TOKYO -- A growing number of large Japanese companies are barring independent directors and auditors from holding the same posts at too many other companies, aiming to secure the undivided attention of qualified experts.
Reports submitted by the end of last year show that 71 of the 225 components of the Nikkei Stock Average have set some conditions, according to the QUICK Corp. ESG Research Center.
Hitachi sets a maximum of four companies, excluding itself.
The corporate governance code adopted by the Tokyo Stock Exchange last year specifies that a listed company should appoint at least two independent directors. Positions at outside companies "should be limited to a reasonable number," it says.
Hitachi Construction Machinery and Hitachi Metals have a ceiling of four outside companies, in line with the parent. Nippon Paper Industries has the same cap. DMG Mori and Asahi Kasei set a maximum of three companies, while SoftBank Group's limit is "a few." Honda Motor asks that the president be notified when an outside director or auditor is tapped to oversee another company.
Businesses are hungry for outside expertise for reasons beyond simply complying with governance guidelines and preventing scandals. Continued growth in an increasingly competitive landscape demands fresh perspectives that longtime insiders lack.
Hitachi says the limit is intended to help give independent directors and auditors enough time to not only attend board meetings, but also understand the business and prepare for discussions. When a company seeks an acquisition deal or needs a new chief from outside, independent experts' experience and connections can prove particularly useful.
The usual suspects
In fiscal 2015, 897 people oversaw two or more companies as outside directors or auditors, according to ProNed, which helps match companies with candidates. The tally increased by around 150 in a year.
Renowned professors, former corporate managers and former government officials were widely sought after when many listed companies hired independent directors and auditors for the first time last spring. Some ended up overseeing five or six companies.
Haruo Funabashi -- a Ministry of Finance alumnus and former vice minister at the Ministry of Land, Infrastructure, Transport and Tourism -- is an independent director at Dai-ichi Life Insurance and one other company. He is also an auditor at four, including Pasona Group.
Komatsu adviser Masahiro Sakane is an independent director at Takeda Pharmaceutical, Asahi Glass and three other companies. Hitotsubashi University professor Kunio Ito oversees companies including Seven & i Holdings and Toray Industries.
Annual compensation for outside directors ranges from 7 million yen to 10 million yen ($61,376 to $87,680) and is on the rise, according to ProNed.