Japan Specialist

Mark Chadwick

Over 20 years experience in equities and asset management in Asia and Japan. Qualified CFA with experience analyzing companies as a buy-side analyst. In-depth knowledge of company fundamental analysis, corporate governance and valuations.

Thematic (Sector/Industry)

Japan Industrials / Thematic (Sector/Industry)

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High-profile accounting and corporate governance scandals have resulted in significant pressure on companies to change the structure of corporate boards.  In the US, there has been an emphatic shift to fully independent boards, that is, boards on which the CEO is the only employee director.  
In Japan, scandals at Toshiba and Nissan have been a catalyst for reform at some companies. 
The Special Committee for Improving Governance Report at Nissan <a href="https://www.nissan-global.com/PDF/190327-01_179.pdf" target="_blank" rel="noopener">is worth reading</a>. The key recommendations were to adopt a reasonable-sized board (11 people) with a 3-committee structure, have a majority of outside independent directors, and improve the diversity of the board.
In theory, Boards dominated by independent directors should be better able to oversee the CEO and protect the interests of shareholders. 
Our analysis, which is based on the largest 500 companies in Japan, suggests the following: 
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<li>The median board size in Japan was 10 directors. </li>
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Larger boards are correlated with significantly lower returns on capital. 
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The median level of board independence in Japan was just 33%. Only around 10% of the companies have a simple majority of independent directors. Only 14 of the 500 largest companies had “full” independence (ie. &gt;66% independence).  
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We cannot find any correlation between board independence and ROE, margins, or stock market performance.  
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High-profile accounting and corporate governance scandals have resulted in significant pressure on companies to change the structure of corporate boards.   In the US, there has been an emphatic shift to fully independent boards, that is, boards on which the CEO is the only employee director.  
In Japan, scandals at Toshiba and Nissan have been a catalyst for reform at some companies. 
The Special Committee for Improving Governance Report at Nissan is worth reading. The key recommendations were to adopt a reasonable-sized board (11 people) with a 3-committee structure, have a majority of outside independent directors, and improve the diversity of the board.
In theory, Boards dominated by independent directors should be better able to oversee the CEO and protect the interests of shareholders. 
Our analysis, which is based on the largest 500 companies in Japan, suggests the following: 

The median board size in Japan was 10 directors. 

Larger boards are correlated with significantly lower returns on capital. 


The median level of board independence in Japan was just 33%. Only around 10% of the companies have a simple majority of independent directors. Only 14 of the 500 largest companies had “full” independence (ie. &gt;66% independence).  


We cannot find any correlation between board independence and ROE, margins, or stock market performance.  



Japan Governance: Board Independence - Should We Care?