Earlier in the week I saw this interesting chart in the Nikkei comparing operating metrics for founder run companies and non-owner run companies.
The pattern in the data is clear: founder/ownerCEOs delivered roughly double the ROE (≈12% vs. ≈6%) and their companies trade at materially higher PBRs (≈4–5× vs. ≈2×) when compared to internally promoted, non owner CEOs and their companies over the years 2000–2024. These are simple averages, so they do not control for age, industry mix, or growth profiles. Correlation is not causation but, even so, the scale and persistence of the gap are hard to ignore.
This highlights one recurring governance issue in Japan: the loose linkage between management and ownership at many listed companies. Non-owner senior executives are typically promoted from within, own very little shares, and treat their directorships as the deserved capstones of a long career - complete with company cars, upgraded travel budgets, club memberships, and golf. Their motivation to preserve these perks and cruise into retirement makes them avoid risk. This explains the tendency of many boards towards hesitation and, at times, outright resistance to change.
Against this backdrop, recent reforms—the TSE’s market resegmentation, Governance Code updates, and stronger stewardship expectations—have nudged behavior. Boards discuss cost of capital more openly; buybacks and clearer capital policies appear more frequently. Progress exists, but it remains feeble. A single “what if?” can still stall any good plan. The prevailing attitude is that of checking all the boxes before even considering moving forward, rather than deciding on a goal and working through issues while moving towards the goal. Change often requires overwhelming consequences for non-action, or the credible threat of it, to overcome status quo bias.
Opportunity follows from this reality. The data shows that where incentives shift — whether through founder influence, refreshed boards, or engagement that is willing to escalate—ROEs and, consequently, valuations tend to catch up. Japan’s governance gap is a persistent challenge, but for investors prepared to do the hard work and engage with potential to escalate up to outright taking over and running the company, it will remain a durable source of returns.
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