Corporate Governance Failures
A damaging consequence of TBS’ cross-shareholding relationships is that they shield TBS management from independent review and oversight. Three of the four “independent/outside” directors of TBS are executives of Mainichi Newspapers, Dentsu and MBS Media Holdings – all of which have cross-shareholding and/or transactional relationships with TBS. These three directors failed to attend numerous board meetings in 2017, reflecting their priorities elsewhere. TBS management effectively operates free of accountability to a truly independent board.
The TBS board also suffers from a low level of director share ownership, with a collective interest of just 0.1%, resulting in a lack of alignment of interest with shareholders. With both the absence of a truly independent board and low director share ownership, TBS is not achieving its full potential. This appears to be a view shared by a large portion of TBS shareholders, with the approval rating of TBS’ President and two outside Directors falling below 80% in 2017.
TBS management have not adequately explained their capital policy, nor articulated their plans for capital efficiency, failing to meet its obligations under Principles 1.3 and 5.2 of the Corporate Governance Code. In particular, TBS management has failed to explain how its strategic shareholdings positively contribute to TBS’ capital efficiency, return on equity and other relevant performance criteria.
As of 31st March 2018, TBS’ return on equity (ROE) was 3%, far below the minimum target level of 8% recommended in Professor Ito’s Review of Competitiveness and below the 5% recommended by ISS for director re-election. We note that TBS’ “group mid-term management plan 2020”, does not contain any information on how TBS plans to improve its current ROE, much less achieve the suggested minimum of 8%.