Gerhard Fasol: Corporate Governance Reforms: How the Way Japanese Corporations Take Decisions is Changing
SJCC Swiss-Japanese Chamber of Commerce Friday 12 October 2018, 18:30-19:45, JETRO Office Geneva
Prime Minister Abe’s corporate governance reforms are arguably one of the biggest success stories of his reform program to promote Japan’s economic growth. Japan’s Government in coordination with the Tokyo Stock Exchange and the Financial Services Agency changed the legal and regulatory framework for the supervision of management for stock market-traded companies, faster than many thought this could be done.
Japanese corporations are changing their governance structure, bring in independent Board Directors with fresh ideas and independent views and experience. The share of foreigners on Japan’s Board of Directors is still low (0.5%) but increasing as they bring global expertise to the top level of increasingly globalizing Japanese companies.
The presentation is based on Gerhard Fasol’s experience as Board Director and Member of the Supervisory and Audit Committee of a stock market listed Japanese group. It will explain some details of how Japanese stock market listed corporations take decisions, the different models for management supervision available under Japanese law, and how this works in daily practice.
Understanding how Japanese corporations take decisions, is a key success factor for companies seeking to achieve agreements with Japanese corporations that need Board approval, e.g. for investments, M&A, partnerships or large purchases, as well as for investors in listed Japanese company stock, and employees of Japanese companies. Knowledge about Japanese Corporate Governance is also crucial for the success of Foreign subsidiaries in Japan.
About the speaker, Gerhard Fasol
Dr. Gerhard Fasol, of Austrian origin living in Tokyo, graduated with a PhD in Physics of Cambridge University. He first came to Japan in 1984 to help build a research cooperation with NTT. In 1997 he founded the company Eurotechnology Japan KK and has been working with hundreds of Japanese and foreign companies on cross-border business development and M&A projects. For four years he served as Board Director of a Japanese stock market listed company.
He is also Guest-Professor at Kyushu University and was tenured faculty at Cambridge University, Fellow and Director of Studies at Trinity College Cambridge, and also Guest Professor in Physics at the École Normale Supérieure in Paris. In recent years he has been focusing on questions of Corporate Governance at Japanese companies, a topic about which he is frequently presenting at a wide range of organizations in and outside Japan. He served on the Advisory Board to the former Chairman of JETRO Mr Noboru Hatakeyama.
Date Friday 12 October 2018 Time From 18:45 to 19:45 (registration opens 18:30) Venue JETRO Office Geneva, Rue de Lausanne 80, 1202 Geneva, Switzerland Fee SJCC/JETRO/JCG Members and Guests: CHF 20, Non-Members: CHF 30 Organization SJCC Swiss-Japanese Chamber of Commerce
Corporate governance reforms: making Japanese corporations great again?
Understanding how Japanese Boards of Directors function helps you close deals Monday, May 28, 2018, 19:00-21:00 at CCIFJ
Stimulating Japanese companies’ growth is a key element of Prime Minister Abe’s economic growth policies. For companies to grow, management needs to be improved, Boards of Directors need to bring in diverse experiences and new ideas, and Boards need to control executive management effectively. Corporate governance is important for investors, and also for those aiming to achieve major decisions from Japanese companies. If you want to make a major sale, an M&A transaction or create a partnership with a Japanese company, you need to understand how Japanese companies take decisions at Board of Directors level.
The speaker is one of a limited number of foreigners with several years experience as Board Director and member of the Supervisory & Audit committee of a Japanese stock market listed company. His presentation will aim to give you a hands-on understanding of Japanese Board of Directors work from an insider with several years Japanese Board experience. He will illustrate this with an example, where he helped a European industrial group achieve agreement to cooperate from a large Japanese industrial group within 12 hours, by applying his Japanese Board Director experience.
He addresses C-level executives aiming to close deals with Japanese corporations, and to fund managers who have new duties to interact more closely with Japanese Boards under the new stewardship code of the FSA. He will also prepare you for coming changes to these rules.
