Join us in reading this book, The Only Way to Survive for Japan, subtitled "Corporate governance is sure to save our country." What happens when disagreements arise between owners and management? Despite tensions, the author explains, management needs to keep an eye on the bottom line of improving corporate value. See how these lessons apply in Chapter 2.3 as the author shares case studies, including France's role in Renault-Nissan management and President Trump's approach to US bases in Japan.
Find all published chapters at 'The Only Way to Survive for Japan'
Read Chapter 2.3, the 10th segment of the book:
Tension Between Renault Group and the French Government
The relationship between Renault Group, which has a business partnership with Nissan Motor Co, Ltd, and the French government is attracting public attention. La Loi Florange (The Florange Law), which came into effect in France, has basically made it possible for the shareholders of record of a company for two years or more to be entitled to double their voting rights. Accordingly, the percentage of voting rights of the French government in Renault is going to increase to about 30% in the spring of 2016.
But the Florange Law stipulates that the doubling of voting rights not be adopted in case more than two-thirds of shareholders oppose it at the general shareholders meeting. To counter this, the French government, prior to the general shareholders meeting of Renault, acquired additional shares of Renault by paying as much as approximately €1.23 billion Euros (about ¥160 billion JPY, or $1 billion USD ) and successfully got the opposing proposal voted down.
Why the French government is so obsessed with doubled voting rights in Renault is to protect domestic employment.
A Government Shareholder
In 2008, the French President himself had visited a factory subject to Renault's restructuring plans and directly expressed his dissent. In April 2015, the French government presented a merger plan of the two companies to Mr Carlos Ghosn, CEO of Renault and Nissan, with such conditions that the French government remains as a major shareholder. It insisted that "French strategic interests are ensured," including job security, and that the main manufacturing base is in France.
Nissan is very cautious about further involvement and intervention by the French government. Mr Ghosn stated, "An equal relationship is the basics of an alliance (cooperative relations)." And Mr Hiroto Saikawa, President of Nissan, said, "It can be a big issue which may adversely affect Renault's governance." Thus, they conveyed their concerns to the French government. The two companies are planning to support Mr Ghosn in the future by granting him the voting rights to Renault's shares owned by Nissan.
In Japan, the government is boosting pressure on corporations to make use of their internal reserves. How should the government involve itself in the business affairs of corporations? I can hardly wait to see how things will develop in the years to come.
(The Asahi Shimbun dated November 2015)
Conflicts with the Founding Family
Conflicts between the management team and the founding family are becoming noticeable.
The founding family of Ootoya Holdings Co, Ltd had a conflict with the management team, complaining that the management team had swerved from its conventional management style. But the management team finally got its way. In the case of Cookpad Inc, however, the management team seemed to have been overwhelmed. There seems to have been a disagreement between the management team and the founding family in Seven & i Holdings Co, Ltd, from which the chair resigned. And even in Secom Co, Ltd. Recently, a feud between the founding family and the management team of Idemitsu Kosan Co, Ltd has surfaced in connection with a merger with Showa Shell Sekiyu KK.
The founding family of Idemitsu Kosan Co, Ltd announced on the third of August, 2016 that it had acquired 400,000 shares of Showa Shell Sekiyu KK. Their intention was to thwart Idemitsu's plan to acquire shares of Showa Shell Sekiyu KK, which successfully foiled Idemitsu's plan to acquire shares of Showa Shell Sekiyu KK through a negotiated transaction. Therefore, Idemitsu now has no other choice but to resort to a takeover bid (TOB) as a result. But if a TOB happens, strong backlash would be anticipated on the part of Showa Shell Sekiyu KK.
Role of Constructive Dialogue
The Corporate Governance Code encourages listed companies to promote constructive dialogue with shareholders. It also requires listed companies to disclose their policies for constructive dialogue with shareholders and to engage in dialogue even outside of the general shareholder meetings to the extent reasonable. Through such dialogue, listed companies should pay due attention to the interests and concerns of the shareholders and take necessary and appropriate actions accordingly, which is considered to be helpful for their mid- to long-term sustainable growth.
It does not seem that Idemitsu Kosan Co, Ltd had engaged in sufficiently constructive dialogue with the founding family.
