Opening the door to a new era of fiduciary agents,
financial professionals whose job is to encourage conscientious,
fruitful discussions between responsible shareholders and companies navigating risk to take on challenges
Looking back over and summarizing the lost three decades of Japan’s economy, it feels deeply sad to see that companies, which should be driving economic growth, were unable to break out of a period of stagnation, leaving growth in Japan trailing behind other advanced and emerging economies, unable to find a path back to vitality.
During those three decades, many attempts were made to get Japan back on track, including various systemic reforms, but none of these measures delivered the critical changes required to stimulate corporate growth and value creation.
If these trends continue, the huge financial assets accumulated down the years by Japan will fail to stimulate a new round of effective wealth creation, instead of gathering dust and eroding in value.
Harnessing capital market reform to normalize the relationship between investors (shareholders) and Japanese corporations is seen as a key item on Japan’s reform agenda. However, this “normalization” is both a blessing and a curse. While it has certainly led to greater awareness of the need for efficient usage of capital and stronger governance, it has also encouraged short-term management thinking and overemphasis on superficial, numerical measures of success, leaving companies scrambling to please short-term shareholders.
If this situation results in a continued failure to achieve the fruitful dialogue between capital markets and companies required to build long-term, intrinsic value, Japanese companies will continue to suffer restrictions in their ability to take on long-term creative challenges and this in turn will dampen the creative vitality and growth which Japanese companies must aim to achieve.
Our concern over these ongoing problems motivated us establish MFA as an agent facilitating the productive, creative dialogue between capital markets and corporations that Japan truly needs.
Financial institutions and institutional investors have historically played an extremely large role in the development of Japan’s economy an industry, serving to support and protect the creative aspirations of Japanese companies.
This relationship what is symbolized by Japan’s previous “main bank” system. While in today’s market, companies have shifted away from bank loans and towards equity market financing, the mission of a financial institution or institutional investor should always be to fulfil the role, irrespective whether they are a lender or an equity holder.
From that perspective, we can see that when financial institutions and institutional investors invest in equity, their roles and responsibilities should differ from those of individual, private investors, since those roles and responsibilities are defined by their organizational role and status.
Another way of putting it is to say that while institutional investors should not engage in strategic shareholdings for the purpose of maintaining clients, they also should not (in the manner of an individual private investor) hold shares solely for the purpose of benefiting directly from the return.
Institutional investors need to take a holistic perspective that considers the benefits accruing to not only all shareholders, but all stakeholders, maintaining a relationship with the company from the standpoint of wider shareholder interest.
Our conviction at MFA is that the relationship, as defined above, is a true expression of “the fiduciary duty” born by financial institutions and institutional investors and that is why our first mission is to establish and promote wider awareness of this concept.
The key to exercising “fiduciary duty” in a way that benefits all shareholders is to practice “engagement” with the target of investment.
“Engagement” refers to the practice of deep, immersed involvement in the core activities of the company, at the same time as keeping a critical eye on the company from a third-party perspective that does not simply mirror the views of company management.
“Engagement” means that while the shareholder is separate from the company’s management, they must lag behind no-one in their ability to think and take decisions from a management perspective.
Engaged shareholders do not approve everything the management does, unquestioningly fighting their corner. But neither do they give partial or fragmentary advice that reflects only a specific third-party view.
In other words, they provide third-party opinions based on their awareness of the business and its operations, maintaining the same depth of involvement as the company management. This is the foundation of “fruitful dialogue”.
If institutions and institutional investors are to support and encourage the creative visions of Japanese companies from a long-term perspective, action that is required to rejuvenate Japan’s economy, they must improve their “engagement” capability (which is in danger of being lost), developing their ability to exercise their “fiduciary duty” as shareholders or suppliers of capital.
That is why the second mission of MFA is to make substantial contributions to better financial institution and institutional investor “engagement” by acting on behalf of, or supplementing the activity of, these investors.
The largest single obstacle blocking resolution to the current unfortunate relationships between capital markets and corporations is the difficulty in precisely defining and sharing the points of contention and discussion required for “fruitful dialogue”.
Unless the essential nature of the discussion and the boundaries of the points at issue can be determined and agreed-upon, it is easy for shareholder proposals to devolve into unilateral, fragmentary or short-sighted perspectives, simply results in companies rejecting these proposals, fending them off as if playing whack-a-mole.
Companies also bear responsibility for this situation, as in many cases, companies are failing to clearly convey to shareholders the approaches, policies and scenarios that will maximize the company’s intrinsic and potential value.
That is why the true significance of promoting “engagement” lies in defining and making visible the path to increased corporate value.
This is also why “engagement” by financial institutions and institutional investors, who only have a limited share of a company’s equity holdings, is so important. These institutions can encourage companies to explain their management policies in a rigorous way that not only stands up to scrutiny, but also raises awareness among other shareholders and stakeholders of the appropriate long-term path required to harness intrinsic value.
In this way, institutional investors can lead other shareholders, and their “engagement” can form a core around which shareholder opinion can coalesce.
