11 Sep/18

Japan-EU Corporate Governance

Japan-EU Corporate Governance
Japan-EU Corporate Governance – EVS Translations

By now, it’s safe to assume that news of the EU-Japan trade agreement and the immediate tariff reduction and the further tariff reductions to follow, and what industries stand to benefit for both signatories, have been fully digested by global markets. Beyond the obvious boon, concepts of harmonising data protection, intellectual property, and sustainable development have stoked the enthusiasm of key advocacy groups. But it seems perhaps that the one particular harmonisation agreement that could produce that most significant results is the one that is being largely ignored: corporate governance.

Far from being as glamorous as the other topics, corporate governance simply addresses the rules, practices, and processes by which businesses are conducted and controlled. On the other hand, looking at the European Commission’s fact sheet, it’s easy to see the impact that this topic can have. The sheet states that: “The EU and Japan commit themselves to adhere to key principles and objectives, such as transparency and disclosure of information on publicly listed companies; accountability of the management towards shareholders; responsible decision-making based on an objective and independent standpoint; effective and fair exercise of shareholders’ rights; and transparency and fairness in takeover transactions.”

Still, in order to understand why this is a big issue, it’s necessary to understand the differences in EU corporate governance (which is essentially the continental model) vs. Japanese corporate governance. In many ways, though Japan unquestionably has one of the largest, most advanced economies in the world, Japanese corporate structure is comparatively more closed and defensive than European counterparts. For example, contrasting the continental model, where companies are often viewed as a coordination between (especially national) interest groups, the Japanese model is much more defensive, with companies having a coordinated balance between government, big banks, and stakeholders (but not necessarily smaller shareholders). Moreover, administratively, Japanese businesses are far more protectionist, often strictly adhering to the aforementioned balance by promoting loyalty and defence of the company, through actions such as: renewing old agreements with business partners instead of attracting new partners; protecting the business from scandal of all kinds; or strictly looking internally for promotion and directors.

As could be imagined, actions such as these can have a profound effect on transparency, investor confidence, and a company’s bottom line. Dealing with this over the past several years, Prime Minister Shinzo Abe’s overhaul (aka Abenomics), enacting the Stewardship Code and Corporate Governance Code as well as amending the Japanese Companies Act, has started the process that the EU agreement hopes to make permanent: big Japanese banks are eliminating cross-shareholding for the sake of loyalty by ¥1.9 trillion; meanwhile, listed companies with outside directors has increased from 61.4% in 2014 to 97.1% in 2016 and listed companies with more than one outside director have increased from 21.5% in 2014 to 79.7% in 2016. These efforts at openness and transparency have caused a jump in return on equity (aka demonstrating better performance with shareholder money), moving from 5.7% in the last quarter of 2012 to 8.2% in the last quarter of 2015.

These results already show that progress is being made; however, there is more work to be done with respect to enforcement, shareholder rights, transparency, and removing loyalty investments. With the Japan-EU agreement coming into effect, it will solidify and potentially accelerate the need for Japanese businesses to harmonise their corporate governance practices with those of the EU. In addition to Japanese becoming more open and transparent, both Japanese and European companies will need to become more open and transparent with each other in their own native languages, which will result in a high demand for corporate translations of all facets of communication, from press releases to statements from the board of directors to financial statements and agreements. Considering the magnitude of corporate information on local and global markets as well as the specificity required for corporate legal and financial translation, a business that wants to make the best global impression and demonstrate good governance will need to seek out a Language Services Provider that has the reach, experience, and trustworthiness to handle such a task.

EVS Translations has evolved and grown over the past 25 years to deliver an end-to-end unique Translation as a Service (TaaS) concept, in line with international standards and perfectly honed to all clients’ corporate governance requirements. Our unique in-house teams, technology solutions (CAT tools, system integrations, platforms and machine intelligence), and process innovation (options for process automation to coordinate and control high volume demand), make complex and diverse corporate governance content accessible to all of your global stakeholders, whichever languages they speak.