Since 2014, when Prime Minister Shinzo Abe introduced a stewardship code, Japanese companies have found themselves under sustained pressure to up their corporate governance practices.
Despite the spread of Covid-19, that pressure has remained high in 2020, with a record number of shareholder proposals filed during the Japanese AGM season.
Below, we speak with Shigeo Imakiire, president of Investor Communications Japan (ICJ), a joint venture of Broadridge and Tokyo Stock Exchange (TSE), about the progress of corporate governance in Japan and the impact of Covid-19 on this year’s shareholder meetings.
To what extent has corporate governance at Japanese companies improved over the last several years?
We have seen a dramatic improvement in corporate governance since the implementation of the stewardship code and corporate governance code in Japan, as evidenced by the increasing numbers of outside directors, early delivery of proxy materials for AGMs and ICJ platform issuer-participants.
The stewardship code and corporate governance code have been revised and updated every other year to reflect the most recent global trends and issues to be tackled, so most areas any major market should cover have been addressed up to now.
One of the remaining areas may be group governance. Some argue that the Japan market has many listed subsidiary companies compared with other global markets. In this regard, TSE set up a special committee to discuss this issue from the beginning of this year.
Another area is beneficial shareholder identification. Similar to other global markets, Japanese corporate law stipulates that registered shareholders are legal shareholders. Any beneficial shareholders, which are usually institutional asset managers, take decisions in voting at AGMs behind [a] registered [account] without letting issuers know their identity. The European Shareholder Rights Directive II (SRD II) will require such identification to be disclosed to issuers from this year. SRD II may encourage discussion on this matter in Japan.
What influence has activism had in improving governance practices?
Both the stewardship code and corporate governance code encourage communication and constructive dialogue among issuers and institutions. The concept behind the codes, supported by Abenomics, is an offensive corporate governance approach to take more risk to enhance corporate values contrary to the conventional defensive approach. Therefore, constructive proposals and engagements from outside directors, independent directors and institutional investors are welcomed.
As long as the proposals are deemed constructive, activists can communicate with issuers.
Although these communications may not directly result in an agreement to change corporate policy or business plans, some of the proposals become adopted and realized in different formats, such as directors’ appointments and repurchasing stock plans.
Did the Covid-19 outbreak affect the types of shareholder demands being put forward?
The number of shareholder proposals increased for this AGM season from last year despite the Covid-19 situation. Proposals from activists rose, particularly in the area of corporate governance, with fewer demands for monetary returns in light of the negative impacts of the Covid-19 outbreak. Any shareholder proposal should be submitted to the company at least eight weeks before the meeting date. Due to the time constraints to finalize the financial documents and auditing this year, some proposals may not be submitted in a timely manner.
Did Covid-19 have any impact on AGM season in Japan from a logistical perspective?
Most of the AGMs in June were held in physical venues and within the regulated three-month period by the end of that month, while attendance [was] limited. Approximately 60 meetings were delayed and 100 meetings were hybrid-style virtual shareholder meetings or live-streamed. A virtual-only AGM is not allowed under Japanese law. Even if some of the meeting formats changed, the dissident shareholders who make shareholder proposals are allowed to make supplementary explanations at the meeting.
Read more about shareholder activism in Japan in the Fall print issue of IR Magazine, due out in September
