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Opinion

Corporate inertia stops Japan from moving annual meetings online

Companies should take advantage of tech to mitigate coronavirus risk

| Japan
Shareholders enter a conference hall to attend Toyota's annual general meeting in Toyota, Aichi Prefecture, on June 11: companies want to have a direct dialogue with the shareholders. (Photo by Koji Uema)

Shigeru Asaba is a professor of strategy at Waseda Business School.

In June every year, there is a great rush of Japanese companies holding their annual general meetings, or AGMs, of shareholders where they vote on corporate proposals like executive pay.

This year, however, the spread of the new coronavirus infection has been doubly disruptive. It has made it difficult for corporate accountants and audit firms to carry out their normal duties, so some AGMs have been postponed.

But it has also made the traditional way of doing them -- large, long, in-person meetings -- feel like infection risks. Companies have been asking shareholders to refrain from visiting the venue and have been restricting admission. The solution of moving them online, however, is beset by Japan-specific difficulties.

There are two types of shareholder involvement on the internet. The first is the observation type in which shareholders watch a relay but cannot vote; this has already been used by Nissan Motor and will be used by pharmaceutical company Eisai, Yaskawa Electric and others for the first time this year, with more likely to follow.

Mobile game maker Gree webcasts its shareholders meeting in September 2019: moving AGMs online is beset by Japan-specific difficulties.

The second is the participation type in which a vote can be cast on the internet. In Japan, this seems to be limited to one or two companies including Z Holdings, Softbank's holding company. The problem is that Japanese corporate law requires public companies to hold their AGMs at a physical venue. This means only a small number of companies use the hybrid of online and face-to-face.

Hoping that shareholders who could not come to the physical venue could attend the general meeting, in March software company Fujisoft let shareholders at home get involved in real time via the internet so they could ask questions and exercise their voting rights. Even shareholders who live far away can participate in the AGMs online, which may make them much more interactive.

In Europe and the U.S., virtual AGMs have spread: nearly 300 American companies moved them online in 2019.

This delay in Japan's moving AGMs online suggests two problems. Companies may avoid AGMs online because they want to protect the shareholders' right to ask questions to management directly, or they themselves want to have a direct dialogue with the shareholders. However, even at an online AGM, shareholders and management can interact.

The management's belief that it has to have a direct dialogue with shareholders at an AGM may be a sign that it does not already have a habitual and generous dialogue with shareholders.

The second problem is inertia. Large traditional enterprises seem most reluctant to move the AGMs online. When I asked them about the possibility of an online general meeting, answers tended to be: "It is not allowed by law"; "Look at other companies. If they use an online meeting, we will follow them"; or "We wait for the government's instruction. It would decide if really needed."

Leave it to the government, leave it to another company and do not try to experiment by yourself: not very inspiring attitudes. I do not think everything should go online, but its pros and cons cannot be known unless you try it. While inertia that opposes change can be seen everywhere, I think Japan has the greatest inertia in the world.

This tendency not to experiment is seen not only in online AGMs. This is the reason Japan lags in innovation competition, business model creation and digital transformation.

However, COVID-19 has forced the Japanese to experiment with telework, remote learning and online medical treatment. Thanks to this, they have found that a new way of doing things is feasible and learnt its advantages and disadvantages. I hope the coronavirus helps Japan to rethink how it does AGMs too -- and perhaps even work styles, education and much beyond.

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