Dalton to Urge Japanese Companies to Hire Outside Directors

(Bloomberg) -- Dalton Investments LLC, the Los Angeles-based hedge fund with 80 billion yen ($818 million) in assets, will urge the 70 Japanese companies it invests in to introduce outside directors to bolster corporate governance.

The fund, which invests 70 percent of its assets in Japan, will also ask the companies to boost shareholder returns by conducting share buybacks, Akihiko Miyata, managing director of Dalton’s local unit, said in an interview in Tokyo yesterday. The U.S. fund will send letters this month to nearly all of the companies in which it’s a shareholder, he said.

The move by Dalton, co-founded by James Rosenwald and Steven D. Persky in 1998, comes at a time when the Japanese government is trying to enhance the nation’s corporate governance standards to attract capital after the global credit crisis crimped corporate earnings, sending stock prices lower. The benchmark Nikkei 225 Stock Average has lost more than a third of its value in the past year amid the worst market rout since the Great Depression.

“I’m hoping that the letter will lead to increased opportunities for discussions with Japanese companies so that they can better understand what overseas investors are thinking,” said Miyata. “This isn’t about presenting a shareholder proposal,” he said, adding that taking a less- confrontational approach is more effective in bringing about change in Japan.

A panel led by Japan’s Ministry of Economy, Trade and Industry aims to unveil a report in June that will urge changes to corporate law or listing rules to improve governance, Hiroaki Niihara, director of the trade ministry’s Corporate System Division, said in an interview last month. The Ministry of Justice and the nation’s stock exchanges are prepared to take action to enforce the recommendations once the report is completed, he said.

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