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Business trends

Japan Inc. faces record investor proposals as activism takes hold

Corporate governance and investor rewards are the main concerns

Investors have submitted proposals to a growing number of Japanese companies as the season for shareholders meetings kicks off this month.

TOKYO -- Investors are demanding more action on corporate governance and stock buybacks from Japanese businesses, with a record 54 companies receiving shareholder proposals ahead of annual meetings this year.

The figure marks an increase of 12 companies from all of last year, according to data compiled by IR Japan, which surveyed corporations with March book-closings. The number, which is a tally as of Friday, could rise further.

Many are looking to raise enterprise value through share repurchases and the unloading of stakes that do not serve business purposes. As Japanese businesses unwind cross-held shares, regular investors enjoy more sway, forcing companies to seriously grapple with their proposals. 

In particular, institutional investors have been aggressive in putting forward proposals. Seven institutional investors, including American asset manager Fir Tree Partners and Horizon Capital Management, have submitted proposals at 12 companies.

Fir Tree Partners has put forward multiple proposals to Kyushu Railway, the rail company known as JR Kyushu, demanding a stock buyback program and the seating of three outside directors.

New York-based Moab Capital Partners, which owns 1% of JR Kyushu, announced Wednesday that it will support Fir Tree's proposal. Two U.S. companies that advise investors on shareholder proposals also said they back the plan. The rail operator opposes Fir Tree's share repurchase proposal, which it said is aimed at "short-term shareholder returns" and would "sacrifice future growth."

Similarly, Horizon Capital Management has proposed that paved-road contractor Watanabe Sato buy back about 10% of outstanding shares. Activist investor Strategic Capital is urging construction company Seikitokyu Kogyo to spend retained earnings on dividends.

Companies are feeling pressure to respond. After receiving a motion from Strategic Capital to disclose capital costs, building contractor Asanuma released the requested information in May, ahead of this month's shareholders meeting.

Among businesses that close their books in December, six companies received proposals during their March shareholders meetings, according to IR Japan. Two motions issued to textile manufacturer Teikoku Sen-I, including one calling for the nomination of outside directors, reportedly received the support of over 20% of shareholders.

Up until now, Japanese companies have usually been the ones to pitch proposals during shareholders meetings, which typically take place in June. Apart from a handful of retail investors, few motions have come from the other side. These shareholder proposals could sometimes be frivolous, such as a motion to change the name of Nomura Holdings to Yasai ("Vegetable") Holdings.

In the U.S., however, shareholder proposals are submitted regularly, with a growing number of late seeking to address environmental and societal issues. In Japan, more institutional investors are revealing the results of shareholder votes. In that light, "shareholder proposals will become more widely accepted." said Kengo Nishiyama, senior analyst at the Nomura Institute of Capital Markets Research.

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