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It was up close and personal for Engagement Specialist Michiel van Esch when he learnt the do’s and don’ts of engaging companies in Asia during a three-month spell in Robeco’s Hong Kong office. It requires a different approach to what is common practice elsewhere in the world.
“In Europe and the United States, starting an engagement dialogue can easily be done by just picking up the phone or sending an e-mail,” says Van Esch. “This route might not prove effective for many companies in Asia. This is especially the case in Japan, where our experience showed that the first important step is to speak to the relevant people at the company and get to know them. Personal, face-to-face contact is important. Only in a next stage would we be confident in using other means of communication to express our expectations about the follow-up.”
Another challenge is that research coverage in English is generally lower for Asian companies than for those in Europe or the US; this is definitely true for governance and sustainability research, he says. Public reporting requirements for listed companies are often very different than in, say, the US. “We get much more new information out of a conversation,” says Van Esch.
“Of course, each country is different and has its own specific challenges for engagement. South Korea, for example, has relatively many crossholdings with its traditional chaebol structure, which implies a greater risk of insider trading. However, we are already seeing initiatives to disentangle these structures. China has a large amount of state-owned enterprises which are difficult to engage with.”
When in Japan, Van Esch took the opportunity to kick off an engagement with eight local companies. “The theme of our engagement is corporate governance in Japan,” Van Esch explains. ”With this engagement project we aim to fulfil our stewardship responsibilities, which are specified in the Japanese stewardship code. Our project focuses on shareholder value, board structure, the audit function, corporate culture, communication with investors, and shareholder rights and alignment.”
“Transparency varies very much from one company to the next,” he says. “Mizuho Financial Group, for example, has been making impressive steps in corporate governance for years. Within their organization they had already thoroughly debated the topics of our questions on reducing crossholdings, establishing an independent Audit Committee and developing self-evaluation by the Board. On the other hand, there are many companies that appear to be very closed.”
“We also often have to overcome a language barrier by using interpreters,” Van Esch adds. “Still, we believe that constructive engagement is possible, if we make enough effort. Some companies, like automation specialist Fanuc, seemed hard to engage with at first, but have shown willingness to improve their governance over the last couple of years by hiring capable independent Board members, and implementing a more shareholderfriendly policy.”