The founding family was determined to reject any request of the management team for further negotiations. Such dialogue was no longer possible, which stood as a big impediment to the merger. The management team should have known from the beginning that the founding family was a shareholder holding one-third of the shares. I wonder if the management team had promoted reasonable efforts to make their plan happen. Now, it is facing a crucial moment to determine its fate.
(The Asahi Shimbun dated August 2016)
Higher Compensation for Directors and Corporate Governance
Having come under the umbrella of Nissan Motor Co, Ltd, Mitsubishi Motors Corporation, of which Mr Carlos Ghosn is due to chair, will adopt a performance- or stock-price-based compensation system. The adoption of the system is intended to raise the limit of the aggregate amount of compensation to ¥3 billion ($20 million) a year, three times more than ever. By this, the company aims at incentivizing the directors to work more for the enhancement of corporate value as well as for securing talented people outside the company or even from overseas.
Thanks to the recent corporate governance reform, the number of companies which have decided to adopt a performance-based compensation system is increasing. The wave of performance-based compensation is strong and large. It is regarded as "investment" which is expected to increase corporate value.
But there are some people who express deep concerns about the high-stakes nature of performance-based compensation. They argue that performance-based compensation would cause a large disparity in the amount of compensation between the management and the employees, which would possibly demotivate the employees who are ensconced in the comfortable situation of the Japanese-style management system as is seen under lifetime employment.
Compensation in the Context of Corporate Value
Actually, in July 2016, Renault Group announced that with regard to the compensation for Mr Carlos Ghosn, CEO (about €7.25 million recorded for 2015, equivalent to about ¥880 million, or $6 million), it will reduce the performance-based compensation by 20%. There was a cause underlying Renault's decision: in the general shareholders meeting of the company held in April 2016, 54% of the shareholders had voted against the resolution for Mr Ghosn's compensation.
Nissan had paid ¥1.710 billion ($11.6 million) to Mr Ghosn as compensation as a director in the full-year period ended March 2016. But in the general shareholders meeting held in June, the shareholders voiced strong criticism that Nissan's compensation paid to one director was much too high compared to Toyota Motor Corporation. What is more, Mitsubishi Motors Corporation is still on the road to recovery of trust of its customers.
In reality, higher compensation for directors does not necessarily directly contribute to the increase of a company's operational results, or corporate value. We have to wait and see whether we will be able to observe successful cases appearing one after another or things will go otherwise. Anyway, the ship has already pulled away from the shore.
(The Asahi Shimbun dated December 2016)
The Impact of Mr Trump
In January 2017, it was on the news that before the assumption of his first US Presidency term, Mr Donald Trump had criticized Toyota Motor Corporation. Mr Trump "tweeted" that Toyota, which was planning to build a new factory in Mexico, should withdraw the plan and instead build a factory in the United States, or else he will make the company pay a large amount of border tax.
In response, Toyota announced that the company would invest $10 billion in the United States and that it will newly employ about 400 people there. It is a response in line with Mr Trump's policy to expand employment in the United States.
Furthermore, after he became the President, he stated that the United States suffers unfairness not only in the trade of automobiles with Japan but in exchange as well.
As Mr Trump says, "Buy American and Hire American." It is the right message by the American President for domestic citizens. The thing is whether his policy will go a long way.
It is understandable that he is concerned about ever-mounting price increases in the United States. But a shrinking international economy and conflicts with other nations are also important matters of concern. There is no knowing what lies ahead in the coming years, but what is clear is that Mr Trump is guaranteed the four-year term of presidency and is empowered to choose judges.
Leading Japan to Choose Her Own Future
The influence that Mr Trump can wield is not confined to economic issues. During the presidential campaign, Mr Trump insinuated that he would withdraw the United States Armed Forces unless Japan agreed to shoulder the financial burden for the total cost of maintaining American troops in Japan.
Japan has totally depended on the United States for her defense after the war. Security and issues related to the American military bases have been "discussed" at the US-Japan Joint Committee, which negotiates how to implement the US-Japan Status of Forces Agreement. In the future, what was agreed upon in the hitherto "discussions" could be overturned.
For the first time after the war Japan may be driven to review the reality of the postwar era. The actions of the American president, whom we Japanese did not choose, will culminate in imposing "freedom" on Japan, by which Japan will be led to choose her own future.
(The Asahi Shimbun dated February 2017)
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Author: Shin Ushijima