About the speaker
Gerhard Fasol graduated with a PhD in Physics of Cambridge University, Cavendish Laboratory, and Trinity College. He founded the company Eurotechnology Japan KK in 1997 and has been working with hundreds of Japanese and foreign companies on cross-border business development and M&A projects. He first came to Japan in 1984 to help build a research cooperation with NTT. For four years he served as Board Director of the Japanese stock market listed cybersecurity group GMO Cloud KK.
He is also Guest-Professor at Kyushu University. He was tenured faculty at Cambridge University, Fellow and Director of Studies at Trinity College Cambridge, and also Guest Professor in Physics at the Ecole Normale Superieure in Paris.
Date Monday, May 28, 2018
Time From 19:00 to 21:00 (doors open at 18:30)
Venue CCI France Japon, 1F Meeting room
Admission Fee (to be paid in cash at the door or online via PayPal)
JPY 4 000 for members of the French Chamber
JPY 6 000 for non-members
Language English
Deadline for registration/cancellation Thursday, May 24, 2018, 17:00
Registration: please click on the button “S’inscrire” at the bottom of this page.
Monday, March 12, 2018, 12:00 – 13:30 at the Foreign Correspondents Club in Japan FCCJ
While many Japanese corporations are still admired around the world, too many have for years suffered sluggish growth and low profitability. A string of corporate scandals and failures have shocked the pubic and corroded confidence in Japanese business.
The government of Prime Minister Shinzo Abe has spearheaded reforms. A corporate governance code has been introduced to improve supervision of management and increase the number of independent outside directors. Change is happening faster than many expected and the reforms are generally regarded as successful. Yet, much still needs to be done to bring more diversity into Japanese boardrooms.
Gerhard Fasol is one of a tiny number of foreigners in the boardrooms of listed Japanese corporations. A physicist and entrepreneur, he has been in Tokyo for quarter of a century. For four years he has been Board Director, and since last year additionally a member of the Supervisory and Audit Committee of the Japanese cybersecurity group GMO Cloud KK, which is listed on the Tokyo Stock Exchange.
With years of experience of mergers and acquisitions and cross-border business development projects in Tokyo, Fasol is well placed to explain what’s happening inside Japan Inc. He will come to the FCCJ to discuss what we might expect from Japan’s corporate governance reforms.
While many Japanese corporations are greatly admired around the world, certain aspects of Japanese management style are believed to be holding back Japan’s economic growth. The media focus mainly on extreme cases and fraud, but the responsibilities of Directors go far beyond these defensive, compliance-type duties. Preventing fraud alone is not sufficient to ensure growth and long-term success; it is just the baseline!
Based on several years of direct experience as a non-Japanese Director of a Tokyo Stock Exchange-listed Japanese company, Gerhard Fasol will discuss the reforms to Japanese corporate governance made in recent years, and what, in his view, still needs to be done. He will also discuss issues of diversity and its importance for the quality of management in Japanese corporations.
About the contributors
Gerhard Fasol
Gerhard Fasol founded the M&A and cross-border advisory firm Eurotechnology Japan in 1997, and has worked on a large number of M&A and cross-border projects in Tokyo over the last 20 years. Since 2014 he has been a Board Director and Member of the Supervisory & Audit Committee of the Japanese cybersecurity group GMO Cloud KK, listed on the first section of the Tokyo Stock Exchange, and since April 2017 he has been a Visiting Professor at the University of Kyushu. He gained a PhD in Physics at Trinity College, Cambridge, and then became a Lecturer at Cambridge University, based at the Cavendish Laboratory, while also being a Research Fellow, Teaching Fellow and Director of Studies at Trinity College. He has worked as a research scientist at the Max Planck Institute, Stuttgart, on semiconductor and solid state physics research, as Manager of the Hitachi Research Laboratory in Cambridge, and as an Associate Professor in Electrical Engineering at Tokyo University.
