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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). Plan for this CLE Seminar. Overview

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FDI and Corporate Governance in Japan: The Gradual Tranformation

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  1. 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

  2. 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

  3. 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

  4. 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

  5. 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

  6. 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

  7. 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

  8. 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

  9. 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

  10. 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

  11. 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

  12. 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

  13. 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

  14. 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

  15. 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

  16. 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

  17. 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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