In a bid to make more Japanese companies transparent in how they are run, foreign institutional investors have called for major firms in Japan to put more external directors in their board. The call was addressed to 33 major Japanese companies in cosigned letters by 20 institutional investors including the Ontario Teachers’ Pension Plan, United Kingdom’s Baillie Gifford and the California Public Employees’ Retirement System (CALPERS).
The request to add more outside directors is aimed at improving corporate governance in the aforementioned companies. As the 20 investors have a total of ¥ 7.5 trillion ($72.39 billion) in Japanese stocks, their power over shareholder votes is quite big. The stocks they hold already comprise around 2 percent of the overall market capitalization at the Tokyo Stock Exchange, which makes their hold significant. In the letter, the investors said they want to see an increase in the number of outside directors to at least a third of the current total in the next three years. Failure to do so would constitute them voting against directors appointed at shareholders’ meetings in 2017. Among those they have urged to add more outside directors were Toyota Motor, NTT Docomo, Sumitomo Realty & Development and Mitsubishi UFJ Financial Group.
While more than a thousand of companies listed in Tokyo Stock Exchange’s first section already have outside directors, they only constitute a small number of the board. Only around 60 percent of Japanese firms have external directors as compared to their Western counterparts, 90% of the listed firms, which usually have more than half of its board as external directors. Mistubishi UFJ has already complied with the request and appointed two external directors while NTT Docomo has acknowledged the need and tagged it as part of the long-term plan of the firm even though they’re not adhering immediately. A new bill is still under Diet debate hopes to turn into law the appointment of outside directors in companies in the future.
[via Nikkei Asian Review]