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Political issues
Sucked into the vortex of an undiscovered universe
The beauty of pension accounting is that slight tweaks can make a large unfunded liability seemingly disappear or at the very least shrink it to “she’ll be alright mate” levels. However if a pension fund plays the game of understating its risks for long enough then eventually it catches up, especially if performance is consistently poor. This is what we are starting to see in vivid colour among state and local (S&L) governments in America. Reality is biting. Let’s jump right in.
Best practice corporate governance
Prime Minister Abe has thrust the Corporate Governance Code (the ‘Code’) on companies in Japan with the aim of bringing the country in line with best practice abroad. Its introduction has been widely welcomed by the investment community, even if in their view it is somewhat late and perhaps not enough. To be clear, Japan is right to focus on a code that fits its needs.
Company level analysis
Size Matters - the importance of inside ownership in Japan
Is it any surprise that companies tend to perform better when board members (insiders) have a higher proportion of their remuneration linked to stock performance? Shareholders have traditionally been well down the list of priorities of Japanese companies, much to the chagrin of foreign investors. Stock incentives, especially in larger corporations, are often a miniscule part of total compensation for leaders. So much so that there is little incentive to focus on chasing real returns through more aggressive strategy. Many leaders in Japan would prefer to see out their tenure as CEO without blemish or scandal to avoid the risk of failure and the shame it would inevitably bring.