It is interesting to read this in retrospect. Some aspects made progress, and others made little or no progress. But even in 2009, it bothered no one at allthat in order to help investorsfeel secure,director trainingwas not considereda significant enough matter to evennecessitate encouragement by the TSE, and that independent or even outside directors were not even considered as a topic. One wonders ifthe Chair of the Advisory Committee would have felt securein his heart, omitting mention of these topics.
Summary of Recommendations
I Creating Better Environment Where Investors Feel Secure
From the secondary market' perspective of ensuring protection of shareholders and investors as well as market credibility, TSE need to show norms which the listed companies should conform to, while respecting general framework of the Companies Act as the premise.
A Recommendations Concerning Private Placements to a Third Party
a. Consideration for interests of existing shareholders
Private placements of new shares, etc. are not always desirable financing method for listed companies, as they cause dilution of existing shareholders' rights. Listed companies should prudently consider whether or not they implement such method. It is necessary for TSE to require listed companies to provide sufficient explanation to the shareholders on necessity and reasonableness of such private placement, in case they made a decision for implementation.
b. Elimination of unreasonable restriction on shareholder rights
Private placements with dilution ratio in excess of 300% extremely or even unreasonably impair the rights of existing shareholders and materially affect market credibility. Such private placement should not be allowed as corporate activities of listed companies as a general rule. It is necessary
for TSE to set up examination procedures for prevention.
c. Measures to be taken against dilution of shareholder rights and selection of large shareholders Authority of corporate management is entrusted by shareholders. It is, by nature, undesirable for companies to easily dilute voting rights of the shareholders being fundamental authority of corporate management, or to select large shareholders. In case of private placement involving 25% or more dilution or change in control, it is necessary for TSE to impose procedures to obtain a higher level of shareholders' understanding in principle.
d. Elimination of placements to inappropriate parties
Involvement of anti-social forces with private placements should be definitely eliminated in order to secure credibility and fairness of the market. It is necessary for TSE to set up procedures such as confirmation of third parties which receive new share allocation for the purpose of prevention.
e. Ensuring soundness of transactions with allocated parties
From the perspective of ensuring shareholder/investor protection and market credibility, soundness of transactions with related parties including controlling shareholders should be maintained after initial listing as well. In case of a change of controlling shareholders caused by a private placement, it is regarded as change of the prerequisites for initial listing by a company decision. Therefore, it is necessary for TSE for the purpose of prevention to set up ex-post examination procedures to check whether there are any unreasonable transactions with a controlling shareholder.
f. Ensuring of compliance with Favorable Issue restrictions
There are some cases vague to shareholders and investors whether a private placement falls under the category of Favorable Issue which requires a resolution of shareholder meeting. It is necessary for TSE to require companies to disclose sufficient information such as calculation basis of the amount to be paid in and statutory auditor's opinion based on such calculation basis in order to ensure legality.
g. Confirmation of finance
Information on private placements without proper financing not only confuses the market but also could be used by certain parties to gain unfair profits. From the standpoint to secure fairness of the market, it is necessary for TSE to require companies to confirm and disclose finance of the parties to whom they are going to allocate shares.
B Recommendations Concerning Reverse Stock Split
a. Elimination of unreasonable restrictions on shareholder rights
To deprive many shareholders of their position as shareholder by conducting reverse stock splits which generate fraction less than one share without any reasonable ground materially affects market credibility. In order to eliminate unreasonable restrictions on shareholder rights, it is necessary for TSE to set up examination procedures for prevention.
b. Consideration for shareholder interests
Listed companies are expected to respect their shareholder interests as much as possible, even in case reverse stock splits which generate fraction less than one share may not be unreasonable restriction on shareholder rights. If they have an alternative method to secure the shareholder rights
to demand purchase of their shares at fair value, it is necessary for TSE to request listed companies to select such an alternative.
II System Improvement for Facilitating Dialogues between Shareholders and Listed Companies
A Recommendations Concerning System Improvement to Facilitate Exercise of Voting Rights
Exercise of voting rights is the foundation of corporate governance, and thus need further efforts for improving the system relating to exercise of voting rights. It is desirable for TSE to conduct a survey of implementation status of the listed companies with regards to system improvement for
exercise of voting rights, and strengthen the system gradually from an effort ready for enforcement in order to further improve the system.
B Recommendations Concerning Disclosure of Voting Results
From the perspective of enhancing transparency in the procedures related to the exercise of voting rights, it is desirable for TSE to set up the system enabling shareholders easily get access to the voting results.
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