BackJapan pension fund chief turns advocate of shareholder rights
Japan pension fund chief turns advocate of shareholder rights
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Tomomi Yano was an unlikely maverick. When the unassuming Yano became head of investment at one of Japan’s biggest pension funds in 2001, corporate executives here assumed that he was simply another former bureaucrat parachuting into semi-retirement. Japan’s vast government-run pension system, the reasoning went, would provide a comfortable nest after his 31 years at the labour ministry.
But instead of putting up his feet and joining Japan’s flock of compliant boards and shareholders, Yano became a champion of shareholder rights, pressing Japan Inc. to perform. In a country known for cozy relationships between companies and their big institutional investors, his attitude was unprecedented.
And unlike American investment funds, or even the handful of upstart Japanese investors, who have hit brick walls in their efforts to increase shareholder returns in this country, Yano comes with impeccable establishment credentials—and that has made corporate Japan heed his demands.
Within months of taking over, Yano announced that his $11 billion (Rs45,320 crore) fund would no longer automatically support management at the more than 1,000 companies in which it had holdings if managers failed to meet certain investment standards, such as paying annual dividends to shareholders. Since that time, he has forced companies to downsize bloated boards, to raise dividends and to better inform and respond to shareholders.
“Yano is a standard-bearer for the cause of shareholder value," said Marc Goldstein, who heads the Tokyo office of Institutional Shareholder Services, a firm that helps big investors evaluate corporate management performance. “His position means that he cannot be dismissed like foreign hedge fund managers can be dismissed."
Still, promoting shareholder interests was not an easy task in a country where, unlike Western nations, most listed companies are still run exclusively by employees who fill all management and board positions. Big investors customarily approve management decisions without question, and small shareholders are largely ignored.
While hardly as rich as big-time American investors such as Kirk Kerkorian, or as colourful—the owlish Yano spends weekends playing Go, the ancient Asian board game of strategy—he has become a leading voice in the broader debate over how much Japan should change its restrained brand of capitalism to resemble the freewheeling British-American model.
During the 1990s, when the country’s $5 trillion economy stagnated, Japan did embrace disruptive corporate downsizing and some deregulation. But now that the economy is growing again, Japan is hesitating whether to carry change into the realm of corporate governance and particularly over the question of who should control companies—their employees or their shareholders.
Advocates of shareholder rights, like Yano, say that changing corporate culture is the only way to solve the biggest long-term challenge facing the country: paying for the retirement of its rapidly aging society. Only by increasing stock market returns, they argue, can Japan sufficiently increase the value of personal savings and pension funds to finance the retirement of the current generation of workers.
Opponents, though, fear that focusing greater attention on the bottom line will force companies to cut more jobs and increase social inequality. Companies, courts and even shareholders have rejected hostile takeover bids by foreign funds—most prominently, the failed effort this summer by an American hedge fund, Steel Partners, to acquire Bull-Dog Sauce, a Japanese condiment maker and producer of a popular steak sauce.
“Japan reacts negatively when Warren Lichtenstein comes in thinking he can teach Japan how it should do things," said Yuzo Fujishima, a corporate governance analyst at the Daiwa Institute of Research, referring to the head of Steel Partners. “Yano-san ends up being more effective because he is seen as working to fix a pressing national problem, not just turn a quick profit."
That combination of activism and respect has led many here to call Yano and his fund, the Pension Fund Association, Japan’s answer to the California Public Employees’ Retirement System, the huge pension fund that has been a vocal advocate for American investor interests.
Like Calpers, Yano and his fund are seen as defending the interests of average workers—in this case, some 29 million Japanese who have contributed wages to his fund.
As significantly, Yano is inspiring a growing number of imitators, mostly smaller pension funds that are printing investment guidelines like the ones he has pioneered, and pressing companies to increase returns.
Yano’s campaign for shareholder rights began in 2001, when he joined the pension fund as executive managing director, the title he still holds. He was surprised to find that the poor performance of its stock portfolio was threatening its future ability to make payouts to pensioners.
At the labour ministry, where he had helped set policy on pensions and national hospitals, he had little experience managing investments.
Still, he decided that the only way to save the fund was to improve its returns. And in a fund as big as his, which invests in almost every industry in Japan and has holdings in most large companies, that meant changing the nation’s corporate culture.
Initially, it seemed like a quixotic task, with Yano writing letters to companies asking them to make investor-friendly changes like raising dividends and shrinking corporate boards.
His investment guidelines required companies to have posted a profit in at least one of the preceding three years.
Though modest by American standards, the guidelines created a stir in Japan, where pension funds had never paid so much attention to returns. More shocking still was Yano’s threat to punish companies that failed to meet his standards by voting against management at shareholder meetings. Company managers began to complain about him privately or in the Japanese press.
“They didn’t confront me directly because they knew I was right," Yano said. “I was just asking them to do for shareholders what companies are supposed to do."
One of his first victories came in 2002, when he persuaded Fanuc, a maker of industrial robots, to reduce the size of its board to 10 from 30. He made a real splash in 2005, when his organization filed one of the first lawsuits by a pension fund in this country, against the Seibu Railway Co. for losses related to an accounting scandal.
Yano began to speak publicly in favour of shareholders’ rights, even in companies in which he had no stake.
Last month, he raised eyebrows by supporting a foreign fund, Perry Capital of New York, in its bid to buy a stake in NEC Electronics, a semiconductor maker, from the parent NEC. It was the first time in recent memory that a pension fund manager had publicly backed foreign investors against a blue-chip Japanese company.
“He looks like the stereotype of the grey-suited ex-bureaucrat, ready to defend the status quo," said Scott Callon, president of Ichigo Asset Management, an activist fund here. “But when he speaks, he just shatters it. He is bringing issues into the open that Japan needs to face."
But while most analysts and investors think that Japan is changing, they also maintain that it will stop short of shareholder-driven capitalism. “It used to be that shareholders were on the bottom of management’s list of priorities," Yano said. “Now, we are No. 2 or No. 3, after employees and maybe business partners. But that’s progress."
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