The changes within the GPIF are part of a broader integration of good governance practices in Japan set out under the third arrow. Last year saw the launch of the JPX-Nikkei 400 share index, comprising Japanese companies that combine higher returns on equity and good corporate governance. GPIF is already an investor, tracking the new index passively through a DIAM Asset Management fund.
“The JPX 400 index consists of 400 companies and is based on market cap, but includes governance issues and other things,” says DIAM chief executive Hideto Yamamoto.
“It is part of the government’s decision to increase governance measures in Japan in an effort to increase equity returns.”
As part of these measures, a stewardship code has been introduced for larger investors, with a corporate governance code for companies set to follow.
“The stewardship code is really interesting. If we own shares in a company the major shareholders are quite often going to be Japanese domestic institutions such as life insurance companies,” says Threadneedle’s Williams.
“If they are completely passive as shareholders, you know that there’s a large percentage of the shareholding structure that is never going to say, ‘why don’t you pay a bit more of a dividend?’”
Dan Mannix, chief executive of RWC, agrees: “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,” he says.
Mannix also points out that the approach taken by Japan is unique. “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.”
There may be cultural reasons why stewardship and governance have never caught on in Japan: with companies traditionally owning shares in other companies, they rarely pressed each other for higher returns or dividends, but as new investors enter the market, this is now changing. Furthermore, Mannix believes these traditions may actually benefit stewardship in future.
“It might be argued that the philosophical barriers to such an approach are less formidable in Japan than anywhere else,” he says.
“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.”
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