Interview June 2011

Social Entrepreneurship

Getting “inside the castle” to improve corporate governance

In the Setagaya suburbs, a small team of social entrepreneurs at the Board Director Training Institute of Japan (BDTI) is tirelessly working to improve corporate governance at Japanese firms. BCCJ ACUMEN interviewed Nicholas E. Benes, BDTI’s founder and representative director.

What is the BDTI?
We are a grassroots, non-profit foundation dedicated to the improvement of corporate governance in Japan, principally by offering training—the most effective, benign and underused method—to all levels of management and the board. BDTI’s founders and advisors are all opinion leaders and distinguished experts. I am the only foreigner on the board.

Why do you say “to all levels”?
In bottom-up Japan, if you train your staff, they will expect more responsible governance from their board, once they know what to expect. Japanese executives are sensitive to such expectations. And as is the case elsewhere, the examples set by top management and ingrained corporate habits largely determine whether you have good or bad governance in a particular firm. For this reason, adopting a policy to have firm-wide training programmes, and then taking the courses yourselves, is one of the best examples that senior executives can set.

Investors will note that such firms are truly serious about corporate governance and not just seeing it as a PR and IR ritual. In this way, improving governance can become a win-win equation.

What training does BDTI offer?
We currently offer an extensive e-learning course with modules covering company law and a wide range of corporate governance topics in one low-cost package.

We have teamed up with UCLA Anderson Executive Education, Deloitte Touche Tohmatsu LLC and major law firms to provide group programmes to prepare Japanese boards and managers to cope with the mounting complexities of today’s global markets. We’ll be offering short seminars as well as more extensive programmes, customising and mixing together law, governance and leading-edge management methods, so as to put governance in a context where it can be practical, effective and explained at a global standard by “best of the breed” experts. No one else offers training like this in Japan now.

What is your goal?
I want to revolutionise management and board training in Japan, and the expectations of investors and the public here, so that they are more in sync with the rest of the world. By doing so, I want to help Japanese firms to grow faster and again become dynamic.

So far in Japan, the term “director training” has referred mainly to courses offered by Japanese law firms that focus on dry, ritualistic compliance issues—important stuff, but only part of what board members need to know. They are really briefings on “when you should call our law firm”. They do not link governance with the point of the whole exercise, which is management and strategic oversight.

To exercise effective strategic oversight, Japanese directors need to know not only their legal duties and risks, but also about topics such as finance, risk management, succession planning, reading financial statements, global strategy and M&A execution.

Towards that goal, what else are you doing?
We provide a bilingual internet discussion forum and data library, where experts and executives can express opinions, exchange information and ask questions on all these topics. We use speaker events, Twitter, the discussion forum and participation by foreigners to bring corporate governance-related topics out of the closet and “popularise” them.

It is extremely important for Japan that its people understand why improving corporate governance is vital to their economy’s future—indeed, to their own personal welfare and safety.

I’d like to galvanise, and lend courage to, young and old alike on this subject, so that they are not avoiding the debate but, rather, rolling up their sleeves and joining in. I believe the time is ripe for this. After the incidents surrounding Enron, Livedoor, Lehman, BP and Tepco, it should be pretty clear that governance affects us all.

On a personal basis, why did you establish the BDTI?
For 16 years, putting together M&A transactions at my own advisory firm, I saw what goes on behind the scenes at many Japanese firms—and often it wasn’t pretty. I saw a lot of jobs lost and firms decline because of poor governance. Also, as a banker and trained lawyer, I sat on the board of various Japanese firms—including that of Livedoor (after the scandal) and a listed firm. I was disturbed by the widespread lack of understanding about, and dedication to, basic aspects of governance and directorial duties.

Why did you set up a non-profit organisation?
So that it would be seen to be non-threatening and legitimate. I wanted to clarify beyond all doubt that the BDTI seeks to improve governance in Japan solely in the public interest, and to avoid the possibility that it could be dominated by a single person or group, whether foreign or domestic.

As a non-profit enterprise, the BDTI cannot ever pay out dividends to me despite all the money I have shovelled in, and no matter how much money others donate to it, even staff members like me, they only have one vote.

The BDTI has been approved as a “public interest foundation”. Why is that designation important?
It is important for similar reasons: to be seen as more attractive and to get “inside the castle”, so to speak.

As you may know, until very recently a koeki houjin could only be set up by bureaucrats, so the term carries a quasi-governmental connotation. Moreover, because we now have this coveted status, donations to the BDTI will be tax-deductible in Japan and some other countries, such as the US.

Last but not least, the literal meaning of koueki houjin is extremely important to me. Our approval is the first time the Japanese government has acknowledged that training in corporate governance serves the public interest. That is a huge step forward. We should all seize the opportunity. The application process took about a year and was extremely burdensome.

What is vital for a director to learn about corporate governance and board practices?
It is not specific knowledge, but an attitude: a diehard dedication to simply “doing the right thing”, regardless of how it affects one. There is no substitute for integrity like that. We cannot inject a person with a drug called “dedication and integrity”, but we can show them a higher level to which the system aspires and that society expects. We can teach practices by which to be more comfortable, effective and proud in aspiring towards that higher level, and the risks—legal, financial and otherwise—of not going the extra distance.

The BDTI is fundraising to tide it over the first year as a public interest corporation.
Tel: 81-3-6802-4451