By Dan Mannix
In the typical Japanese corporate view of stakeholder capitalism shareholders were ranked so far below customers, employees and global society in general, that they had become all but invisible. Things are, however, changing.
The ostensible purpose of Prime Minister Abe’s (no doubt opportunist) decision to call a snap election in December 2014 was to confirm his mandate for the so-called “third arrow” reforms which he has been trying, with very limited success so far, to push in his “Abenomics” programme. As part of this initiative he has been leaning on corporate Japan to reduce its excessive cash pile and to pay its employees more, echoing similar complaints from shareholders over the years. There has also been the introduction of a Stewardship Code for big investors and we can expect a corporate governance code to be coming soon. The zeitgeist has changed and so, belatedly, has LDP policy.
Corporate governance reform in all the developed economies remains an incomplete process and so it is interesting that stewardship codes have appeared in a number of countries, including Japan, which encourage the big investing institutions which either own companies or represent those who do to get more actively involved in the management thereof.
In Japan’s case, interestingly, the stewardship code has preceded a national set of corporate governance principles. This makes it the only country in the world to come at the question of how companies should best be run from the investor side first—perhaps a sign of a pragmatic assumption that without the investment side of the governance coin, companies may well be slow to comply with such corporate principles, which are likely to be voluntary in any case.
In truth, most investing institutions are as yet ill-equipped to meet the new responsibilities implied by stewardship codes, but it might be argued that the philosophical barriers to such an approach are less formidable in Japan than anywhere else. The old networks of zaibatsu, keiretsu, cross-shareholdings and the rest may have resulted in institutionalised sclerosis in Japanese business but they were, at least, based on assumptions of mutual support, and not the kind of open market confrontation seen with the US model of shareholder engagement in general.
We believe that this is the only kind of shareholder engagement which can succeed in Japan and, as such, this “constructive engagement” approach might be seen merely as a child of necessity, but its outstanding success might offer a clue as to the way in which shareholders might best exercise good stewardship elsewhere. The difference between “constructive engagement” and “active stewardship” might seem vague or hypothetical but, if Japan’s investing institutions are starting to demonstrate a talent for the latter, they may turn out to be world leaders, not laggards, in this important area.
Dan Mannix is chief executive at RWC
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