Independence on the board
Employee Representatives on Statutory Auditors Board
Group related rules – protection of minority shareholders at parent company on actions at subsidiary level and vice versa
No subsidiary listing
Pre-emptive Right (Rights Issue?)
(M&A / TOB rules??)
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II. Where Have We Come so far?
(Case 1)Takeover Defenses
(Case 2) Independence on the Board
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Investors vs. “Corporate Japan”
Increase in Foreign Ownership
and
Decrease in Cross shareholdings
Decrease in Foreign Ownership
and
Slight Increase in Cross shareholdings
2009 ~
Mid 1990’s ~
2005 ~ 2007
Early 2000’s
~ Mid 1990’s
Has Confrontation been eased and Constructive dialog begun?
Changes in the attitudes of both Corporation and Investors were observed
Confrontation with activists and institutional investors has been intensified
Hostile takeover attempts and creeping share acquisitions
Proxy voting, shareholder proposals, direct communication
Adoption and Use of Rights Plans (Defense measures)
Confrontation with activists has begun
Hostile takeover attempts and proxy fights
Communication with institutional investors
IR activities
Response to “Sokaiya” shareholders (Corporate Mafia)
FINANCIAL CRISISFINANCIAL CRISIS
Corporate Governance Rule Changes
Are rules (substantial and disclosure) comprehensive enough?
Do rules serve the purpose? What were to be changed?
Dilution caused by Equity financing / large scale public offering
Investors coming back to
Japanese Market?
~ 2008
NEXT step for Japanese companies is to gain investor confidence
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(Case 1) Takeover Defenses
6 10 9 8 3
140
560 563
10
362
0
50
100
150
200
250
300
350
400
450
500
550
600
J an 2005 J an 2006 J an 2007 J an 2008 J an 2009
Advance Warning Type
Trust Type Rights Plan
number of companies( )
Newly adopted: 224 companies
Shift from Trust Type Rights Plan: 1 company
Cancellation: 3 companies
Newly adopted: 131 companies
Shift from Trust Type Rights Plan: 2 companies
Cancellation: 3 companies
Newly adopted: 206 companies
Shift from Trust Type Rights Plan: 1 company
Cancellation: 9 companies
About 5% of all listed companies
About 10% of all listed companies
About 15% of all listed companies
Newly adopted: 22 companies Shift from Trust Type Rights Plan: 5
companies Cancellation: 22 companies
eAccess
Shiseido
WORKS APPLICATIONS
MORITEX
ROHM
Riken Vitamin
EZAKI GLICO
Aderans Holdings…
June June June June June
More and more companies drop takeover defense measures
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(Case 2) Independence on the Board
Minimum standards for governance would help to recover
investor confidence.
Change in governance may deter problems/scandals to occur.
Independent directors may be well positioned to understand
and monitor the long term policies of companies such as R&D
which is necessary for sustainable long term growth.
Independent directors should act for the interest of minority
shareholders who are not represented by anyone otherwise.
Statutory Auditor system serves its purpose, but their authority is
limited (no voting right at board meetings, etc)
The role of outside directors is not to give opinions and
advice based on industry specific expertise.
Supporting Opinion
Corporate governance should be left to the decision of each company.
Chance in governance structure does not enhance corporate
performance and could not prevent financial crisis in US.
Directors in Japan, inside or outside, are not working solely for
minority shareholders but for all stakeholders, and outside
directors are not be motivated to work for them.
Statutory Auditors provide monitoring function through their
participation in the board meeting in their capacity to “audit” the
legality of the board action, including the discharge of fiduciary duties.
Outside directors without industry specific expertise can not give
sound business advice to the board as expected.
Why should governance issues be prioritized in the face of financial
crisis?
Dissenting Opinion
Expected roles of independent directors perceived by corporations and investors (and among investors) are not the same. Independence from the management/executives in order to protect minority shareholders by solving conflict issues?
e.g. Stance towards hostile takeover, Activation of poison pills, MBO/Privatization, Listed subsidiary Advice to the management on compliance and financial (cost of capital, dividend / repurchase policy) to minimize downside
risk? Advice to the management based on industry and technology to increase value of the company and to maximize upward
return? Independence either on Board of Directors or Statutory Auditors is required >>> should the same role be expected?
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(Case 2) Independence on the Board
How can we make it work?
IndependentCommittee
Plans adopted / activated by
Outcome
Hokuetsu vs. Oji Paper(2006)
Yes (3, non-business related)
No outside directorsBoard
Independent committee recommended to activate the plan.Board decided not to issue rights but undertook "private placement"
Bulldog vs. SP(2007)
N.A.Shareholders
(after tender offer was launched)
Shareholders approved the activation and the dilution was caused. SP received cash as economic compensation.
Sapporo vs. SP(2007 ~ 2009)
Yes (3 from business and
academic)Outside directors present
Board Shareholders⇒
After Q&A period (8 months) and board examination period (2 months), Independent committee and Board concluded that SP would cause damage to shareholder value (2008). SP withdraw takeover proposal, and Renewed rights plan was approved by shareholders(2009).
※ Renewed rights plan approved by shareholders in 2009 has a provision to limit the time for Q&A and board examination period.
Toyo Denki vs. Nidec(2008)
Yes (3 from lawyer, academic and outside
statutory auditor)No outside directors
Board On the closing of Q&A period (3 months) and before the start of board examination period, Nidec dropped its proposal.
Cases in which the activation of Rights Plans was deliberated at “Independent Committees”
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III. What is Expected in Post-Financial Crisis Era?
Corporate governance through capital market mechanisms has been recognized as a "means" to ultimately enhance shareholder value.
In recent years, new rules and regulations for market-driven corporate governance have been introduced in Japan and other Asian countries, albeit with different timetables and content.
Unfortunately, compliance with these rules is sometimes seen as more of an "end" than a "means".
In this post-financial crisis era, re-thinking and re-designing corporate governance in a broader context including an ESG and CSR viewpoint may be a good start for all stakeholders - including shareholders - whose ultimate common goal is enhanced corporate value.
Re-definition or Fiduciary Duties on the side of investors and sponsors is also crucial to advance corporate governance which should be the basis for sustainable growth of companies.