Join us in reading this book, The Only Way to Survive for Japan, subtitled "Corporate governance is sure to save our country." Although this book broadly covers governance as a whole, including the sustainability derived from diversity, including women, to withstand disasters and other crises. Peppered with real-life examples of successes and failures, the book is a primer on the rules and cautions of corporate governance in Japan.
Find all published chapters at 'The Only Way to Survive for Japan'
Read Chapter 2.5, the 12th segment of the book:
The Corona Pandemic and Diversity
The coronavirus pandemic helps promote the efforts of Japanese corporations to diversify their boards of directors. What is the point of diversifying the board of directors?
It is because a personnel imbalance may adversely affect the company's sustainability. Under the circumstances where society drastically changes, securing a variety of human resources to enable a diversity of ideas and opinions is more than important for the enhancement of risk management ability and the realization of ensuing long-term growth. If only like-minded people work together to respond to changes, it may lower the chance of survival of a corporation.
What is also deemed important is the active involvement of female directors. Imbibing women's perspectives into management would contribute to the competitive power and growth of a corporation. Actually, some analyses manifest that a company with more than three female directors is good at managing risks and dealing with stakeholders, and that there is an increasing tendency to improve its sustainability in the future.
The Case for Sustainability
Active involvement of independent outside directors is also indispensable. Introducing the perspectives of outsiders and of shareholders to the board of directors would encourage the directors to fulfill their efforts regarding the environmental, social, and governance framework, or ESG. If they can secure people of various nationalities and generations, they can tap into more different ideas and perspectives, which would lead to furthering sustainability. But bringing in just diverse human resources does not suffice. It is essential to try to ensure the practical diversification enabled by the varied expertise, competence, and skills of directors.
It is often pointed out that Japanese corporations are way behind in securing diversity on their boards of directors. Yet no pronounced development has been seen in diversification, probably because any noticeably adverse effects had not been observed. But the lost three decades clearly demonstrate the fact that adverse effects had actually been created.
It would be difficult for a company, unless armed with diversity, to survive the hardships under this coronavirus pandemic. Now is the time when Japanese corporations should be equipped with various values and thereby overcome the crises that they are facing now or will face in the future.
(The Asahi Shimbun dated August 2020)
The Issue Regarding Indemnification for Director Compensation of Kansai Electric Power Co, Inc
In August 2020, Kansai Electric Power Company disclosed an investigation report by its compliance committee. What is at issue is that its directors were indemnified against the reduction of their compensation after the 2011 Tōhoku earthquake and tsunami at the time of their retirement under the guise of consultant compensation.
The problem lies in the reliability of this report because the current president is a member of this compliance committee.
According to the report, this indemnification had been made in line with the instruction issued by the then chairman to the chief of the secretarial section. Therefore, the former chairman, the former president, and the then director in charge of the secretarial section are alleged to have violated the law.
Kansai Electric Power Company did not go beyond an action for damages, and it is not known whether the company considered a criminal complaint against them. It is reported that one of the defendants pressured a member of its audit committee to change the lawyers in charge of the lawsuit.
A Very Strange Company
I would say that Kansai Electric Power Company is a very strange company. The indemnification scandal occurred even though the company had a human resources/compensation advisory committee, which consisted of a majority of outside directors. A company with a nominating committee, etc, is considered to be one in which misconduct is least likely to occur. But, still, scandals continue to occur in any type of company.
Outside directors can function well in monitoring only when the information they need is conveyed to them. It is necessary to consider all over again how important it is to establish a practical system to support outside directors so that they can properly perform what is required of them.
The indemnification scandal is among the worst and most wicked matters. At that time, Kansai Electric Power Company had increased electricity prices. And, what is worse, it had decided to decrease the wages of employees and defer paying bonuses to them. Yet it paid compensation to former directors. Where is its corporate governance? What a wrecked company it is!
Engaged in public work, Kansai Electric Power Company should be obligated to advance toward a reform to sacrifice itself for the sake of the public interest. The company ought to seriously consider punishing the directors for their criminal actions. Justice will be served only when they are charged with a criminal offense. If so, it should be done without any hesitation. It is for that aim that criminal justice exists.
(The Asahi Shimbun dated September 2020)
The Coronavirus Pandemic and Employment
All Nippon Airways Co, Ltd (ANA) has finally decided to offer early retirement packages in late 2020. Although it had announced, "We will protect employment," it has become difficult for the company to keep the promise because of disappearing and sluggish flight demand, which might have been far worse than expected. In the future, the company says that it is going to work on structural reforms and start afresh with a smaller size and scale of business operations.
ANA is not the only company that faces a difficult decision under the coronavirus pandemic circumstances, while desperately struggling to battle with decreased demand.
It goes without saying that the maintenance of employment is important. In the first place, a company should exist for that end. Employees are definitely indispensable for a company to provide excellent products and services, and the state of being employed matters to the life of each employee. It is also its social responsibility to fulfill. Many top executives wish to maintain employment. The temporary transfer plan that ANA announced is commendable in that sense.
Making the Hard Decisions
But there are circumstances where a decision to cut back jobs is unavoidable. It should be a heart-rending decision to make, even in exchange for saving the company. But if the decision is delayed, it may exhaust the company itself, thereby endangering its sustainability.
Sometimes, as circumstances dictate, the company is not allowed to maintain the current level of employment. It is, however, irresponsible on the part of a top executive if he/she says that they do not want to be involved in any matters relating to employment. If unforeseen circumstances occur, the top executive is required to be braced for making tough decisions and carrying a heavy cross.
The top executive cannot always make a tough decision alone. It is outside directors that can play an important and supportive role in such instances. They objectively judge what should be done for the sake of maintaining employment and the survival of the company. And, they should give a push to an indecisive top executive.
Employment can be secured only when a company continues to exist. What is important is that it should not turn into easy-to-implement downsizing or unnecessary obsession with the protection of employment. Instead, it must demonstrate a clear-cut strategy to enable the company to survive and develop into the future.
As the future still remains unforeseen, Japanese corporations, including their outside directors, are subject to strict exploration and scrutiny in terms of corporate governance.
(The Asahi Shimbun dated November 2020)
Follow the book from Chapter 1, as it is published.
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Author: Shin Ushijima
