Japanese companies with directors that sit on multiple boards are facing the equity market’s displeasure as the Tokyo Stock Exchange steps up pressure to improve corporate governance.
The bourse tightened listing guidelines in 2022, demanding that firms in its blue-chip Prime section get at least a third of their board members externally. While most companies have tried to meet this request, they are speeding up the process by taking on members already serving on other boards.
That has led some companies to hire directors who were too overstretched to focus on maximising shareholder value. Since April 2019, these firms have underperformed the broader stock market by 8.6 per cent, while the rest beat it by 3.5 per cent, said Ms Akemi Hatano, the chief quants strategist at SBI Securities.
“Outside directors are supposed to bring in different ideas without providing lip service to management,” said Ms Hatano, who estimates that 30 per cent of the Prime section’s 1,640 firms have directors on more than one board. “If companies are relying on ‘moonlighting’ directors, that could be a sign of weak governance.”
Japan’s corporate governance reforms have been a key factor in the stock market’s climb to a record earlier this year. The push to get more outside directors was aimed at broadening the perspective of boardrooms, addressing the concerns of minority shareholders and improving management’s objectivity.
But investors are far from satisfied, saying that some companies still refuse to let their outside directors have a direct dialogue with shareholders.
“In the last couple of years, we suddenly had many meetings with outside directors,” said Nissay Asset Management chief equity fund manager Taku Ito. “Some are ready to meet us, but a lot who have positions in multiple companies, and frankly those who became a director just because of their past