Question 1 The Japanese corporate governance system differs vastly from the US system. Discuss corporate governance issues that may arise under the Japanese keiretsu.
The corporate governance system in Japan is widely different from the US one insofar as it mostly involves a unique business model called “Keiretsu”. A Keiretsu is a form of corporate structure that groups a set of companies with interlocking board of directors and common business interests. Thus, due to its particular structure, some governance problem may arise under this Japanese Keiretsu:
a) Issues from the perspectives of financiers Because the business is considered almost like an extended family, the financing may become political Were his demands justified? Provide quantitative evidence to back your answer. Besides board representation, T. Boone Pickens asked for higher dividend payout saying that “Boone Co’s philosophy was to put stockholder interests first” (page 7) and in this very case, his demand for a higher dividend can be justified. Indeed, when we look at the dividend payout ratio for the period 1982 – 1985 (Table 1), it decreases meanwhile the retained earnings was increasing (Table 2). Moreover, at the same period, the proportion of cash was also increasing. In others words, the retained earnings were not invested enough and stay as cash. Then in 1986, we noticed that the payout ratio increased up to 39% and at the same time the retained earnings and the cash goes strongly down. Finally, almost the same phenomenon is observed between 1988 and 1990. In other words, the payout ratio is not positively correlated to the retained earnings which are not invested and stay as cash. Table 1
Table 2
Is there anything in the Japanese commercial code that would allow Pickens to try to get more dividends? If yes, why doesn’t he use this? If not, based on your experience as an international investment banker, what changes would you recommend him to propose? In order to increase dividends, T. Boone Pickens had several solutions. Indeed, many researches on the conflicts of interest between majority and minority shareholders show that dividend payout is negatively related to ownership
