Stay informed with free updates
Sign up on the bus. Japanese Business and Finance myFT Digest — delivered straight to your inbox.
Over the past 10 years, annual Japanese imports of eye-straining contact lenses have increased by more than 60 percent. Smartphone saturation and a fashion-led shift away from glass are the propellants for demand. Historically modest production of contact lenses in Japan explains the country’s large supply deficit.
A potentially transformative flow of chief financial officers from the CFO-rich outside world to resource-poor Japan may now follow a similar (but more rapid) path. The world of investment is currently focused on Japan. The country’s corporate financial vision is failing. The answer is imports.
Japan’s CFO supply-demand imbalance is a chronic problem that has suddenly become acute, in large part due to state-sponsored governance reforms, recent changes in merger and acquisition guidelines, and led by the Tokyo Stock Exchange itself. Pressure for greater investment efficiency. A recent study by Toshiyuki Kobayashi, at Teikyo Heisei University, found that only 33.2 percent of companies in the TSE’s prime section had a dedicated CFO, and that low price-to-book ratios were more or less standard for those. .
But the problem is as much philosophical as numerical. Many Japanese holders of the CFO title are not CFOs in the sense that the role is considered elsewhere. This contrast helps explain why Japanese companies appear to outside observers to be structured and run very differently from their American counterparts, and why companies’ engagement with shareholders often ends in disappointment. .
It also helps explain why Tokyo stocks now top the priority watch lists of activist investors, private equity funds and, like Alimentation Couche-Tard’s Seven & i, $47bn for overseas corporate buyers. It appears from the dialect. This money is looking for low cost, disposable non-core assets and easily achieved improvements in capital efficiency, all of which have spread in a CFO-lite environment.
Japan’s CFO deficit is a product of traditional company structures. The most senior officer in charge of finance in a given Japanese company is, in most cases, someone who has come through the accounting department. several summits as outstanding financial controllers; Many have turned through the bleakness of Japan’s “lost decades” into world-class cost-cutters and cash hoarders. Set them a goal and it will be met. But they stopped there and stood there. As one long-term investor points out, a Japanese CFO will strictly maintain a given balance between equity and debt, but will not negotiate or be part of the concept of an ideal balance between the two.
Japanese CFOs are often not active participants in larger strategic discussions about their company’s direction. They are rarely business school graduates with ideas about how financing should be woven into the corporate DNA. Many are not formally on the executive or board of directors. They are usually not closely related to their CEO fellow travelers, and are not natural successors to the top job.
In 2008, Japan implemented an equivalent of the US’s Sarbanes-Oxley Act, which required more detailed financial reporting and evidence of tighter internal controls, both requiring signatures from the “chief financial officer”. To clarify who it was, many companies gave the title of CFO, without reimagining it as a specific role. There was a brief boom in CFO creation, which quickly fell, Kobayashi notes.
The problem is that the current generation of investors in Japan expects a “real” CFO to speak with ideas. Someone who not only speaks but essentially wakes, sleeps and thinks in the same shareholder-centric language of weighted average cost of capital, return on invested capital, etc.
Whether Japan likes it or not, investors are booming, and this particular demand cannot long be ignored or satisfied by the current offering. Japan has entered the age of the CFO, without a sufficient domestic pool of qualified individuals or the itch for the role.
An immediately viable solution, as with contact lenses, is to accept that there are some specialist products that Japan cannot make on its own and to import the best from overseas. Mass imports of foreign CEOs would cause significant friction within many companies and are in fact not particularly needed. Mass imports of foreign CFOs, though, would at once fly under the social radar and illuminate an unforgettable homing beacon for investors.
leo.lewis@ft.com