Sir Stephen Gomersall
Sir Stephen Gomersall studied at Cambridge and Stanford University, and joined the Foreign and Commonwealth Office in 1970. He served in Japan as Political Officer (1972-1977), Economic Counsellor (1986-1990), and Ambassador (1999-2004), and also in the United States as Political Officer in Washington and as Deputy Permanent Representative to the United Nations in New York. From 2004 he became Chief Executive for Europe in Hitachi, and was the first non-Japanese to serve on the company’s main Board from 2011-2014. He is currently a Director of Hitachi Europe and Hitachi’s main UK subsidiaries investing in railway manufacturing and nuclear power development. He was knighted by the British Government in 2000, and in 2015 received the Grand Cordon of the Order of the Rising Sun from Japan for services to UK-Japan economic relations.
More on the topic of corporate governance reforms in Japan
The wealth and welfare of everyone living in Japan is based on the success of Japanese companies, how well companies are managed, and how managers are encouraged, supported and controlled.
Therefore corporate governance reforms are an important part of the “Abenomics” economic reform program. Many think that the corporate governance reforms of recent years have been the most successful part of Abenomics, and the former Chairman of the Tokyo Stock Exchange even said that these reforms happened much faster than he had thought.
Corporate governance mainly refers to the responsibilities of Board Directors who take part in the major decision making of every company, who supervise and support the executive management including the CEO/President of the company, and this make essential contributions to the success of companies.
Another aspect of corporate governance is the “stewardship code”, which refers to the influence of investors on company’s executive management.
Understanding decision making and the control of management, the way Japanese companies reach decisions and how this decision making is supervised, is essential knowledge for everyone who works to persuade Japanese corporations to take desired decisions, e.g. to achieve sales, partnerships, investments, or even Mergers and Acquisitions (M&A), who invests in Japanese corporations. Employees should also understand how the companies they work for are run.
This talk will explain the major components and fundamentals of corporate governance and its reforms in Japan based on several years of practical hands-on experience on the Board of Directors and on the Supervisory & Audit Committee of a stock market listed Japanese corporation.
Speaker: Gerhard Fasol
Gerhard Fasol graduated with a PhD in Physics from Cambridge University and Trinity College. He worked as research scientist at the Max-Planck-Institute Stuttgart on semiconductor and solid state physics research. He was tenured Faculty in Physics at the Cavendish Laboratory of the University of Cambridge, and he was Research Fellow, then Teaching Fellow and Director of Studies in Natural Sciences at Trinity College Cambridge. He was Manager of the Hitachi Research Laboratory in Cambridge, Associate Professor in Electrical Engineering at Tokyo University, and is founder of the advisory firm Eurotechnology Japan. He is Board Director of GMO Cloud KK, and since April 2017 he is Visiting Professor at the University of Kyushu.
Gerhard Fasol: Corporate governance reforms in Japan: hands-on insights as Board Director of a Japanese groupGerhard Fasol: Corporate governance reforms in Japan: hands-on insights as Board Director of a Japanese groupGerhard Fasol: Corporate governance reforms in Japan: hands-on insights as Board Director of a Japanese groupGerhard Fasol: Corporate governance reforms in Japan: hands-on insights as Board Director of a Japanese group
Copyright (c) 2017 by Eurotechnology Japan. All Rights Reserved.
Abstract: Changing the way Japanese corporations are managed
The Executive Management Board and the Supervisory Board are normally independent and composed of different people – except in Japan. In Japan traditionally Executive Management Board and the Supervisory Board are one and the same, ie the Executives of traditional Japanese companies supervise themselves – no surprise that the CEO seldom fires himself!
It is obvious that such self-supervision has big disadvantages, and may be one of the major reasons for Japan’s weak economic growth, and several recent corporate scandals. Companies in basically all other countries are managed by an Executive Management Board, which is supervised by a Supervisory Board, which approves or vetoes all major decisions of the company, and evaluates the performance of the Executive Manager, including the Chief Executive/CEO, and if necessary fires executives including the CEO, and selects and approves the new CEO.
To remedy this problem with the governance of Japanese corporations, Japan’s Government, the Tokyo Stock Exchange, and the Financial Services Agency have been changing the rules to improve the supervision of Japanese companies.
