Corporate Governance Research: POLA ORBIS HOLDINGS (4927)
POLA ORBIS HOLDINGS’ corporate governance is slightly above average*. Although it may be a bit out of corporate governance, its financial performance in ROA and ROA remains lacking due to inefficiencies such as asset efficiency. On the other hand, we can say that Tobin’s Q is over 3x and the share price is highly valued for its high profit margin on sales, such as maintaining 7.8% OP margin even in FY12/2020, which was affected by COVID-19 pandemic.
The corporate governance of the Company cannot be described without mentioning that it is, after all, a founding family company. In terms of corporate governance practices, the following are commendable: no anti-takeover provisions, no policy holdings, strong board evaluation and board training policies, clear dividend policy, capital allocation and growth policy, and strong shareholder returns. On the other hand, what I do not appreciate are the matters related to human resources. The term of office for directors is two years instead of one year, the majority of the Board of Directors is composed of internal directors, the President chairs the Board of Directors meetings, the committees are advisory committees and are chaired by an internal director (probably the President), there is insufficient disclosure of compensation incentives, and the ratio of variable compensation to fixed compensation and the objectivity of the linkage to medium-term business performance are lacking. There is room for improvement in terms of the ratio of variable to fixed remuneration and objectivity regarding the linkage with medium-term business performance, and there is no disclosure of ex-CEO advisors.
As mentioned in the text below, it is questionable whether the Board of Directors and committees, where the founder family holds the majority of the Company’s outstanding shares and the second generation founder is the president, can make decisions that are not in line with the president’s wishes. The company manufactures cosmetics, which are widely used by women, and aims to expand its sales both domestically and internationally. As such, the company has to be sensitive to consumer trends, and it is necessary to foster a corporate culture that is supported by consumers. This is the reason why corporate governance practices in the company have progressed in the areas mentioned above in the criteria On the other hand, the criteria that cannot be evaluated have much to do with the fact that the founding family company controls the management. This is because personnel matters are non-negotiable in order for the founding family to maintain control in the future. Whether or not governance practices improve in these matters is related to whether or not the founding family will maintain control in the future. In this sense, if the founding family does not make concessions, I do not see any further progress in governance in the immediate future. Even if some progress is made in these matters, we should be careful to see if it is an inherent improvement. Even if progress is made in any of these matters, will the president, who is the chairman of the Personnel and Compensation Committee and controls personnel and compensation, really make a decision that is not in line with the president’s wishes when he chairs a board meeting with many internal directors? Even if such a decision is made, can it really be made in a situation where the founding family, which holds the majority of voting rights at the shareholders’ meeting, can overturn the decision? Concerns always remain as to whether essential improvements in governance practices will be made in such an environment. Whether we can dispel such concerns and ensure the objectivity and transparency of our Board of Directors and practices is a serious challenge for the Company.
*Pora Orbis Holdings has a METRICAL CG Score of 62.78 (versus an average of 53.77 for the 1,722 companies in the universe as of July 2020). The company’s score is above average in the universe.