Image: Reuters Berita 24 English - This year, Japanese asset managers raised the stakes at shareholder meetings by opposing management plan...
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| Image: Reuters |
Berita 24 English - This year, Japanese asset managers raised the stakes at shareholder meetings by opposing management plans more strenuously and giving a boost to the ex-prime minister Shinzo Abe's aim of luring international investment.
In response to foreign criticism of asset managers' rubber-stamp voting, Nikko Asset Management, Asset Management One, and others have emerged as distinctive voices in Japan's recent activism.
In one high-profile case, corporate management cancelled a proposal after certain asset managers supported a foreign investor's protest. In another, a pair resisted management at a domestic firm by voting for board nominees nominated by a foreign investor.
The incidents from this year add to a trend in voting that began with Abe's corporate stewardship code in 2014 and gained momentum with a move that mandated the publishing of vote records for each agenda item at shareholder meetings in 2017. This month, during an election campaign, Abe was fatally shot.
Since each manager is now responsible for each vote choice, the adjustment "enhanced asset managers' commitment," according to Katsuya Kikuchi, associate director at Tokio Marine Asset Management.
According to asset managers, increased domestic activity is likely to help corporations improve their reputations on a range of problems, including the environment, society, and governance, increasing their appeal to overseas investors eager to expand their exposure to Japan.
According to Seth Fischer, founder of Hong Kong-based Oasis Management, which has invested in Japanese companies like Toshiba Corp., domestic asset managers have voted "against management in increasing proportions every year for the last five years."
Still, domestic institutional investors only support a small portion of shareholder resolutions. At shareholder meetings handled by electric voting platform operator ICJ last year, these investors supported just 6.8% of such motions on average, compared to 15% among international peers.
SUFFICIENT ROLE
Although several investors have expressed the expectation that domestic asset managers will take more initiative and forward their own ideas for corporate management, foreigners now dominate shareholder activism in Japan. Domestic asset managers primarily support this trend.
A management plan to nominate Fujitec Co. Ltd.'s top executive to the board of directors was rejected by Oasis, which questioned related-party activities at the company. Some domestic asset managers backed Oasis in this fight. Earlier this month, one hour before its annual shareholder meeting, the elevator manufacturer dropped the plan.
The campaign of Singapore-based 3D Investment Partners to elect its candidates to the board of directors of IT company Fuji Soft Inc. obtained an unexpectedly high support of about 40% in another vote this year.
Asset Management One of Mizuho Financial Group Inc., Nikko Asset Management of Sumitomo Mitsui Trust Holdings Inc., and Mitsubishi UFJ Trust and Banking of Mitsubishi UFJ Financial Group Inc. all cast yes votes.
According to Hidenori Yoshikawa, a corporate governance consultant at the Daiwa Institute of Research, "before 2014, we would hear investee enterprises complain about foreign investors' tight voting practises." We now hear from investors that domestic investors are tighter as a result of domestic institutional investors tightening their attitude.
An analysis of voting for incumbent board elections at Japan's 100 largest companies by shareholder advisory SquareWell Partners revealed that domestic asset managers have been less supportive of corporate management than comparable worldwide rivals.
Between 2019 and 2021, the average support rates at Asset Management One, Nikko Asset Management, and Sumitomo Mitsui DS Asset Management were 95.9%, 94.2 percent, and 88.9 percent, respectively. That contrasted with comparable rates of 99.9 percent and 99.7 percent at American peers Vanguard and BlackRock.
HARDER SCRUTINA
Even so, there have only been four successful activist shareholder motions in Japan, in part because passive ownership frequently insulates management.
The use of management-protecting strategies, such as takeover defences and cross-shareholding agreements, among domestic asset managers is rising.
This year, Daiwa Securities Group Inc.'s Daiwa Asset Management and other significant asset managers tightened the criteria for director voting at cross-shareholding companies, which continue to make up around 30% of Japan's $6 trillion stock market.
According to asset managers, increased scrutiny from asset owners like the Pension Fund Association for Local Government Officials and the Government Pension Investment Fund is another factor influencing change.
Takuya Iyoda, chief analyst at Nissay Asset Management, added that there is opportunity for improvement in the board's diversity and independence. According to him, regulations could be strengthened such that boards must have a majority of independent directors.
"I wouldn't be surprised if diversity rules eventually extend to non-Japanese people as well as women."