Speaker profile
Dr. Gerhard Fasol is one of a microscopic number of foreigners who is an independent Director on the Management and Supervisory Board, and also a Member of the Audit Board of a stock market listed Japanese corporation, and he will talk from several years of first-hand experience of how Japanese companies are supervised, which changes are on the way, and which further improvements are necessary to improve the management and supervision of Japanese corporations.
Date: Thursday October 6th, 2016, 18:30
Place: Alfred Nobel Auditorium, Embassy of Sweden, 10-3-400 Roppongi 1-chome, Minato-ku, Tokyo 106-0032
Gerhard Fasol “Corporate governance reforms in Japan” Embassy of Sweden on 6 October 2016Gerhard Fasol “Corporate governance reforms in Japan” Embassy of Sweden on 6 October 2016Gerhard Fasol “Corporate governance reforms in Japan” Embassy of Sweden on 6 October 2016Gerhard Fasol “Corporate governance reforms in Japan” Embassy of Sweden on 6 October 2016Gerhard Fasol “Corporate governance reforms in Japan” Embassy of Sweden on 6 October 2016
Japan’s globalization puzzle: intriguing questions by one of my great European friends, a great European banking sector leader
How do you explain Japan’s lack of internationalization with so many big Japanese holdings managing successfully businesses abroad (e.g. Toyota, Toshiba, Mitsubishi, etc.)
Japan’s globalization paradox – a closer look
Its not so simple: Japan is a huge country, third globally, and there are 3500 Japanese companies listed on the Stock Exchanges – they are all different. Some Japanese companies are very excellent and successful and global leaders or even No. 1 in their fields – e.g. you mention Toyota and there are many more.
There are two main factors limiting Japan’s growth
decreasing and aging population. few babies and no immigration.
structural reasons (slow growth by traditional established corporations, and too few new high-growth industries), corporate governance issues, addressed by Prime-Minister Abe’s “third arrow”, however most people agree that Prime Minister Abe’s “third arrow” reforms have been more words than action. Maybe the most or only successful “third arrow” reform are Japan’s corporate governance reforms
You mention Toshiba – Toshiba is a famous global brand in many sectors, and Toshiba has developed many important technologies in many areas from medical technology (Toshiba’s medical sector has been sold to Canon as a result of Toshiba’s accounting scandal), semiconductors (especially flash memory), but Toshiba’s profits/income averaged over 20 years is close to zero, ant Toshiba did not grow for 20 years, and went through a series of accounting scandals etc. Now as a consequence of these scandals, Toshiba has to sell off several important growth divisions, e.g. their very valuable medical technology sector to Canon. Read comments on Toshiba here: http://www.eurotechnology.com/2015/07/21/toshiba-income-restatement/
or read in Wall Street Journal about Toshiba here 2 days ago http://www.wsj.com/articles/toshibas-turnaround-needs-more-work-1471007429
Toshiba’s accounting issues are the result of a combination of mainly two factors:
20 years no growth and essentially no profits, compounded by financial problems in the nuclear industry segment as a consequence of the Fukushima Dai-Ichi nuclear disaster (Toshiba had acquired the nuclear manufacturer Westinghouse, and thus is a major nuclear industry manufacturer and contractor)
corporate governance
Companies such as Toshiba, benefit from their globally famous brand, therefore I am quite optimistic that Toshiba and other Japanese companies in similar situations can recover, if the correct management decisions are taken, and if corporate governance is improved – and this is exactly the reason why the current Japanese government sees corporate governance reforms in Japan as a major priority.
There is no doubt in my mind, that if corporate governance, management and other factors are improved, companies like Toshiba can be transformed into iconic companies, but these will be different companies than today.
As an example, both SONY and HITACHI are quite successful in their revival efforts.
Mitsubishi – there is no Mitsubishi Holding Company, but 1000s of companies with Mitsubishi in their name…
As another example you mention is Mitsubishi. There is no single company with the name “Mitsubishi” in Japan. There are 1000s of companies with Mitsubishi in their name, and most are loosely grouped into the Mitsubishi Group – which is not a legal entity, and at their core is Mitsubishi Trading Company, and Tokyo Mitsubishi UFJ Bank etc. In some cases there are cross-shareholdings within the Mitsubishi Group, but these have been reduced much over the recent years. There is no “Mitsubishi Holding Company”. Most companies with Mitsubishi in their name are independent companies, many independently on the stock exchange.
