Boards here in need of outsiders: U.S. headhunter

by Tomoko Otake

A leading U.S. executive search firm has found that Japan’s corporate boards have a smaller number of external directors than any other nation.

Officials of Korn/Ferry International said their findings are not meant to endorse a particular style of corporate management. They cited as an example Toyota Motor Corp., which is globally successful yet hires all of its board members from within the firm.

But a growing emphasis by boards worldwide to take on external directors presents a new business opportunity for Korn/Ferry, which, like other top-end executive search firms, is facing a tough market environment, said Korn/Ferry Chairman and Chief Executive Officer Paul C. Reilly, who visited Tokyo last week.

“Boards hire us all the time to place board members,” he said. The fee “is not as high as placing CEOs, but the fee has gone from inexpensive to pretty good fees.”

The trend has not yet taken hold in Japan. Sakie Fukushima, Korn/Ferry’s regional managing director for Japan, said the firm hopes to make board recruitment a growing sector.

According to Korn/Ferry’s 30th annual board of directors study, an average 14-member board in Japan contained an average two members, or roughly 14.5 percent, who were from outside the company. The results were compiled from the responses of almost 40 Japanese companies selected based on sales figures.

In most other parts of the world, outside directors outnumbered those promoted from within, including the United States, Australia, New Zealand, Hong Kong, Singapore, China, Malaysia and Thailand.

In Japan, the idea of boards monitoring management to keep unethical conduct at bay has gained wider acceptance, as seen in recent revisions to the Commercial Code. The revisions have allowed Japanese firms to adopt U.S.-style corporate governance by transferring power from the board to operating officers and setting up three committees with outside board members to strengthen audit functions.

The expected role of external directors creates confusion in Japan, Fukushima said, citing her own experience of taking a board member’s job at Kao Corp., a maker of household products.

“When I accepted Kao’s board membership (last year), one of the reporters asked me, ‘So what is your impression of being on the management?’ ” she said. “I said, ‘No, no, no, I’m not going to execute or operate, I just oversee and check the checking mechanism.’ And that was new to this reporter.”

While typical board structures vary from country to country, boards around the world are expected to take their jobs “more seriously,” Reilly said, in the wake of a series of accounting and other corporate scandals in recent years, including those of Enron and WorldCom.

Key points of Japan-ASEAN partnership pact

The following are highlights of the “Tokyo Declaration for the Dynamic and Enduring Japan-ASEAN Partnership in the New Millennium” and an attached action plan issued Friday by the leaders of Japan and ASEAN after wrapping up their two-day summit in Tokyo:

Japan and ASEAN will further deepen and broaden their ties, enhance cooperation in the spirit of the Treaty of Amity and Cooperation in Southeast Asia and contribute to the creation of a peaceful and harmonious East Asian region.

Japan and ASEAN will make their utmost efforts to begin talks in 2005 on a comprehensive economic partnership agreement and aim to realize such a pact, including elements of a free-trade area, by 2012.

They will also intensify cooperation in information technology and work on expanding the information flow within Asia to make the region an “information hub.”

Japan will provide at least $1.5 billion over the next three years to promote human resources development in programs involving some 40,000 people.

Japan will provide about $1.5 billion over the next three years for projects to develop the Mekong region and help develop the Brunei-Indonesia-Malaysia-Philippines East ASEAN Growth Area.

Japan and ASEAN will strengthen political and security cooperation and partnerships, facilitate and promote exchanges of people and human resources development, enhance cooperation in culture and public relations, deepen East Asian cooperation toward building the proposed East Asian Community and cooperate in addressing global issues.

Japan will accede to the Treaty of Amity and Cooperation in Southeast Asia to promote peace, friendship and cooperation in the region.

Japan and ASEAN will work together to oppose the proliferation of weapons of mass destruction, fight terrorism and combat piracy, illicit drug and human trafficking and other transnational crimes.