(June 9): Japan’s financial regulator is urging independent directors to be more active in challenging management on growth strategies and enhancing profitability, part of the country’s efforts to boost shareholder value.

Regulators want independent directors to “play the role expected of them”, Hitoshi Hirokawa, a senior Financial Services Agency (FSA) official, said in an interview. He also said that asset managers should keep companies on their toes through greater engagement. 

Emulating practices in the US and Europe, Japan has introduced a series of corporate governance measures in recent years. These include mandating outside directors to make management more responsive to investors and other stakeholders.

But those efforts haven’t resulted so far in lifting most Japan share valuations to international levels. About half of the listed companies on Tokyo’s Prime Market and 60% in the Standard Market have returns on equity below 8% and price-to-book ratios lower than one, the Tokyo Stock Exchange said in March.   

By contrast, companies on the global MSCI ACWI Index have a return on equity of about 13.9% and a price-to-book ratio of 2.63, MSCI data showed.

Hirokawa expects institutional investors to interact more with companies, scrutinising management policies and growth strategies as well as providing feedback. He recognised though that asset managers are challenged by limited time and resources.

The FSA official, who is in charge of the agency’s efforts to improve corporate governance, said the aim is to boost companies’ values on a medium- to long-term basis. 

“In terms of valuations, it’s hard to say we got enough results,” he said. “There is a long way to go to reach the final goal.”