TOKYO -- America's biggest pension fund and three British asset management companies will work in lockstep on corporate governance reform in Japan by voting.
They will coordinate to request increasing outside directors from the at least two now recommended by the Tokyo Stock Exchange to at least one-third of the board. Companies that do not will be punished with votes against their choices for directors in principle.
Such so-called collective engagement enables institutional investors to make their votes more influential. Though common in the U.S. and Europe, particularly the U.K., this will mark its first use in Japan.
The partners are the California Public Employees' Retirement System, Legal & General Investment Management, Standard Life Investments and BMO Global Asset Management. Details of the group's requests will be announced as soon as early next week.
The quartet collectively holds about 4 trillion yen ($36.3 billion) in Japanese stocks. More foreign investors could join in the future. The advantages of collective engagement were mentioned in the Financial Services Agency's stewardship code for institutional investors for the first time this May.
Increasing outside directors will be a high hurdle for some companies. Just 40% of the Nikkei Stock Average's 225 components have met the goal of at least one-third. But with collective engagement, the movement will likely gain momentum.