Nomura’s AGM Preview – “Shareholder Attitudes Toward Independence…of Particular Interest”

Opportunity for Japanese companies to restore confidence in their governance
Various scandals in 2011 have dented the confidence of shareholders and investors in compliance and corporate governance at Japanese companies. We will be looking for Japanese companies to restore lost confidence at shareholders' meetings scheduled for June 2012 by detailing initiatives to improve governance structures. We see particular benefits for companies capable of improving compliance and governance structures and engaging in enhanced dialog with shareholders and investors via proactive disclosure.

Key proposals at shareholders' meetings

Proposals related to the appointment of board members are likely to attract the most attention at June 2012 shareholders' meetings, in particular proposals related to the appointment of external board members (external directors and auditors). Shareholders will be paying particular attention to how independent external board members are from management, given the supervisory role they are expected to perform. Independence criteria have also become stricter in institutional investors' guidelines for exercising voting rights. Accordingly, companies will need to provide clear and detailed disclosure about the independence of their nominated external board members. Shareholders and investors will also be highly interested in board members’ pay and retirement packages. Companies will need to persuade shareholders and investors about performance-related pay proposals and processes used to decide compensation levels. Elsewhere, opposition to takeover defense measures has been growing over the years and with institutional investors still taking a dim view of such measures, we think there could be a further rise in the proportion of shareholders voting against them in 2012.

Focus on shareholder proposals that received a certain level of support in 2011

Shareholder proposals that garnered relatively high approval rates in June 2011 included motions concerning disclosure of individual board members’ remuneration and the treatment of blank ballots. These same proposals have been submitted in 2012 too and it will be interesting to see whether they command even higher support this time round.

Individual investors are taking a more demanding stance on proposals related to directors

Based on a survey we carried out recently, it looks as though individual investors have become slightly less interested in exercising their voting rights. However, among the respondents who said that they would be exercising their voting rights, there was a slight y-y rise in the proportion saying that they might vote against proposals related to board member remuneration or the nomination of board members. As more individual investors have become interested in companies’ results and the direction that management has been taking, so they have become more demanding about the pay and (re)appointment of board members who have failed to produce the results they want.

Research analyst
Japan accounting & tax policy research
Kengo Nishiyama Senior Strategist – NSC

+81 3 6703 1247

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