There is a long and somewhat dishonourable tradition, known as “gaiatsu” (foreign pressure) of getting the “outsiders” ie the gaijin (slang for foreigners, literally meaning ‘outside person’) to do the dirty work or say the ugly truth that noone inside the Japanese group wants to take the blame for.
The need to appoint external directors is mainly to do with pleasing foreign investors, according to an article in the 29th April edition of the weekly magazine Nikkei Business. The trigger for this article is that along with the structural changes noted in a previous posting, Toyota announced that it would appoint external directors for the first time this March – one of the three directors even being a foreigner – Mark Hogan, formerly of General Motors.
Toyota, along with Canon, was one of the last remaining “big beasts” of the Japanese corporate jungle who held out against the trend for appointing external directors.
According to Proned, an executive search consultancy, of the 74 Japanese companies whose year ends December 31 who had not appointed external directors by March 2012 , 10 will have appointed external directors by March 2013, resulting in external directors being present in 65% of companies that they track, 8% up on the previous year. The Nikkei says there is hidden pressure behind these changes, from the US company Institutional Shareholder Services, who has been urging that the appointment of top executives be opposed if there are no external directors. As many investors do not understand the situation in their overseas investments, they rely on companies such as ISS, says the Nikkei.
Canon’s shareholders meeting in March showed the impact – it still has no external directors, and over 30% of its shares are held by foreigners. The reappointment of Fujio Mitarai as chairman and President was only supported by 72% of voting investors, compared to 91% the previous year.
Amongst Japanese companies whose financial year ends March 31, Ohbayashi (construction giant), Kyocera and others are all introducing external directors. However many “external” directors are often from partner companies or group companies, so are not strictly external. Proned estimates only 42% of companies have truly external directors. As the Nikkei comments, the foreign pressure will not cease with the appointment of exernal directors – questions will be asked as to the quality of the directors, and their effectiveness. It would be nice to think that Japanese investors will also demand proper governance too…
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