ESG

• Since there’s little confidence that merely disclosed share buybacks and medium-term management plans will increase corporate value in future, it’s natural that institutional investors’ evaluation of these plans is low.
• For companies that develop budgets and plans each January, the key is to incorporate into their budgets the use of cash that will ensure future growth in corporate value.
• For companies that lack the time to translate “mid-term management plan” into strategy to increase corporate value within two months, including “going private is an option” is an effective disclosure.

• While female directors and nominating/compensation committee, for which TSE has specified specific goals, have made progress, foreign directors, for whom no specific goals have been set, have lagged behind.
• Even now, with over 40% of companies with P/Bs below 1x and ROE not exceeding the cost of capital, not many companies moved to value-creating management with functioning corporate governance.
• Nominating committee should make its selection, including whether to replace the incumbent director with another candidate. If it fails to do so, it’s not fulfilling its responsibilities as nominating committee.

• Outside directors, initially just a number- matching and “just for show,” gradually improved amid demands for improved capital profitability and board practices as the foreign ownership increased.
• It’s important to pay outside directors sufficient compensation to enable them to fulfill managerial responsibilities. The company needs to recruit talent with skills and background to achieve its business goals.
• People who can make insightful and rational judgments in an independent position to fulfill their role for the long-term expansion of the company’s value should be appointed as outside directors.

Lucror Analytics’ ESG Scores are based on a 3-tiered scale and are adjusted for Controversies (if applicable).
We assess Buenaventura’s ESG as “Adequate”, in line with its Social and Governance scores, while the Environmental pillar is “Weak”. Controversies are “Immaterial” and Disclosure is “Adequate”.

• This is the third report issued by CML on Keppel’s transformation to a global asset manager per its Vision 2030.
• CML has earlier issued two reports on this subject. The first examines the lack of disclosure by Keppel on critical information and data pertaining to its asset management business.
• This is disappointing as Keppel is almost halfway to its fund under management (‘FUM”) target of S$200bn, and we include peers which are similar in size.

• The limit is to serve on the boards of two companies concurrently in order to preview the agenda for the monthly board meetings in advance.
• There may be challenges to the effectiveness of the nominating committee of a company that nominates a candidate to serve on the board of directors of three or more companies.
• With the growing demand for female outside board members, it’s hoped that active investment managers will pay attention to the issue of concurrent board membership and make a clear statement.

• Even if the initial AUM is small, the impact of launch of a publicly offered mutual fund for retail investors by a foreign activist investor is expected to be significant.
• If Dalton gains the support of individual investors through publicly offered investment trust, it would give more legitimacy to the management improvement plans that Dalton is pressing Japanese company for.
• Increased attention to the activist investors is expected to lead to a certain number of individual shareholders voting in favor of shareholder proposals, as well as  overseas investor engagement.

• Even the companies with US type 3 committees, which is expected to have higher awareness of corporate governance, there’re differences in the status of nominating committee activities among the companies.
• While doubts about whether the nominating committee is fulfilling its function have not been dispelled, there have been cases of low approval rates for proposals for the election of directors.
• Since discussions in voluntary nominating committees are only advisory, more companies are expected to move to Company with US type 3 Committees, which have statutory nominating committees.

• While good for small-cap stocks to disclose stock price improvement plans, which is the minimum to be eligible for TOPIX, few global investors can invest in company of this size.
• Since many Japanese small-cap companies have diversified businesses and compete with numerous companies for a market that is not large, forcing low profit margins, a market shakeout is necessary.
• The key is whether small cap companes that are beyond the reach of overseas investor engagement can execute a business portfolio review on its own initiative.

• Listing criteria for TSE Growth Market will be raised to over 4 billion yen in market capitalization after 10 years of listing, but the details are left for further discussion.
• It is necessary to provide opportunities for founders to exit and recover their capital without relying on an IPO, for example by creating a market for unlisted shares.
• Switching to a policy of using cash for shareholder returns because of the inability to comply with TSE Growth Market listing maintenance standards is not a fundamental solution.

• With external female board member resources under pressure, it will be extremely difficult to raise the percentage of female board members steadily at this rate.
• The trump card for this is matching numbers. Increasingly, female board members with no management background or outside talent are being recruited to female managerial positions.
• It is expected that fewer companies will move to Company with US type 3 Statutory Committees in order to avoid increasing the number of statutory executive officers.

• Listed subsidiaries decrease but increase if equity method listed companies are included. Many companies haven’t fully exercised treatment of subsidiaries, selling only a little of their shares to below 50%.
• Many parent companies that own listed subsidiaries and equity-method listed companies have placed cash in subsidiaries or equity-method companies without increasing their own stock prices.
• Although companies have changed their mindset somewhat, they haven’t changed their management to effectively use cash to create value, which is the reason for the low valuations of Japanese stocks.