I recently finished a positive stewardship engagement with a Japanese company on the nature of independent directors. ESG ignored 10 years ago, is increasingly in focus in Japan. In my view, this trend is set to continue.
Yanagi examines the Ito review (cf UK Kay review, a blog on Kay here), the corporate governance and stewardship codes in context of Abe’s reforms, and gives the historic background of why Japanese corporates are managed and governed like they are today.
He discusses RoE (Return on Equity) and RoE - cost of capital spreads.
Since the work of Stern Stewart and others on EVA (Economic Value Add) from the 1990s and before (see a background paper here) which focus on Return on Invested Capital (or for some in modern day expressions Cash Flow Return on Investment) over some assumption of cost of capital, this thinking has been a dominant feature in US and EU corporate thinking and finance. Less so, seemingly in JP corporates.
Yanagi then synthesises this with ESG and intangibles and coins a concept of RoESG.
Yanagi suggests many Japanese corporates view some of their intangible ESG/CSR management as good (although again one can debate on reporting on it). (I also think many non-Japanese investors may not concur with what Japanese manager tout on CSR)
He then suggests that intangible/ESG management and management of RoE are two lens which are not opposed – in fact almost could be joined more symbiotically.
Not an entry level book, it draws practical thinking about how to look at financial and non-financial metrics for corporates and investors alike and roots it in the historic and cultural context of Japan.
Recommended reading for Japanese CFOs!
[Especially those with no independent directors and a sub 5% RoE :-) ! ]
Those interested in CG in Japan should also look at the work of Nick Benes he runs the "Japan Corporate Governance" group forum on Linkedin, https://www.linkedin.com/groups/8544150, and has a blog and several position papers and thoughts at (The Board Director Training Institute of Japan) BDTI's forum: https://bdti.or.jp/en/blog/
The current Arts blog, cross-over, the current Investing blog. Cross fertilise, some thoughts on autism. Discover what the last arts/business mingle was all about (sign up for invites to the next event in the list below).
My Op-Ed in the Financial Times (My Financial Times opinion article) about asking long-term questions surrounding sustainability and ESG.
Some popular posts: the commencement address; by Nassim Taleb (Black Swan author, risk management philosopher), Neil Gaiman on making wonderful, fabulous, brilliant mistakes; JK Rowling on the benefits of failure. Charlie Munger on always inverting; Sheryl Sandberg on grief, resilience and gratitude.
How to live a life, well lived. Thoughts from a dying man. On play and playing games.
A provoking read on how to raise a feminist child.