In between the needlessly confrontational shareholders who see only short-term perspectives, and the excessively passive shareholders who accept every management proposal without question, we need shareholders who support of management but still say what needs to be said. These are the shareholders exercising “fiduciary duty”.
MFA’s third mission, is to act on behalf of the financial institutions and institutional investors with that responsibility, taking action to sow the seeds of this movement.
MFA was founded as a new type of company, specializing in the promotion of shareholder engagement to accomplish the above three missions.
In addition to our shareholder engagement staff, who have a wealth of experience in consulting, investment and practical business management, our team also includes specialists, academic advisors from various fields such as business strategy, corporate law and governance, who all join together to promote effective “engagement”.
Financial institutions and institutional investors who are aware of that “fiduciary duty” employ MFA to engage with, or support “engagement” with, the companies in which they hold equity.
“Engagement” by MFA is rooted in the three necessary conditions below.
As we provide engagement from a management perspective that relates to the very core of the companies our clients invest in, we are not afraid to become insiders. Rather, that is a condition of our involvement.
The ways in which we engage with companies are not affected by which financial institution or institutional investor employing our services.
We always engage in a way that will provide the best results for the equity issue (our basic rule is “same issuer, same engagement”)
To achieve 1) and 2) above, MFA’s engagement must remain independent from all other related parties including the client requesting our involvement and other shareholders.
The primary goal of MFA’s engagement is not the maximization of profit.
Through these “engagement” activities, we provide value to the financial institutions and institutional investors who procure our services in the form of the high-quality execution of their fiduciary duty, contributing to the business development of both the client company on the equity issue, as well as to robust the growth required for the future of Japan’s economy.
We engage in deep dialogue with the management of the equity issuer to promote the company’s intrinsic value (increasing the overall wealth of multiple stakeholders over the long term).
We provide professional services that contribute to the resolution of issues connected with the greater intrinsic value of the issuer
To increase the number of shareholders who believe in and consent to projects designed to raise the intrinsic value of the company, we hold dialogue with other stakeholders when necessary
Company details
Company name
MFA, Inc.
Representative
Chief Executive Officer Kotaro Ishii (formerly of Corporate Directions, Inc.)
Director (part time) Naonori Kimura (also of Industrial Growth Platform, Inc.)
Director (part time) Shigeki Tanaka (also of Sumitomo Mitsui Trust Bank)
Corporate auditor (part time) Kazuhisa Koashi (also of Sumitomo Mitsui Trust Bank)
Capital
60 million yen
Established
March 2022
Address
Headquarters:
11th floor, KDX Toranomon 1Chome Building, Toranomon 1-10-5, Minato-ku, Tokyo, 105-0001
Administrative office:
23rd floor, Tennoz First Tower
Higashi Shinagawa 2-2-4
Shinagawa-ku, Tokyo
140-0002
Principal businesses
Fiduciary agent business
Major shareholders
Sumitomo Mitsui Trust Bank, Limited: 36%
CDI Human Capital, Inc.: 20%
Industrial Growth Platform, Inc.: 20%
Misaki Federation, Inc.: 15%
Corporate Directions, Inc.: 5%
The Bank of Kyoto, Ltd.: 2%
Kiraboshi Bank, Ltd.: 2%
Director and Founder
Chief Executive Officer
Kotaro Ishii
Representative Director of Corporate Directions, Inc.
Published works
Director
Naonori Kimura
Partner, Industrial Growth Platform, Inc.
Published works
▼Publisher’s comment
It is impossible to make progress in modern business using only the “orthodox skills” taught by NBA courses such as logical thinking, presentation skills and marketing skills. This book describes the seven further hidden skills required to become a true leader. The author has a wealth of experience consulting companies in difficulty, and includes these actual examples in the text.
Director (Non-executive)
Shigeki Tanaka
Deputy President, Sumitomo Mitsui Trust Bank
Corporate auditor
Kazuhisa Koashi
Executive Advisor, Sumitomo Mitsui Trust Bank
Founder
Yasunori Nakagami
Representative Director, Misaki Federation, Inc.
Published works
▼Publisher’s comment
Consideration and techniques as an investor can help drive business to the next level. As a former strategic consultant, investor, a winner of Asia’s Best Fund Award, the author discusses business strategy. What should business managers do to ensure that everyone is rewarded, including employees and stockholders, while protecting the company from activist shareholders? Policies and proposals from an investor who has the ear of many business managers.
The MFA Team
Senior Managing Executive Officer, Managing Director
Kenichi Fujimura
Director, Corporate Officer
Takashi Kawamura
Director
Ryuji Kojima
Director, Engagement Manager
Takuya Hori
Engagement Manager
Kim Chanmoon
Associate
Hiroya Fujita
Associate
Kenta Murata
Legal Counsel
Chinatsu Hoshi
Contact
▼Publisher’s comment
The author, who has a wealth of experience in providing management consulting services to various companies and talking to business leaders, presents his views on business management. How can business leaders find freedom from the corporate labyrinth? This book provides some answers to that question, as well as explanations of the true meaning of various business terms such a “strategy”, “organization” and “M&A”.