Asia’s corporate governance practices have been in the news recently, brought into sharper focus with the late 2018 arrest of Carlos Ghosn, the former Chairman of Japanese automotive industry star Nissan, for alleged financial misconduct. It was the latest in a wave of corporate scandals, putting a new focus on how Japanese companies are managed.
It has been 10 years since the global financial crisis, and its long shadow is starting to fade – but global regulators have spent that decade tightening regulation, increasing regulatory oversight in a bid to instill more transparency into company operations. APAC regulation is following the lead of the global regulators as the region bids to attract more foreign investment through global alignment and local incentives.
And while Japan – always one of the more developed of the Asian economies – was held up as a leading light by governance advocates after its stewardship code, introduced in 2014, encouraged domestic fund managers to more actively question boards and management, that country’s governance reputation has taken a hit since its run of corporate scandals. Japan slid from 4th to 7th in the biennial survey by the Asian Corporate Governance Association (ACGA) and Asia-focused brokerage CLSA – tied with India, but behind emerging regional stars Thailand and Malaysia.
The report also criticizes Tokyo for not taking stronger regulatory action; its moves to improve governance by introducing better board-level oversight look good on paper, says the report, but in reality little has changed in Japan’s hardline boardrooms.
What’s happening in APAC regulation?
Japan’s Abenomics movement has been turning its attention to governance and compliance in recent years. In response to strong criticism from foreign investors, Japan is creating new guidelines to prevent conflicts of interest between publicly traded parent companies and their listed subsidiaries.
While the exact form of that regulation is still taking effect, leading proposals call for at least one-half or one-third of boards of listed units to be made up of independent directors from outside of the parent company. While these sorts of restrictions are commonplace in some jurisdictions, these types of conflicts of interest are more common in Japan than anywhere else.
The Japanese government is also considering requiring parent companies to explain their reasoning for listing subsidiaries, wrote the Nikkei Asian Review back in March; around one-fifth of all publicly traded companies in Japan have single controlling shareholders.
Regulation across the Asia Pacific region, as a whole, has historically been less developed than that of its European and US counterparts. The exception is Australia and New Zealand, modeled more closely on Europe. Yet the fact that Australia topped the ACGA survey at a time when its financial sector is under the spotlight for financial misconduct says much for corporate governance in the rest of the region.
Both Hong Kong and Singapore have recently changed stock exchange rules to allow companies to list with two classes of shares in a bid to attract large companies – though governance activists warn dual-class shares can be abused by company insiders – and there are indications that South Korea is thinking about changing its listing rules, too.
Market watchers warn that, as Asian countries seek to attract more foreign investment and lure listings away from other exchanges, more changes in governance rules should be expected. While some of those changes will be a relaxing of regulation to attract investment, regulators in general across Asia Pacific continue to step up their pressure to achieve more transparency and consistency. This is particularly true in the banking sector, buoyed by global regimes such as Basel III, NSFR (net stable funding ratio), IFRS 9 and the Common Reporting Standard (CRS). Asia Pacific regulators are signing up to these global conventions, and increased regulatory oversight should be expected in APAC as a result.
How can organizations in the APAC region deal with increased regulatory oversight?
When the threat of increased regulatory oversight looms large overhead, the best way an organization can prepare is to get its corporate governance in order. Regulators can’t sanction you for non-compliance if you’re running a tight ship, maintain robust entity data and are up-to-date with regulation and jurisdictional requirements.
Governance technology, such as entity management software, helps organizations to centralize, manage and effectively structure their corporate record to improve corporate governance practices. By managing and maintaining entity data from a central location, organizations can better ensure compliance, mitigate risk and improve decision-making.
Such technology can also enable electronic regulatory filing and reporting from the system to global regulatory bodies, while dashboards, workflows and notifications help to ease the compliance burden and ensure the right information gets to the right people at the right time.
How can compliance calendars, reminders and a central file storage system impact corporate governance and help organizations to deal with increased regulatory oversight in APAC?
- A more streamlined, cloud-based approach to governance helps to free up the compliance team to focus on the more strategic aspects of their role, helping them to plan for future growth instead of reactive compliance and governance.
- Automating workflows and filings helps to ensure no regulatory requirement goes unnoticed, with notifications and dashboards flagging when reports are due or when compliance deadlines are looming.
- Linking software with regulators [ASIC (Australia), Delaware, CRO (Ireland) and Companies House (UK)] enables requirements to be automatically updated, if and when they change; updates are pushed to the system and the right people are still notified at the right time.
- Taking a centralized approach to compliance and governance makes it easier to instill organization-wide behaviors and cultures.
Diligent Entities, an entity management software, elevates this cloud-based solution to governance and compliance by seamlessly integrating with the Diligent Boards portal and a secure file-sharing platform to create the Governance Cloud. Designed with the processes of board directors, executives, general counsels and corporate secretaries in mind, Diligent’s Governance Cloud helps organizations to streamline duties for compliance, regulation and governance while keeping all processes in a highly secure, confidential platform.
Get in touch and schedule a demo to see how Diligent’s suite of governance and compliance solutions can help your organization to get on top of APAC’s increased regulatory oversight, ease the compliance burden and help you to focus on strategic growth in the region instead.