TOKYO -- Outspoken foreign institutional investors are calling on Toyota Motor, NTT Docomo and other top Japanese companies to appoint more outside directors to bolster corporate governance.
A total of 20 institutional investors, including the California Public Employees' Retirement System (Calpers), the U.K.'s Baillie Gifford and Ontario Teachers' Pension Plan, cosigned letters sent to 33 leading Japanese companies in May.
They want to see the number of independent outside directors rise to at least one-third of the total in three years. If the goal is not met, they will consider voting against the appointment of directors at shareholders meetings in fiscal 2017, the letters said.
The 20 businesses hold a combined 7.5 trillion yen ($72.39 billion) in Japanese stocks, according to investor relations company IR Japan. Given that the figure accounts for almost 2% of the total market capitalization of the Tokyo Stock Exchange's first section, they wield sizable influence over the outcome of shareholder votes.
They singled out companies that boast large market capitalizations but have a small ratio of outside directors, including Sumitomo Realty & Development and Mitsubishi UFJ Financial Group. More than 1,000 businesses listed on the TSE's first section, or just over 60%, have outside directors, but their share remains small. At Toyota, for example, the number stands at three out of 15, a far cry from the U.S. and Europe, where outside directors occupy more than half the director seats at 90% of companies.
In response, Docomo says it does not plan to act immediately to add outside directors but recognizes it as a medium- to long-term issue. MUFG has already decided to appoint two more outsiders.
Legislation slated to win parliamentary approval during the current session is designed to prod companies into appointing outside directors. Prime Minister Shinzo Abe's government positions strong corporate governance as a key element of its growth strategy, arguing that efficient management will help boost corporate earnings and lift the economy as a whole.