Japan’s new corporate governance and stewardship codes, introduced last year, are already having a profound effect on the way many of the country’s chief executive officers approach their jobs.
“As these codes are principle based,” observes Tsuyoshi Nagano, “we believe that it is important to continuously ask ourselves what our corporate value is, how we can share our value with various stakeholders in the mid- to long term and how we should structure our corporate governance for these purposes.”
Nagano is president and CEO of insurance giant Tokio Marine Holdings, the top company in the Insurance & Other Nonbank Financials sector on the 2016 All-Japan Executive Team, Institutional Investor’s annual ranking of the nation’s most highly regarded CEOs, CFOs, investor relations professionals and IR companies. This year’s results reflect the opinions of 515 investment professionals at 205 financial services firms. Respondents from the buy side work at institutions that collectively manage an estimated $586 billion in Japanese equities.
The Honored Companies table in the navigation panel at right lists the companies that receive the highest scores in each of 25 industry sectors. Click on the Best CEOs, Best CFOs and Best IR Professionals to view the winning individuals in each category. Best IR Companies shows which entities come out on top when responses to IR attribute questions are aggregated.
The Tokyo Stock Exchange established Japan’s Corporate Governance Code, which requires every listed company to file a report outlining its governance initiatives and their likely impact on investors, among other mandates. Yasuhiro Sato, president and CEO of Mizuho Financial Group — the winner in Banks — reports that his firm was among the first to file the necessary paperwork. The new requirements, he adds, can have positive micro and macro effects, as long as management teams are willing to embrace the change.
“When these initiatives are implemented properly, leading to each company’s sustainable development and improvement of corporate value in the medium to long term, they can be expected to contribute to the development of companies and investors, as well as the whole economy,” Sato says.
He is in the midst of positioning his firm to meet the increasingly complex needs of its customers by drawing on its status as Japan’s only conglomerate with a bank, trust bank and securities company under one name. In April, Mizuho launched a three-year plan to condense ten departments to five — asset management, business and retail banking, corporate and institutional banking, global corporate banking and global markets — and two units, global products and research and consulting.
These changes will help Mizuho respond to changing customer expectations more quickly and efficiently, he says. They will also move the firm away from dependence on loans in an environment of shrinking interest rates, which have cut into its lending income, and toward operations based on fees — most notably, its consulting offerings.
“We are aiming to become a comprehensive financial consulting group that responds to the diverse needs of our clients, increasing profits especially from noninterest income,” Sato explains. Indeed, Mizuho’s noninterest income rose to almost 50 percent of its ¥3.2 trillion ($26.7 billion) total revenue in fiscal 2014 (which ended in March 2015), up from 46 percent two years earlier.
He also sees an opportunity in the growing number of financial technology, or fintech, companies in Japan, which use the Internet and other rapidly advancing technologies to offer new financial services. “Under the assumption that the unbundling of current financial services is unavoidable, we will compete with the newcomers or collaborate with them case by case, ” Sato declares, adding that his company is currently developing a variety of new fintech services internally and has set up an organization to focus exclusively on this growing area.
Mitsubishi Heavy Industries, which outpaces all other companies in Plant Engineering & Shipbuilding, is also undergoing a repositioning — from domestic powerhouse to global player, according to CEO Shunichi Miyanaga.
“It is vital for us to examine what areas we are best suited to and in which areas we will be able to compete globally during the next generation, and then to strengthen those areas now,” he says. “Two areas we intend to focus on, both of which are expected to see increasing demand in the long term, are oil and gas and Mitsubishi Regional Jet — areas where we can apply our comprehensive capabilities for a maximum advantage.”
Plateauing growth in Japan leaves the company little choice but to expand overseas, Miyanaga notes. Total sales of MHI’s products — aerospace and automotive parts, machine tools, missiles, ships and more — topped ¥4 trillion in fiscal 2015, and the CEO says he plans to make it a ¥5 trillion company by the end of fiscal 2017.
Mitsui Chemicals’ president and CEO, Tsutomu Tannowa, has been overseeing a similar shift at his company, the No. 1 outfit in Chemicals.
Mitsui has long relied on its basic materials unit — which produces such chemicals as acetone, phenols and other compounds for use in auto components, clothing and electronics, among other applications — to bolster its bottom line. But a growing glut of some of these chemicals in China, Mitsui’s top market, had been pressuring the division’s profitability. The plan Tannowa helped craft called for several facilities to close and cost the company more than ¥30 billion.
“These were really painful restructuring activities for us,” Tannowa admits. “However, as we have executed this restructuring, finally we are getting close to moving away from the loss-making situations.”
He identified three sectors that Mitsui will be emphasizing: food and packaging, an industry that will be boosted by growing populations; health care, as demand for such products as dentures and eyeglasses will intensify as people live longer; and mobility, as environmental concerns drive interest in lighter, more fuel-efficient vehicles. In fiscal 2013 these three domains accounted for 46 percent of overall company sales; by fiscal 2015 they represented 60 percent of sales — and a full 95 percent of company profits of ¥23 billion.
Nidec Corp., a maker of precision motors and the No. 1 company in Electronics/Components, is also focused on changes in the auto industry, where tightening emissions regulations and moves toward self-driving cars spell opportunity. In the three months through March, the company’s operating income ratio for the appliance, automotive, commercial and industrial products category — the one that CEO Shigenobu Nagamori says is the driving force behind the transformation of the business portfolio — exceeded 10 percent for the first time in Nidec’s history. In fiscal 2015 net sales surged nearly 15 percent year-over-year, to a record ¥1.2 trillion.
In February 2015 the company acquired German pump manufacturer Geräte- und Pumpenbau. Combining that outfit’s expertise with Nidec’s own “will enable us to supply products for all the technologies needed for electric pumps,” Nagamori contends. “This is how we integrate existing technologies with newly acquired ones, and enhance our shareholder value.”
Tokio Marine Holdings in another outfit that is finding ways to make sure that industry changes prove to be a good thing for the bottom line. “We will work to effectively forecast and proactively meet the emerging and evolving needs of the market and our customers, while strengthening R&D to convert new risks into business opportunities,” Nagano says.
Profits suffered five years ago, owing to the massive Tohoku earthquake and tsunami in the final month of fiscal 2010 — the costliest natural disaster in history, according to the World Bank — and again the following year from extensive flooding in Thailand from Tropical Storm Nock-ten. In May 2012 the members of Tokio Marine’s executive team devised a plan to better diversify risk by underwriting multiple business classes, including a mix of short- and long-tail risks, in myriad geographic regions. The objective, according to that year’s annual report, is the “sustainable increase in shareholder value while ensuring the group’s financial soundness to enable payment of claims.”
Last year Nagano and his associates introduced another initiative, shifting the focus from profit recovery to sustainable growth. “We see this as a significant turning point for us,” he says. The firm is exploring opportunities in Japan’s changing demographics and technological innovations and in the strengthening of global regulations. He hopes this will enable Tokio Marine’s adjusted net income to jump from less than ¥300 billion in fiscal 2014 to ¥350 billion to ¥400 billion in fiscal 2017.
The profit driver of the group, he says, will be expansion in both developed and emerging markets, through organic growth and acquisitions. One major step toward this goal was the $7.5 billion purchase of U.S.-based specialty insurance group HCC Insurance Holdings in October. Thanks to limited product overlap, Nagano says, the company is a perfect fit for Tokio Marine’s portfolio.
