Proxy voting in Japan: Concentration of AGMs and lack of English disclosure remain key challenges

Around a quarter of the 2,306 Japanese company AGMs held in June took place on a single day – June 29, says Shigeo Imakiire, president of Investor Communications Japan (ICJ). That 2,306 figure represents more than 60 percent of the 3,770 companies listed on the Tokyo Stock Exchange (TSE).

This may sound high but is not unusual. ‘According to an analysis by the TSE, the concentration of general shareholder meetings on a specific day has been on a downward trend in recent years, partly because of the introduction of Japan’s Corporate Governance Code,’ explains Imakiire. ‘This year is actually the lowest level ever.’

Still, he describes the concentration of AGMs on a particular day as ‘one of the biggest concerns of the financial market in Japan and [the] institutional investors that invest in [it]’.

What this concentration of AGMs has historically meant is that investors are forced to vote much of their portfolio in a very short timeframe. ‘Institutional investors that made decisions on their voting rights had to receive the meeting materials from trust banks by mail, fill out the voting forms and then mail their voting instructions back to the trust banks,’ explains Imakiire.  

That process often took a number of days, further eating into the time investors had to consider the agenda for the meeting. It was also difficult for institutional investors to change their voting instructions once they were made, Imakiire adds. This ‘was a major challenge for the Japanese financial market to improve the voting environment for institutional investors,’ he says.

Back in 2006, ICJ – a joint venture from Broadridge Financial Solutions and the TSE – launched an electronic voting platform. By this year’s proxy season, that platform had been adopted by more than 1,700 listed companies, having grown by almost 500 more firms in the past year alone.

As of June 2022, more than 1,600 companies listed on the Prime Market of the TSE are on the platform, explains Imakiire. That figure represents 87.6 percent of the companies in that market, or 98.2 percent by market capitalization. More than 100 companies listed on the Standard Market and more than 20 listed on the Growth Market also participate in the platform, Imakiire adds.  

The number of domestic institutional investors using the platform has also increased by almost half to 47 in total this year, and Imakiire says the shift to electronic proxies has allowed the voting period for institutional investors to be extended by more than 14 days.

Lost in translation

Another big challenge that remains – particularly for foreign investors – is a lack of English-language disclosure.

‘English disclosure of shareholder meeting materials has been improving,’ explains Imakiire. ‘But among 1,218 listed companies that participated in ICJ’s platform and held general shareholder meetings in June this year, just 297 (24 percent) translated all related materials into English, [while] 848 companies partially translated material.’ He adds that ICJ is trying to improve the situation, offering meeting agenda information in English on its platform.

Issues around disclosure are, in fact, the focus of forthcoming updates to Japan’s corporate governance and investor stewardship codes, says Imakiire. ‘One of the objectives of both codes is to achieve the further enhancement of corporate value and the revitalization of the Japanese capital market through constructive dialogue between listed companies and shareholders,’ he says. ‘The disclosure of shareholder information is likely to become a major issue in the next updates of those codes, because identifying a shareholder that is a counterpart of an engagement will be key to starting a constructive dialogue.’

A view into voting trends

Encouraging both companies and shareholders to sign up to the proxy voting platform is part of an industry-wide effort, continues Imakiire, who maintains that the data coming out of the platform contributes to the country’s goals of constructive dialogue. That data is already a draw for companies signing up to ICJ’s platform, which offers daily insight into voting trends.

‘This allows issuers to have an idea about whether their proposals – or shareholders’ counter-proposals – are likely to be approved or rejected long before the meeting date,’ says Imakiire. ‘By understanding the voting trend, issuers can disclose additional information to the public regarding their proposals, have constructive discussions with shareholders or change their proposals where appropriate.’