Governance issues could undermine Japan's economic reforms - AVCJ Forum

Anthony Miller, partner and CEO at PAG Japan, praised the economic reforms, saying that monetary policy measures in particular had been long overdue. He added that anticipated structural policy changes associated with Abe's third arrow - covering issues such as labor reform and participation in multilateral non-tariff negotiations - were all positive moves.

However, Miller warned that these are secondary to governance concerns that are preventing companies from restructuring and by extension stifling PE deal flow.

"The biggest thing holding back private equity in this market is corporate governance," Miller said. "There aren't nearly enough transactions in Japan given the size of the market. If it stays small we will be in a competitive situation for too few deals and that is unattractive for our returns and our LPs' returns."”

In many cases, restructuring problems are rooted in human resources and Japan's culture of lifetime employment, which is especially entrenched within large corporations.

"It is because of this mindset that it will be harder for companies to initiate major changes," explained Shusaku Minoda, chairman of KKR Japan. "If you have a colleague who has been working with the company for the past 30-40 years, you are not able to tell them performance is deteriorating and that they should leave, so change is not happening."”

Tamotsu Adachi, managing director and co-representative of Japan with The Carlyle Group, added that these issues are intensified by the fact that most directors with Japanese companies have come up within the ranks. Independent directors can be found at around 40% of Japanese listed companies and in most cases they are merely figureheads, he said. As for external directors with considerable influence, they are present in just 10% of Japanese corporations.”

However, Minoda maintained that one of the more significant changes likely to be brought about by the Abenomics reform package is within the Japanese mindset. "In the past several days there have been shareholder meetings where shareholders have asked for better returns and better profitably," he said. "We have begun to see a change in the atmosphere that we didn't see several years ago."

The AVCJ Japan Forum continues today and tomorrow in Tokyo.

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• Topics
• North Asia
• Restructuring
• Buyouts
• Japan
• buyout
• PAG
• KKR
• The Carlyle Group