“I feel it’s a one-off. When I talk to Japanese business leaders they shake their heads and say, ‘What on earth did they think they were doing?’ Not just in how the company was run, but in sacking Woodford summarily when it was obvious there was something very bad going on,” said Olcott, also of the Judge Business School, University of Cambridge.
“Most Japanese people would see that as extremely egregious behavior, although I don’t think it’s a sign of any systemic issues relating to the governance of Japanese companies.”
An independent director of two Japanese companies, manufacturer Nippon Sheet Glass and insurer NKSJ, Olcott said Japanese companies were becoming more responsive to the views of their shareholders, but it was often the foreigners who spoke the loudest.Enjoying this article? Click here to subscribe for full access. Just $5 a month.
“One of the tragic things to me is that ‘shareholders’ in the minds of Japanese executives means foreign shareholders. The situation at Olympus was characterized in the Japanese newspapers as what would the foreign shareholders think of this situation – but it should be about all shareholders, and not just the foreigners,” he said.
“The general passivity of Japanese institutions is really quite sad, and I hope they will become more interested in the companies in which they are shareholders. It shouldn’t be left to the foreigners to make a noise [about governance].”
Yet corporate governance expert, Prof. Christina Ahmadjian of Hitotsubashi University said the Olympus case reflected a common pathology among Japanese companies.
“You have these executives who were appointed by the people before them. They do everything to cover up the mistakes of their seniors, everybody is in cahoots and they have this sense that we’re protecting the company and the people who came before us,” she said.
“There’s no sense of responsibility towards shareholders or anybody else, and that situation is fairly common.”
Ahmadjian has served as a director of the Japan Corporate Governance Research Institute (JCGR), which has conducted annual surveys on the corporate governance practices of companies listed on the First Section of the TSE with the aim of boosting standards.
In the 2011 survey, Sony, Toshiba and TDK took the top three rankings, with companies with better governance “tending to have more foreign ownership.”
“Companies that have good governance, at least according to our standards, tend to have truly independent directors, are good at communicating with shareholders and other stakeholders and have a clear separation between execution and monitoring. They also have a strong commitment by the CEO and the whole company to good governance,” she said.
While the link between governance and performance has long been debated, a recent study by Nomura Securities has shown a benefit for investors.
According to an April 9 report by the Nikkei, a study by the brokerage’s Kengo Nishiyama found that companies where foreign investors held at least 30 percent of shares had an above-average return on equity (ROE) of 8.5 percent, with the ROE figure for those at least 40 percent owned by institutional investors averaging 8.8 percent.
Nomura also found companies with average ROE exceeding 10 percent and with outside directors posted above-average gains in their market value.
“Since the scandals at Daio Paper and Olympus, retail investors have started steering clear of owner-run companies and firms with long-serving top executives,” the financial daily quoted kabu.com Securities’ Tatsunori Kawai as saying.
Reform drive stalls