The U.S. Starts to Catch Up with Japan on “Proxy Access”

News Item: Shareholder-friendlyJapan does not need to adoptproxy access. Why not? Because it already haspermitted it, much more liberally than the U.S., for decades. One wonders whether all the doomsayersnow predicting chaos in the U.S. are aware of this fact.

As we all know, the SECrecently adopted “proxy access” amendments to the proxy rules that -for the first time -give stockholders of public companies a meaningful, low-costway totonominate candidates forboard directors and to have those nominees included in the company’s proxy materials (proxy statement and proxy card). The SEC’s newproxy access rules allow stockholders (or groups of stockholders)owning at least three percentof a company's voting stock for at least three years to nominate candidates for up to 25 percent ofthat company’s directors.The SEC alsoadopted amendments to the proxy rules that permit stockholders to submit proposalsfor even greater access to include stockholder nominees in a company’s proxy statement.

Despite years of opposition from the business community, that supposedbastion of shareholder democracy, the United States, has finally allowed… shareholder democracy, of a sort. As a result, achorus of voicesis now predicting thatthe result will be court battles and lots of litigation.

A recent article by Reuters, Analysis: Court fights may loom over proxy access rules (available at the link below) quotes several experts to that effect. According to the article, 'Lawsuits are virtually certain, said Joseph Grundfest, a Stanford Law School professor and former SEC commissioner. 'The list of plaintiffs include many trade associations and corporations that would be affected by the rules or have to comply.'

The experts may beproved spot-on correctin the context of the U.S., but it is interesting to notethat Japanese lawhas allowed muchfuller access to the proxy for many years, without mayhem yet resulting. (One almost wishes there were more mayhem.) In Japan's case, the rules are very simple andmuch moredemocratic. Anyone registered as a shareholderof the lesser of 1% or 300 units of votingstockfor more than six months can nominate director candidates. (A unitof stock is not a big investment. Depending on the company, it is anywhere between 1 share and 1,000 shares, with many companies at the lower end. )

Result: you do not need to be a big institutional superfund, to nominate directors in Japan. Not only that, but you can combine with other shareholders and make a joint proposal if you like.

This is just acomparative note thatI thought might lend perspective to the issue. But I have a question for Japanese users of this discussion forum. With all the risinginterest on the part ofcertain investors(both foreign and domestic) to have more independent directors appointed toJapanese boards, whyare there so few shareholder proposals to nominate such directors?

The Board Director Training Institute (BDTI) is a "public interest" nonprofit in Japan dedicated to training about directorship, corporate governance, and related management techniques. It is certified by the Japanese government to conduct these activities as a regulated nonprofit. Read a summary about BDTI here, and see a menu of its services for both corporations and investors here.

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