Together the Mitsubishi ‘Group’ is a big part of Japan’s economy – maybe 10-15%, but the ‘Mitsubishi Group’ is not a corporate group in the Western sense. Some of these companies are very successful and very strong – some are very good, but some have difficulties – which can also be overcome. An example is Mitsubishi Motors, an automobile maker, which was acquired around 2001 and then divested again in 2004-2005 by Daimler (then Daimler-Chrysler), and is currently being reformed by Nissan under the guidance of Nissan/Renault CEO Carlos Ghosn.
(Masamoto Yashiro is my great friend and a legend in Japan’s banking and energy industry. He built Shinsei Bank from the ashes of the bankrupt Long Term Credit Bank of Japan, and served in leadership positions (Chairman, CEO, Board Member) in Esso, Exxon, Citibank, Shinsei Bank, and the China Construction Bank)
Prime Minister Abe urges reform of corporate governance
Slow but steady change…
Reuters reports that Japan’s Prime Minister Abe urges company boards to reform corporate governance to include independent directors. I added the following comment.
Corporate governance in Japan: exercise of shareholder power and emergency situations
The question of independent Board Directors is often framed in terms of exercising shareholder power over the company, as is the main message of the article above. Another focus of discussions on the role of outside independent directors, is during emergencies, and here the Olympus case is often cited.
Corporate governance Japan: steady state contributions of independent directors
However, in my experience in Japan, including my work as a non-Japanese independent Board Director of a public Japanese company, enlightened companies will welcome independent Board Directors for their know-how and contributions to the company – in the end the market decides.
Docomo vs SoftBank
As an example, lets compare NTT-Docomo and SoftBank. NTT-Docomo has a homogeneous pure Japanese Board, while SoftBank has independent Directors from many different countries and from many different walks of life. SoftBank recently overtook NTT-Docomo in terms of market cap, revenues, operating income and net income.
In the end regulations have limitations, regulations influence behavior of course, but regulations do not produce business results or grow new business (with the exception of the compliance industry), and the realities of the market decide, as is the case of SoftBank.
My friend’s question: Gerhard, we know about the difference in profitability and growth. The question is, what made such a difference in profitability and growth
Gerhard Fasol’s answer: there are many down-stream issues, e.g. acquisition of cloud startups, execution etc. Much of this is summarized in an excellent talk by Masamoto Yashiro, which I have written up here: http://www.fasol.com/2013/10/19/masamoto-yashiro/
There are:
superficial reasons, like YEN-rate, interest rate, global recession etc
execution and management issues, the kind of stuff you learn at Business Schools
the big underlying issues
the big underlying issues are brains (=hardware) and education (=operating system and software for those brains).
There are many fantastic Japanese companies. In a free market, its no surprise that companies are born and others die. Its called Schumpeter’s creative destruction. In a way its more surprising that companies can survive so long with a long-dead business model.
Have you heard about the German company AEG? AEG built the electricity system for Tokyo a long time ago – thats why Tokyo has 50Hz and Osaka has 60Hz. AEG disappeared about 30-40 years ago. There are still some companies today licensing the AEG brand, which is still famous, however, the traditional AEG company disappeared with bankruptcy in 1980. You can read about this here: http://www.csmonitor.com/1982/0812/081250.html
it says:
“Plagued by bad management throughout the 1970s, West Germany’s 10th largest employer overextended itself and became involved in too many loss-making enterprises. It invested heavily in the wrong kind of nuclear technology and its domestic appliances business fell prey to growing competition in a stagnant market.
In the last four years, it posted operating losses of 4 billion marks ($1.6 billion) and despite massive injections of credit from the banks in 1979 and again last year, it did not recover. Mr. Duerr partly blames the worldwide recession and high interest rates for the failure.”
Sounds familiar? thats AEG in 1980.
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