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Business trends

Once-mum Japan shareholders crank up pressure on management

Record 15% of businesses report substantial investor opposition to proposals

TOKYO -- Shareholders in Japan are growing more willing to vote against company proposals at general meetings as they hold management responsible for bad results or poor governance.

Out of 2,248 companies that reported voting results for June meetings by July 2, 332, or a record 14.8%, had at least one proposal with more than 20% of voters opposed based on shares held, including abstentions, according to investor relations consulting firm IR Japan. This is 39 more than in 2018, for a 2.6-percentage-point increase.

This continues a general upward trend over the past decade amid growing attention to corporate governance and a rise in shareholder activism.

Much of the resistance involved top-level appointments, with investors taking the opportunity to express dissatisfaction with leaders' approach to management or perceived lack of ability.

At Dai Nippon Printing, which sank into the red for the fiscal year ended March 31, 36% of shareholders voted against reappointing Yoshitoshi Kitajima as chairman. Shareholders at Sun Corp. registered more than 40% opposition to the nominations of four out of five directors, including former President Masanori Yamaguchi, after three straight years of losses.

At Nissan Motor, 22% of the shareholder vote went against the renomination of President Hiroto Saikawa to the board. More than 30% of Suzuki Motor shareholders voted not to reappoint Chairman Osamu Suzuki following an inspection scandal.

Investors also used their votes to express skepticism about the independence of outside director nominees.

Over 40% of shareholders opposed former Mitsubishi Estate Chairman Keiji Kimura's reappointment to the board of pharmacy operator Matsumotokiyoshi Holdings. Kimura attended only 70% of board meetings in fiscal 2018, prompting U.S. proxy advisory firm Institutional Shareholder Services to recommend shareholders vote against his nomination.

Fujitsu General shareholders registered a similar level of resistance to the appointment of a substitute audit board member who was a partner at a law firm with an advisory contract with the air conditioner maker.

Defenses against hostile takeovers proved less popular among shareholders than in the past, with such provisions being only narrowly approved at Sumitomo Realty & Development and general contractor Maeda.

Meanwhile, shareholders themselves submitted proposals at 54 companies, also a record. One such measure at Takeda Pharmaceutical, which would have let the drugmaker claw back pay from executives after a major loss, won 52% of the shareholder vote but fell short of the two-thirds majority needed to change the articles of incorporation. Another investor proposal on improving disclosure of executive pay had nearly half in favor.

A decline in cross-shareholdings has contributed to the trend of shareholder activism by reducing the presence of long-term investors. And institutional investors inside and outside Japan are increasingly disclosing their votes on individual proposals, spurring them to scrutinize each measure and play a more active role.

Nomura Holdings amended a proposal just before its general meeting to have an external director, rather than an internal one, chair its nomination and compensation committees. Its brokerage unit, Nomura Securities, had been slapped with a business improvement order in May after a data leak.

Lixil Group, which has clashed with investors over the dismissal of former CEO Kinya Seto, saw a rare example of a company and its shareholders putting forward competing slates of directors. All of the shareholders' picks won board seats, and Seto was restored to his old post.

But analysts have voiced concerns about the potential repercussions of excessive activism. If shareholders fixated on short-term profits gain too much influence at a company, its long-term value could suffer.

"Some investors don't think about the risk that voting down a proposal on the appointment of a top executive could throw the company's management into chaos," said Yutaka Suzuki of the Daiwa Institute of Research.

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