Japan Inc’s shareholders increasingly challenge management

By Anton Bridge

TOKYO (Reuters) – Shareholders of Japan’s largest companies are increasingly voting against management resolutions, data showed on Tuesday, spurred on by guidance on effective corporate governance and capital allocation set out by Japanese regulators.

Shareholder resistance is now routinely a feature of Japan’s annual general meeting (AGM) season, proxy solicitor Georgeson said in an annual review of the meetings.

The proportion of contested resolutions — those receiving 10% or more “against” shareholder votes — rose to 13.1% of all resolutions put to shareholders at AGMs held by companies in the year to 30 June 2024.

The result is up slightly from 12.8% in the 2023 AGM season and 11.8% in the 2022 season.

The Tokyo Stock Exchange’s push to get companies to outline capital allocation plans, limit cross shareholdings and improve price-to-book ratios has spurred investors to question management teams seen falling short, said Georgeson CEO Cas Sydorowitz.

“It’s part of a policy reform agenda in Japan that is actually starting to really take hold and bear some fruit,” Sydorowitz said in an interview.

As of the end of August, 79% of companies listed on the Prime market had disclosed capital allocation plans, as recommended by the exchange, up from 40% at the end of December 2023.

At the same time, proxy advisers Institutional Shareholder Services and Glass Lewis have adopted more stringent voting guidelines for Japan, closer in line to those of other countries.

The advisers recommended significantly more “against” Board resolutions in 2024 – an increase of 66% from ISS and 17% from Glass Lewis compared with the previous year.

Proxy advisers are becoming more influential, as foreign investors make up a growing share of Japanese firms’ shareholders and depend on the advisers’ recommendations during a crammed two-week period of AGMs in Japan, Sydorowitz said.

The review was jointly published by Mitsubishi UFJ (NYSE:) Trust and Banking Corp unit Japan Shareholder Services. Georgeson is owned by Computershare.