CG Watch 2010
Japan
Figure 67
Above regional average for enforcement, CG culture and political and regulatory environment
Japan: Deviation of CG macro category scores from regional average 35 30 25 20 15 10 5 0 (5) (10) Rules & prac
Enforcement
Pol & reg
IGAAP
CG culture
Source: Asian Corporate Governance Association, CLSA Asia-Pacific Markets
Large amount of automatic voting
One other positive development is the fact that market disciplinary pressure is increasing from investors. Most domestic and foreign institutional investors vote and, it would be fair to say, are doing so in an increasingly informed manner (ie, making their own decisions as opposed to just automatically following the advice of proxy voting advisers). But there remains a large amount of automatic voting, something that seems of questionable value (and can produce anomalous results if an adviser gets something wrong).
Authorities do not seem to take tough line on insider trading or market manipulation
Otherwise, the record of Japanese regulators on enforcing their own corporategovernance regulations over the past three years has been mixed -as the middling score of 53% suggests. The FSA delegates enforcement to the Securities and Exchange Surveillance Commission (SESC), which is supposed to be independent. The SESC is doing more surveillance and enforcement, but much of its focus is on intermediaries (brokers), asset managers and creditrating agencies, not listed companies. Most investors we speak to consider its efforts inconsistent and that it is not enforcing laws in key areas, such as insider trading (which investors believe is fairly common in Japan, especially among local brokers). We have found little data to suggest that the authorities are taking a tough line on insider trading or market manipulation.
FSE becoming more effective; TSE pushing ahead with reforms
Independent directors are not yet mandatory - only an incremental change over next couple of years
78
Political and regulatory environment It is improvements in the political and regulatory environment where Japan shines brightest in this year’s survey. The score in this category is up 10 percentage points to 62%, from 52% in 2007, mainly due to more active regulators. Although still subject to political and business pressure, the FSA is becoming more effective. The TSE is also pushing ahead with reforms, although the heavy pressure it is under from issuers is reflected in the compromise rules it produces. The new rules on disclosure that the FSA announced in March 2010 (as highlighted above) were far from perfect, but represented quite a symbolic and refreshing departure for Japan, as did the TSE’s new rule in 2009 on independent directors. After years of denying that independent directors were necessary or even useful, Japanese regulators and some companies now accept that they have a role to play. (Although it should be noted that independent directors are still not mandatory and the TSE’s rule change will lead to only incremental change over the next couple of years.)
jamie@acga-asia.org
2 September 2010