Memo to Shareholders of Kirin HD, from a Director Candidate

Independent Franchise Partners (IFP) has submitted a shareholder proposal nominating Kanako Kikuchi (an experienced global pharmaceutical executive) and myself as independent directors. Glass Lewis supports electing both of us, but it seems that ISS has “split the baby” in a non-optimal way and only supports me. If investors could vote for Ms. Kikuchi as well, it would greatly help ensure that the board makes a fully informed, objective and independent assessment of the strategy on an ongoing basis.

Both of us have no past relations with IFP, and take an approach that is completely agnostic and independent of IFP’s dividend proposal. We both believe that if shareholders do not opt for that proposal, – or in any case – it is most prudent to withhold any decisions about the strategy until such time as when we are on the board and can ask questions and are privy to all internal analysis and confidential information. Therefore, we would both join the board with no pre-decision(s) made before knowing all the facts. This is the only logical position to take as a truly independent director. I have informed IFP in no uncertain terms that my philosophy and legal duty is to answer to all shareholders, and that I may well not agree with positions that IFP has taken or may take in the future. IFP has no problem with this.

Many investors may not realize that unless Ms. Kikuchi is elected, there will be no one with global biopharma experience on this board just at the time when that skill set is most needed. Given the company’s proclaimed strategy to “bridge” into health science products (which could be a good one for all I know), this is not wise and is of great concern to me.

If investors “need” another director to not vote for, I might respectfully suggest they consider Mr. Arakawa, whose managerial expertise was acquired in the tire industry. As the Chairman of the Nomination and Remuneration Advisory Committee, he is most directly accountable for the overall candidate selection process and the entirely pro-forma way our interviews were conducted, including subtle intimidation to step down as candidates…. and must have played a major role in the nomination of “outsider” candidates who are not truly independent, have longtime connections with the company, and/or support the strategy without having attended a single board meeting. In a word, he oversaw the selection of candidates who were “pre-filtered” by Kirin Holdings management. Mr. Arakawa has already served on Kirin Holdings’ board for five years and will become 76 this year.

The Kirin Holdings AGM is shaping up to be a seminal event in the evolution of Japanese corporate governance because the core issue at stake is whether an “independent director” is:

(1) “a person who cannot objectively evaluate the strategy because the expectation of no significant critique was an implicit condition to his or her nomination, even if unstated”?


(2) “a person who can and will refine opinions about the strategy at each point of time, after learning all the facts and discussing with others”?

This is the single most important governance issue in Japan. Unless shareholders can address this issue, we will forever have “Cocker Spaniel” (overly docile) directors – just more “independent-looking” ones. This is the opposite of what the UK Corporate Governance Code is referring to when it says that independent directors should constructively “challenge management”. Especially in Japan, – even more than in the UK – this core issue needs to be addressed if governance reforms are to have their intended effect.

Nicholas Benes

(My own opinion and not that of any organization or other person.)

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