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FDI and Corporate Governance in Japan: The Gradual Tranformation. Luke Nottage (USydney), Leon Wolff (UNSW) & Kent Anderson (ANU) Co-directors, ANJeL (Australian Network for Japanese Law). Plan for this CLE Seminar. Overview

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fdi and corporate governance in japan the gradual tranformation

FDI and Corporate Governance in Japan: The Gradual Tranformation

Luke Nottage (USydney),

Leon Wolff (UNSW) & Kent Anderson (ANU)

Co-directors, ANJeL (Australian Network for Japanese Law)

(c) Luke Nottage et al, 15/05/08

plan for this cle seminar
Plan for this CLE Seminar
  • Overview
    • forthcoming book - intro chapter (reproduced from www.ssrn.com) [Handout No 1]
    • Latest developments (eg FDI into airports and power plants in Japan, new Takeovers Guidelines) [No 2]
  • Focus on FDI reg and takeovers
    • FDI trends, framework & example (J-REITs) [Michael]
    • Lessons from Bulldog [Geread]
    • The Guidelines & other new dev’ts [Kozuka-san]

(c) Luke Nottage et al, 15/05/08

the question s
The Question(s)
  • Do Japan’s corp law reforms ‘in books’ since the 90s [Appendix] = much change ‘in action’?
  • Is this a good example of ‘Americanisation’?
    • i.e. shareholder primacy, including arm’s length controls (eg takeovers) as well as direct controls (eg appointing effective directors, shareholder suits)
    • Rather than broader ‘stakeholder’ model (including ‘main banks’, core ‘lifelong’ employees, suppliers)

(c) Luke Nottage et al, 15/05/08

the answer our co edited book forthcoming nov dec from elgar
The Answer: Our co-edited book!(forthcoming Nov/Dec from Elgar)
  • Ch 2. Diverse Views -> Better Methodology
  • Chs 3. Lifelong Employees, 4. Main Banks
  • Ch 5. Small Cos: An Untold Story
  • (finally) Public Cos: Ch 6. C’ee-based option
  • Takeovers: 7. ‘Panel’ instead of Courts?

8. Shifting Case Law, 9. FDI Context

  • 10. Conclusions: Large Cos, Then (‘88) & Now

(c) Luke Nottage et al, 15/05/08

slide5
Developing eg:
    • Nottage & Wolff 2005 [CLTA 2004; ch. 1]
      • shareholders indeed becoming more central
      • ‘main bank’ role declining (late 90s ‘Big Bang’)
      • But core employees still central monitors etc
      • Ambivalence in supplier/customer/NGOs roles

(c) Luke Nottage et al, 15/05/08

ch 2 nottage clta 2006
Ch 2. Nottage [CLTA 2006]
  • ‘Gradual transformation’ (Streeck et al 2005):
    • Various modalities (eg ‘layering’ - esp. in Japan)
  • Emergence of (= German) ‘transparency coalition’?
    • i.e. W + O, not W + M (cf Gourevitch et al 2005: pensions?)
    • Model: politics (int gps + instns) -> policies (MSP + LMEs or CMEs) -> corp gov (diffuse or concentrated sh/hers)
  • Methodology: care re
    • Processes (like Gourevitch), not just outcomes
    • Timeframe, countries, law vs context, normative views

(c) Luke Nottage et al, 15/05/08

ch 3 employees wolff
Ch 3. Employees (Wolff)
  • Intensification of ‘flexicurity’
    • Lifelong employment (only for 20% of employees anyway) remains a (shrinking) core
    • Management flexibility in how to direct the workforce (even that core) is increasing
      • Especially for casual or temporary workers

(c) Luke Nottage et al, 15/05/08

ch 4 main banks puchniak
Ch. 4 ‘Main banks’ (Puchniak)
  • Persistence since the 1990s
  • Banks, especially main banks, reacted to (now) perverse incentives (Basel Accord etc) to ‘evergreen’ bad loans to ‘zombie’ firms, at lower interest rates
  • [But: how do incentives realign now for them, with new env’t for sh/ers etc too?]

