GovernanceMetrics International
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CLIENT ADVISORY
October 6, 2005
GMI issues ratings on newly merged Japanese Companies.
In the past nine days, four major mergers were completed in Japan. The new companies and their predecessor firms are:
Daiichi Sankyo Company, Limited (4568)
= Sankyo Co., Ltd. (4501) + Daiichi Pharmaceutical Co., Ltd. (4505)
Merger and Listing Date: Sep. 28, 2005
Namco Bandai holdings Inc. (7832)
= Bandai Co., Ltd. (7967) + Namco Limited (9752)
Merger and Listing Date: Sep. 29, 2005
Mitsubishi UFJ Financial Group, Inc. (8306)
= UFJ Holdings, Inc. (8307) + Mitsubishi Tokyo Financial Group, Inc. (8306)
Merger Date: Oct 1, 2005 / Listing Date: Oct. 3, 2005
Mitsubishi Chemical Holdings Corporation (4188)
= Mitsubishi Chemical Corporation (4010) + Mitsubishi Pharma Corporation (4509)
Merger and Listings Date: Oct 1, 2005
In the case of Mitsubishi UFJ Financial Group, the new entity is now the largest financial institution in the world by asset size. Today GMI issued governance ratings on these companies.
Japanese companies continue to rate near the bottom in governance practices as monitored by GMI. In addition, there have been calls for improved governance by the country’s Pension Fund Association and by regulators. In light of this, these four companies had real opportunity - as in effect new companies – to adopt new policies and disclosure procedures. There have been some initiatives taken, but noting dramatic. Mitsubishi UFJ Financial has adopted a board committee system and each of its nomination, remuneration and internal audit and compliance committees is comprised of a majority of outside directors and all chaired by an independent director. In addition, the company has instituted new internal controls procedures including an accounting hotline that allows employees to anonymously report concerns to an independent law firm.
Daiichi Sankyo and Namco Bandai as well as Mitsubishi UFJ Financial Group have all increased the number of independent directors. In Daiichi Sankyo’s case, 40% of the board is now comprised of independent directors, while the number at the other two companies equals 20% of the board. This improvement is noteworthy given that at the average Japanese company, individuals who are classified as independent comprise a mere 3% of directors. The new ratings for the four companies are; Daiichi Sankyo – 5.0, Namco Bandai – 4.0, Mitsubishi UFJ Financial Group – 5.0, Mitsubishi Chemical Holdings Corporation – 5.0.