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Business

Corporate governance reform hatches business opportunities

TV anchor Yuko Ezure is set to join Gourmet Kineya as an outside director in June.

TOKYO -- From the start of June, most Japanese listed companies will have to follow a code of conduct that aims to eliminate the opaque business practices so many are notorious for and encourage transparent, fair, timely and decisive decision-making.

     A total 2426 companies from the Tokyo Stock Exchange's 1st and 2nd sections fall under the Corporate Governance Code. They are making adjustments to meet the code's requirements, such as hiring outside directors or unloading cross-shareholdings. In fact, the array of moves is creating all sorts of business opportunities.

Offers in odd places

"Would you be our outside director?" Yuko Ezure, a television anchor, was recently asked by a former boss over an ox tongue dinner. The boss, who works for Gourmet Kineya, an udon restaurant chain operator listed on the exchange's 1st section, explained "We've been looking for the right woman for quite some time." 

     The code requires a company to have two outside directors on its board. Meanwhile, Prime Minister Shinzo Abe has made it a national goal to have women in at least 30% of leadership positions by 2020. Hiring a female outside director kills two birds with one stone.

     Ezure has 11 years experience as an anchor of business programs and in that time has interviewed more than 1,000 corporate presidents. Earlier in her career, she worked at KPMG Tax Corporation. "I told him that I know nothing about restaurant chains, but he said it was better that way to offer fresh ideas," she said of the offer. Pending approval at the company's annual general meeting in late June, Ezure will become the Osaka-based business' first female director in its 48-year history.

     Ezure told the Nikkei Asian Review that she will not present a stock exchange television program during her one-year tenure as director. 

     Qualified women are a hot commodity in Japan right now. Yuko Kawamoto, a Waseda University professor and former senior consultant at McKinsey & Company, has served as a director at multiple companies including Mitsubishi UFJ Financial Group, Yamaha Motor and Resona Holdings.

     Fujitsu will hire Chiaki Mukai, a doctor and astronaut, the first Japanese woman in space, as an outside director starting June. Housing material provider Lixil Group has invited American-British lawyer and Chairman of the UK Pension Protection Fund Barbara Judge as outside director pending shareholder approval.

     Of the companies listed on the Tokyo Stock Exchange's 1st section, just 18% had two or more outside directors in 2013, and 21% in 2014. 

End to a quintessential Japanese practice

Another major pillar of the code is cross-shareholding reform. Cross-shareholding is a quintessential Japanese practice, where two friendly companies hold each other's stocks to maintain a steady business relationship and face off any hostile shareholders together. Under the new rules, companies must explain the rationale for holding non-performing shares.

     As of March, the top 146 non-financial Japanese companies held 17.6 trillion yen ($142 billion) in non-investment shares. "With more scrutiny from outside directors and investors, companies will be pressured to unload non-strategic shareholdings or to sell off under-performing subsidiaries, creating more opportunities for local and overseas private equity investors to enter Japan," says Jim Verbeeten, a partner at consultancy Bain & Company Japan.

     As the ratio of foreign ownership increases, Japanese companies will increasingly look for ways to improve engagement with overseas shareholders.

     U.S.headquartered global investor communications and technology company Broadridge has been working with the Tokyo Stock Exchange and the Japan Securities Dealers Association to develop an electronic proxy voting platform, where overseas shareholders can receive annual general meeting proposals in English and cast their votes online.

     "Proxy processing had been very manual until the service was launched. Companies had to send out paper forms and overseas investors had to return the forms early to be in time for the general meeting," says Patricia Rosch, head of Broadridge's Investor Communications Solutions international business. Now with ProxyEdge, the electronic voting service, overseas shareholders can make submissions up until one day before a general meeting, as opposed to the old rule of 10 days. 

     Broadridge introduced ProxyEdge to Japan in 2005, when only 14 companies adopted it. Now 554 share issuing companies use the electronic proxy voting platform; representing 82% of the market capitalization of the Tokyo Stock Exchange's 1st Section. During the past year, 91 new issuers signed up for the service, a 19.6% increase from the year before.

     As Japan adopts a new corporate governance code, Broadridge is preparing for more business. "Japanese companies are seeking to be more investor friendly, recognizing the IR value of improving the proxy voting process for their institutional investors both domestic and overseas," says Rosch.

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