Japan’s financial regulator is urging independent directors to be more active in challenging management on growth strategies and enhancing profitability, part of the country’s efforts to boost shareholder value.
(Bloomberg) — Japan’s financial regulator is urging independent directors to be more active in challenging management on growth strategies and enhancing profitability, part of the country’s efforts to boost shareholder value.
Regulators want independent directors to “play the role expected of them,” Hitoshi Hirokawa, a senior Financial Services Agency official, said in an interview. He also said that asset managers should keep companies on their toes through greater engagement.
Emulating practices in the US and Europe, Japan has introduced a series of corporate governance measures in recent years. These include mandating outside directors to make management more responsive to investors and other stakeholders.
But those efforts haven’t resulted so far in lifting most Japan share valuations to international levels. About half of the listed companies on Tokyo’s Prime Market and 60% in the Standard Market have returns on equity below 8% and price-to-book ratios lower than 1, the Tokyo Stock Exchange said in March.
By contrast, companies on the global MSCI ACWI Index have a ROE of about 13.9% and a P/B ratio of 2.63, MSCI data show.
Hirokawa expects institutional investors to interact more with companies, scrutinizing management policies and growth strategies as well as providing feedback. He recognized though that asset managers are challenged by limited time and resources.
The FSA official, who is in charge of the agency’s efforts to improve corporate governance, said the aim is to boost companies’ values on a medium- to long-term basis.
“In terms of valuations, it’s hard to say we got enough results,” he said. “There is a long way to go to reach the final goal.”
–With assistance from Ishika Mookerjee.
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