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P 160847Z MAY 08
FM AMEMBASSY TOKYO
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RUEHGV/USMISSION GENEVA 3327
RUEHBS/USEU BRUSSELS
RHEHAAA/NSC WASHDC
RUEATRS/TREASURY DEPT WASHDC
RUCPDOC/DEPT OF COMMERCE WASHINGTON DC
RUEAWJA/JUSTICE DEPT WASHDC

UNCLAS SECTION 01 OF 02 TOKYO 001353 
 
SIPDIS 
 
DEPT FOR EAP - AMBASSADOR HASLACH 
ALSO FOR EEB/IFD: DIBBLE AND KAMBARA 
NSC FOR TONG 
DEPT PASS USTR FOR CUTLER AND BEEMAN 
USDOC FOR 4410/ITA/MAC/OJ 
JUSTICE FOR ANTITRUST DIVISION - CHEMTOB 
TREASURY DEPT FOR IA/CARNES AND POGGI 
GENEVA FOR USTR 
 
E.O. 12958: N/A 
TAGS: EINV ECON OECD JA
SUBJECT: CORPORATE GOVERNANCE REPORT REBUKES JAPAN'S 
STAKEHOLDER CAPITALISM 
 
REF: TOKYO 408 
 
 ¶1.  The Asian Corporate Governance Association (ACGA) 
released its first "White Paper on Corporate Governance in 
Japan" May 15 in Tokyo.  The paper, endorsed by seven leading 
global pension funds, highlights six areas in which 
institutional investors believe Japanese corporate governance 
must be improved.  The paper also provides detailed 
recommendations in each area.  The ACGA's six policy 
priorities are: 
 
- Reaffirmation of the principle of "shareholders as owners" 
of listed companies; 
 
- More efficient use of capital by Japanese firms; 
 
- The need to strengthen systems for independent supervision 
of corporate management; 
 
-  Legally binding "pre-emption rights" to prevent dilution 
of shareholdings through uncontrolled allocation of newly 
issued shares to third parties; 
 
- Reconsideration of the trend toward adopting corporate 
takeover defenses, but if such defenses are necessary, 
adoption of Canadian-style "shareholder rights plans" rather 
than "poison pills"; 
 
- Greater transparency in shareholder meetings and proxy 
voting. 
 
Embassy has forwarded a copy of the White Paper to EAP/J. 
 
¶2.  The paper was presented at a two-hour, standing-room only 
press conference. The White Paper's author, ACGA Secretary 
General Jamie Allen, explained its main theme is "sound 
corporate governance is essential for creating a globally 
competitive corporate sector in Japan, as well as for the 
long term growth of Japan's economy and capital markets." 
Allen noted "corporate governance in most Japanese listed 
firms does not meet the needs of the company's stakeholders 
or the country at large."  There is inadequate supervision of 
corporate strategies in the vast majority of Japanese firms 
and this situation hinders the development of an efficient 
market for corporate control.  Perhaps most importantly, 
Japan's corporate sector fails to provide the returns 
necessary to support and protect Japan's social safety net 
and the long-term sustainability of its pension system. 
 
¶3.  White Paper co-author, Michael Connors, Tokyo-based 
Senior Director of UK pension fund, Hermes Fund Managers 
(Limited), described the common perception of Japan as a 
system of stakeholder capitalism rather than shareholder 
capitalism as "outdated and fundamentally inaccurate."  In 
most cases, "stakeholder capitalism" serves merely as "a 
cover for management protectionism."  ACGA members, as well 
as the dozens of global investment funds and institutional 
investors who helped prepare the White Paper, believe 
"shareholder capitalism is fully consistent with protection 
of the interests of all stakeholders", Connor insisted. 
Furthermore, efficient use of capital and fair treatment of 
shareholders is part of the "contractual obligation" 
corporations accept when they list their shares on a public 
exchange.  Excessive accumulations of cash or low-yielding 
liquid assets on corporate balance sheets may reflect the 
operational success of many Japanese companies but "is an 
 
TOKYO 00001353  002 OF 002 
 
 
old-fashioned way of looking at what should be a dynamic 
corporate entity", Connor continued. 
 
¶4.  Besides the more than three dozen reporters representing 
both print and electronic media, the audience for the launch 
consisted largely of Tokyo-based fund managers and 
representatives of asset management companies and investment 
banks, who were largely sympathetic to ACGA's views.  Many 
questioners focused on how the ACGA plans to follow up on the 
report's publication.  ACGA's Allen explained that earlier in 
the day the authors had presented copies of the paper to 
Tokyo Stock Exchange (TSE) officials and select Diet members. 
 The White Paper's authors also plan additional outreach to 
GOJ financial regulators and senior officials.  Allen urged 
audience members to circulate the White Paper widely and 
encourage their GOJ contacts to support TSE's efforts to 
promote better corporate governance.  "Nowhere in Asia," 
Allen noted, "do stock exchanges have the freedom to set 
corporate governance policy without the backing of 
governments." 
 
¶5.  Overall press coverage of the launch was neutral to 
moderately positive.  All major Japanese-language papers 
carried factual reporting on the ACGA presentation.  The May 
15 evening edition of TV Tokyo's World Business Satellite 
program (sponsored by the business daily Nihon Kezai 
Shinbum), included extensive coverage.  One program 
commentator noted that if foreign institutional investors 
took the time and effort to prepare this White Paper, it was 
a positive sign they had "not yet given up" on the Japanese 
market. 
DONOVAN