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In Japan, Hundreds of Shareholder Meetings on Same Day; This year, more than one in three companies will hold their meetings on Friday. Experts say the practice underscores Japanese companies’ dismissive attitude toward shareholders

CORPORATE GOVERNANCE

In Japan, Hundreds of Shareholder Meetings on Same Day

By HIROKO TABUCHI

JUNE 23, 2014 1:06 PM 1 Comments

Investors who own shares in Japanese corporations might want to clear their calendars next Friday.

At 10 a.m. on June 27, annual shareholders’ meetings kick off at more than 900 major Japanese companies across the country. That’s more than one in three companies traded on the Tokyo Stock Exchange.

The herding behavior has long been practiced by Japanese corporations to make sure that as few pesky investors as possible — not to mention news reporters — turn up at their meetings.

The practice was originally justified by companies as a protection against professional racketeers who sought to extort money from companies with the threat of disrupting the shareholders’ meetings. But the racketeers no longer pose much of a threat, and experts say the lingering practice underscores Japanese companies’ dismissive attitude toward shareholders. Usually poorly attended, shareholder meetings in Japan tend to be choreographed affairs, with the voting dominated by an insiders’ club of lenders, suppliers and customers.

Those tepid meetings are just one of a bevy of unfriendly arrangements investors face in Japan, including a lack of independent directors, “poison pills” that can dilute shareholders’ stake and a general lack of regard for corporate governance, all of which have played in role in the chronically low returns on equity at Japanese corporations.

The average return on equity measures at listed Japanese companies, excluding those in the financial sector, hovers at around 5 percent, compared with more than 15 percent at listed companies in the United States, according to the Life Insurance Association of Japan.

And scandals over the years at Japanese companies — like a $1.7 billion accounting scandal at Olympus, which came to light in 2011 only after its own president blew the whistle on a scheme to hide losses for decades — have cast a harsh light on the state of corporate oversight in Japan.

But Prime Minister Shinzo Abe of Japan is trying to change corporate practices as part of his “Abenomics” agenda, with the aim of getting a long-sluggish Japanese economy to grow again.

As part of a wider reform agenda set to be approved later this month, Japan is adopting what proponents say is a world-class set of corporate governance practices, including stronger protection for whistle-blowers and new rules for directors’ training and qualifications.

There may be little that Mr. Abe can do to encourage companies to stagger their shareholder meetings, but proponents say these changes amount to big steps forward for shareholder rights in Japan, home to the world’s biggest stock market after the New York Stock Exchange and Nasdaq.

Japan’s financial regulator has already published a “stewardship code” that requires companies to comply or explain why they cannot follow the rules. The code encourages asset owners and managers to vote, publish their voting records, monitor firms more closely — and speak up when needed. And more companies, in response, have started adding independent directors to their boards, for example, or planning shareholder meetings on weekends so more individual investors can attend.

“One should not underestimate the potential for this virtuous circle to improve productivity and profits at Japanese firms,” Nicholas Benes, representative director at the independent Board Director Training Institute of Japan, said in an e-mail. “I really think Japan has reached a crucial turning point.”

Shareholders in Japan already have an easier time than in the 1990s, when more than nine out of 10 traded companies held their shareholder meetings on the same day.

At the time, companies justified the timing as a measure against the professional racketeers. On the morning of June 29, 2000, for example, more than 7,000 police officers were deployed across the country to beef up security for the almost 2,200 shareholders’ meetings held that day in Japan, according to local news reports.

But the police have since cracked down on those racketeers. These days, corporate management tends to be more wary of foreign activist investors — like the foreign fund managers who sided with Olympus’s ousted president, Michael Woodford, demanding answers on the accounting fraud at the camera manufacturer.

Olympus had little trouble winning shareholders’ approval for a new, self-appointed slate of directors, in a reminder of the leeway Japanese investors continue to give, even to companies that do not perform well.

The Tokyo-based Olympus has since promised to strengthen its approach to corporate governance. Skeptics remain, but Olympus is at least holding its annual shareholders’ meeting this year on June 26 — a day before the big rush.

 

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About bambooinnovator
KB Kee is the Managing Editor of the Moat Report Asia (www.moatreport.com), a research service focused exclusively on highlighting undervalued wide-moat businesses in Asia; subscribers from North America, Europe, the Oceania and Asia include professional value investors with over $20 billion in asset under management in equities, some of the world’s biggest secretive global hedge fund giants, and savvy private individual investors who are lifelong learners in the art of value investing. KB has been rooted in the principles of value investing for over a decade as an analyst in Asian capital markets. He was head of research and fund manager at a Singapore-based value investment firm. As a member of the investment committee, he helped the firm’s Asia-focused equity funds significantly outperform the benchmark index. He was previously the portfolio manager for Asia-Pacific equities at Korea’s largest mutual fund company. KB has trained CEOs, entrepreneurs, CFOs, management executives in business strategy, value investing, macroeconomic and industry trends, and detecting accounting frauds in Singapore, HK and China. KB was a faculty (accounting) at SMU teaching accounting courses. KB is currently the Chief Investment Officer at an ASX-listed investment holdings company since September 2015, helping to manage the listed Asian equities investments in the Hidden Champions Fund. Disclaimer: This article is for discussion purposes only and does not constitute an offer, recommendation or solicitation to buy or sell any investments, securities, futures or options. All articles in the website reflect the personal opinions of the writer.

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