TOKYO -- Japan is calling on institutional investors to disclose fully detailed records of their votes at corporate shareholders meetings, hoping greater transparency will both safeguard clients' interests and show companies how to improve.
The Financial Services Agency on Monday released the revised version of Japan's Stewardship Code, a set of principles for responsible institutional investors that will take effect in June, when many companies hold annual shareholders meetings.
Currently, institutions such as asset management firms, pension funds, insurers and trust banks need only to "aggregate the voting records" when disclosing them publicly. Now, the new text reads, they "should disclose voting records for each investee company on an individual agenda item basis." For meetings held in June, records should be out by the end of November.
This is the first revision to the code, which was introduced in 2014 and is to be updated every three years. Compliance is not mandatory. But signatories to the code opting out of particular provisions must explain their reasoning for doing so.
More detailed voting disclosures will make it easier for outsiders to determine whether institutions are using their power as shareholders to hold companies to account, and will reduce concerns about conflicts of interest. Moreover, discussing these votes with companies could give management new ideas on how to build corporate value.
The revised code aims to bring such outside scrutiny into the voting process itself. The 2014 document noted that "it is important for institutional investors to appropriately manage" conflicts of interest, and called on institutions to "publicly disclose a clear policy" for handling such conflicts. The new version goes farther, speaking to institutions' obligation to secure "the interests of clients and beneficiaries" by disclosing specific policies on measures for eliminating such conflicts and the necessity of governance structures "such as an independent board of directors or third-party committees for decision-making or oversight of voting."
Additionally, those operating passively managed funds, for example those that track stock indexes, are asked to become engaged with the companies whose shares they hold as more active investors are. This aims to intensify pressure on underperforming companies to make improvements, raising stock prices across the board.