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Video: Corporate governance improvements in Japan are increasing shareholder returns

Joe Bauernfreund, manager of the AVI Global Trust and Japan Opportunity Trust, discusses the whole host of factors improving governance in Japan.

Q. We have been talking a bit about the improvements in corporate governance in Japan and you have seen this in the small caps. Can you explain that?

Joe: Yes. So, the background really is that for many years in Japan, companies were not focused on shareholders and shareholder returns. They were much more interested in other stakeholders, in particular employees and pensioners and society at large. And that meant that they weren’t running these companies in the best interests of shareholders.

All of that started to change under the late Prime Minister Abe when, as part of his three arrows, the Abenomics policies, he introduced a corporate governance code and a stewardship code in Japan that were designed to encourage companies to do more for shareholders and to encourage shareholders to be more vocal in their engagement and interaction with companies.

And that has led to a whole host of factors around corporate governance improving and has led to an environment in which companies are much more willing and keen to work harder at delivering shareholder returns.

Q. Japan has been quite slow in this area, but what other improvements are you seeing?

Joe: So, when you look at the situation in Japan today, when you look at companies, first of all, you’re seeing companies have got far more independent directors than they had many years ago. That’s a good thing. Companies are also doing more about managing their balance sheets efficiently.

So, after years of building up huge amounts of surplus cash on their balance sheet, they’re starting to put that to more productive use or they’re starting to pay it out to shareholders. So, we’ve seen dividend yields go up, payout ratios go up and in many, many cases now, Japanese companies are buying back shares to return to shareholders and utilise some of that spare cash.

Q. You also run the global trust. Are there any other areas around the world that are improving corporate governance?

Joe: I don’t think there are any areas as explicit as the Japan opportunity that we’re exploiting, but I think generally speaking, investors are much more willing to engage with company management to ensure that standards of governance are high and that companies are really doing their utmost to deliver strong, shorter returns.

Q. We always end this video series with this question. What is your favourite sustainable drink or snack?

Joe: My favourite drink is whiskey and I know that the Scottish whiskey industry is doing a lot to improve their sustainability. So, I’ll go with that.

Part of the Mark Allen Group.