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Politics

Japan eyes curbs on excessive, frivolous shareholder proposals

Justice ministry to weigh burden on management against investors' right to be heard

Kansai Electric Power shareholders meetings have sometimes lasted over four hours.

TOKYO -- Japan's Ministry of Justice will consider steps to prevent shareholders from abusing their right to propose corporate actions or policies, seeking reasonable limits that ease the administrative burden on management.

The curbs, which may include a numerical limit on proposals, are one of several topics put before a ministerial council Thursday for discussions expected to take one to two years. The ministry aims to propose relevant legislation as early as 2019.

The effort to reduce excessive or frivolous motions falls under the heading of improving the flow of shareholders meetings. Under the current rules, a shareholder that has held a voting stake of at least 1% or 300 units of voting stock for six months or more can initiate any number or manner of proposals.

Shareholders exercised this right at 50 companies from July 2015 to June 2016, making for a roughly twofold increase in five years, according to a research firm.

While most of these motions are genuine efforts at dialogue with management, their sheer volume has at times slowed the progress of shareholders meetings. Osaka-area utility Kansai Electric Power received 22 proposals last year, including a call to decommission nuclear reactors. Nomura Holdings, the nation's leading securities group, received 100 in 2012 from a single shareholder -- among them a motion to change the company name to Yasai ("Vegetable") Holdings. Companies have sought limits to put a stop to such egregious shareholder behavior.

The U.K. and Germany have rules meant to do just that, while the U.S. limits proposals to one per shareholder. The ministerial council will discuss ways to reduce the burden of accommodating each motion without unduly restricting shareholders' right to have their ideas heard.

Another issue for discussion is whether to let companies post notices and agendas for shareholders meetings online without prior consent from each holder. Doing so would save the time and cost associated with distributing printed materials.

The council will also consider whether to make outside directors mandatory. According to the Tokyo Stock Exchange, 95% of listed Japanese companies have at least one outside director. While proponents argue that outsiders bring an added level of oversight on management, others say making them mandatory would not necessarily lead to higher corporate value.

On executive compensation, the council will consider rules on distributions of pay linked to corporate earnings performance. Foreign investors have called for greater transparency in the decision-making process for executive pay at Japanese companies.

(Nikkei)

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