View from Asia: What’s Old about ”New” Japan?

The old-guard style, marked by widespread company cross-shareholding and complacent boards, is in retreat. But resistance bubbles beneath the surface.
Tom LeanderJanuary 4, 2006

In Japan, businessmen share a passion for golf. So naturally, Shunsuke Takeda, the CFO of financial-services group Orix, turns to the sport to describe his beliefs about corporate governance. “You can own the most sophisticated, highly engineered clubs,” he says, “but the only thing that matters is whether the hit is true, so the outcome depends on the golfer himself.”

No CFO represents the “new” corporate Japan more than Takeda. Orix, with $7.5 billion in revenue, is 60 percent foreign-owned. In October, the company bought Los Angeles–based investment bank Houlihan Lokey in a bid to increase Orix’s M&A clout in the United States. Orix has listed an American depositary receipt (ADR) on the New York Stock Exchange and must comply with Sarbanes-Oxley. Yet for all of this, the Orix CFO takes an approach to governance that would raise eyebrows in the United States. “The approach to governance can’t be the same for every company,” he says. “It would have to depend on company structure.”

We hear a lot about the new Japan these days. The era of crippling deflation is over. Foreign capital is flowing in, with 103 of the 225 companies on the Nikkei claiming foreign ownership stakes of more than 30 percent. The government of Prime Minister Junichiro Koizumi is completely overhauling the commercial code, including loosening the traditional restrictions against M&A, which could tilt corporate control from management to shareholders. Proxy voting has become easier, encouraging greater shareholder engagement. The old-guard style, marked by widespread company cross-shareholding and complacent boards, is in retreat.

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But resistance bubbles beneath the surface. In response to laws permitting hostile takeovers, companies have instituted poison pills. They have eliminated empty board positions rather than appoint independents. Internet portal Livedoor’s celebrated bid to take over Fujisankei Communications, seen as a huge step toward a livelier, more-open M&A scene, was ultimately beaten back.

In the old Japan, CFOs were rare, and the few who held the title often lacked a finance background. They simply followed the bidding of the CEO. Today the number of prominent, outspoken CFOs is growing. With CFOs in the lead, a few big foreign buyouts — Vodafone, which bought J-Phone, and Renault, which bought Nissan, to name two — have achieved high-profile turnarounds.

But most CFOs in Japan still straddle two worlds. Yashuhi Shingai, CFO of Japan Tobacco, says, “I don’t think it’s appropriate for the CFO to be the chief governance policeman,” because this would concentrate too much power in one position.

As market reform moves forward, Japan’s CFOs may have to shift metaphors from golf to a more openly confrontational sport. But they’re not ready just yet.

Tom Leander is editor-in-chief of CFO Asia.