In post-World War II Japan, firms have been “unabashedly employee-centric rather than shareholder-centric”, says JC de Swaan in The Wall Street Journal.
Japanese firms tend to hoard cash and don’t make their shareholders’ money work hard enough. Return on equity (ROE), a gauge of profitability that measures net income as a percentage of shareholders’ equity, is around half global levels in Japan.
In the past, managers have shrugged off pressure from institutional investors to boost ROE by handing back surplus cash in the form of dividends and share buybacks. But things are starting to change.
Last year, a new index, the JPX-Nikkei 400, was set up to showcase the country’s 400 most shareholder-friendly firms. The index “is having some success in goading companies” to boost their capital efficiency, says Hideyuki Sano on Reuters.com.
Amada, a toolmaker, has been left out of the first annual cut of the index. It has therefore announced plans to triple its dividend and aim for a payout ratio of 50%. Electrical equipment group Fujikura has announced a share buyback. It helps that Japan’s Government Pension Investment Fund, the world’s biggest pension fund, has adopted it as the benchmark for part of its domestic stock portfolio.
Meanwhile, 20 investment trusts tracking the index have been sold to retail investors and there are four exchange-traded funds following the JPX 400 – as many as the Topix. Japan Inc. may finally be moving in the right direction.