(c) Luke Nottage et al, 15/05/08

ch 5 close corps matsui
Ch 5. Close Corps (Matsui)
  • An ‘untold story’ in (J) corp gov
  • Consolidated Company Law of 2005 continues (demand-pull) trend of liberalisation, but also more recent ‘policy-push’ (for sophisticated ventures, emphasising ex ante planning)
  • So courts may provide less relief for oppression; but also deal with more cases, and indirectly be influenced by public co case law (takeovers)

(c) Luke Nottage et al, 15/05/08

ch 6 c ee based corps lawley
Ch 6. C’ee-based Corps (Lawley)
  • An option (-> ‘layering’) since 2004
  • Cf Quant. (event) study by Milhaupt et al
    • Some ‘Americanisation’ (Sony etc), but some uptake to strengthen corp groups (Hitachi)
  • His qualitative study (= Buchanan et al)
    • Lawyers, (stat) auditors, bankers etc, ratings
    • Mostly ‘placebo’ - (rev’d) auditor system pros

(c) Luke Nottage et al, 15/05/08

ch 7 takeovers panel dooley
Ch 7. Takeovers: Panel? (Dooley)
  • The ‘Horie shock’ -> ‘05 Livedoor/NBS judgment, then METI/MoJ Guidelines:
    • Delaware-like defenses? (Milhaupt ‘05) next
  • Yet J lacks infrastructure for this to work
    • Viz independent dirs, sh/ers, courts
  • So: Oz Takeovers Panel ‘transplant’?
  • [But: informal DR works best if UK-style stricter, pro-shareholder / anti-mgt rules?]

(c) Luke Nottage et al, 15/05/08

ch 8 takeovers case law esp since 2005 kamiya ito
Ch 8. Takeovers case law, esp. since 2005 (Kamiya/Ito)
  • [Late 80s cases: issue shares if ‘primary purpose’ not mgt incumbence, & if at fair price]
  • 03/05 Livedoor/NBS: also options, but OK if (not there) harms ‘corp value’ & all sh/ers
  • 05/05: METI report -> Guidelines = 85 Unocal (dirs can reasonably protect corp value), but better if measures in ‘peacetime’ via sh/ers
  • 06/05 Nireco: options not OK, as pre-bid poison pill needs sh/er approval (cf Unocal)

(c) Luke Nottage et al, 15/05/08

slide13
But 07/05 Yumeshin: pre-bid stock split measure OK - only delayed potential TOB, target mgt can also seek info re bidder’s post-acquisition plans
  • Hence: many cos introduce ‘AWS’ measures - advance warning re rules for mgt issuing poison pills (but usually w/initial or later sh/her approval) unless bidder first negos/informs target mgt re post-acquisition plans

(c) Luke Nottage et al, 15/05/08

slide14
07-09/07 Bulldog: post-bid disc. rts issue OK
    • TOB, ltd info exchanged (06 rev’d SEL/FIEL)
    • TDC: ‘sh/er equal treatment’ achieved as sh/er super-majority vote, compo to bidders; not ‘unfair’ as vote OK, appropriate response
    • THC: ‘necessary’ (if abusive acquirer) & ‘appropriate’ (eg. Sh/er vote)
    • SCt: Sh/er vote also relevant to ‘necessity’
    • Queries: (1) Unrealistic re sh/er (cf mgt) ability to judge corp value/abuse etc? (2) Encs ‘greenmails’?

(c) Luke Nottage et al, 15/05/08

ch 9 takeovers fdi pokarier
Ch 9. Takeovers & FDI (Pokarier)
  • Broader context (-> theory again):
    • Japan formally open now to FDI, but
    • Levels not expanding hugely, & ambivalence
  • Some evidence for and against 3 models:
    • (sly) ‘privatisation of economic nationalism’
    • (agnostic) ‘discretionary public interest’
    • (complex, int gp) ‘disc. private interest’
  • 2nd may enc. ‘adaptive efficiency’ (North)

(c) Luke Nottage et al, 15/05/08

ch 10 conclusions kozuka
Ch 10. Conclusions (Kozuka)
  • Complexity, eg Japan’s largest cos ‘88 - ‘08
    • Many still in Top 40, but many (since ‘97) ‘holding cos’ or restructured (helped by corp law reforms)
    • Top 3 sh’ers (eg foreign) nominees, not banks etc
    • Variance in corp financing (also = law reforms)
    • Diversification also re employment nos (= labour law)
    • Ltd effect of other corp law reforms (eg liability caps, Cee-form), but practices change (eg board size) & case law too (directors’ duties)
    • Takeovers cases: ‘sh/er fundamentalism’?
      • BUT Japan’s sh/ers take into account stakeholders? (Osugi)

(c) Luke Nottage et al, 15/05/08

ch 10 conclusions generally
Ch 10. Conclusions (generally)
  • Certainly not ‘Americanisation’
    • Growing emphasis on sh/er approval of defensive measures (= UK etc; but poison pills never allowed, eg News Corp: Hill ‘08)
    • Persistence of some institutions (eg lifelong employment, main banks) not found (or, at least, acclaimed) in the US - non-Chicago School economic rationality, and/or culture?
  • Read our book! & www.law.usyd.edu.au/anjel

(c) Luke Nottage et al, 15/05/08

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