[2024 Financial Forum] "Japanese Traditional Companies Change, Stock Market Rebounds... Shareholder Proposals and Outside Directors Needed"

The 13th Asia Financial Forum
"400 Shareholder Proposals Expected This Year’s Shareholders’ Meeting Season"
Outside Directors 'Soar' in 10 Years... Diversity and Expertise Needed

"Japanese traditional companies (JTC) were rigid in the past and mostly not shareholder-friendly. However, they have changed a lot in recent years, and the Japanese stock market is also awakening. The most important reason for the stock market rebound is the improvement in corporate governance."

Ryushiro Kodaira, a specialist journalist from Japan's Nikkei Newspaper, attended the '2024 Asian Financial Forum' held on the 9th at the Chosun Hotel in Jung-gu, Seoul, delivering a keynote speech titled "The Secret to the Revival of the Japanese Stock Market - Focusing on Japan's Independent Outside Director System and the Role of the Exchange." Photo by Yongjun Cho jun21@

Ryushiro Kodaira, a specialist journalist for Japan's Nikkei Newspaper, stated this on the morning of the 9th at the Westin Chosun Hotel in Jung-gu, Seoul, during the 13th Asia Financial Forum held under the theme "The Secret to the Revival of the Japanese Stock Market, Awakening Japanese Economy."

He explained, "Behind the improvement in corporate governance is the 'Stewardship Code,' an institutional investor action guideline introduced in 2014," and added, "The Japanese financial authorities also announced the 'Corporate Governance Code' in 2015 to ensure that corporate boards carefully monitor business operations."

Shareholder Activism Thrives in Japanese Capital Markets

Thanks to the efforts of the Japanese financial authorities, shareholder activism centered around JTC has significantly increased. Their demands have expanded beyond simple restructuring, cost-cutting, and dividend policies to include marketing and branding. The Hong Kong-based activist fund Oasis urged the Japanese major cosmetics company Kao to appoint a Chief Marketing Officer. As shareholders, they propose strategies for Kao to grow into the top cosmetics company.

The International Corporate Governance Network (ICGN) met with Japanese Prime Minister Fumio Kishida on the 3rd of last month and demanded that securities reports be disclosed 30 days before shareholder meetings to assist shareholders' decision-making. Securities reports are official reports containing comprehensive information about a company, similar to business reports (Korea) or annual reports (USA). Japanese companies close their fiscal year at the end of March and hold shareholder meetings in June. Due to the tight three-month timeframe, only 33 out of about 4,000 listed companies disclose securities reports before shareholder meetings.

Kodaira said, "There were about 70 shareholder proposals during the 2014 shareholder meeting season, but last year there were over 300 proposals," and predicted, "This year, nearly 400 shareholder proposals are expected at shareholder meetings."

Still a Shortage of Outside Directors... Diversity and Expertise Receive Failing Grades

Listed companies have also sought to secure independent outside directors, encouraged by the recommendations of the Japanese financial authorities. The proportion of listed companies with outside directors making up more than one-third of the board was only 6.4% in 2014 but increased significantly to the 90% range last year. Kodaira explained, "In the past, most JTCs took a cautious stance on hiring outside directors, believing that maintaining homogeneity on the board was necessary to preserve competitiveness. However, now they recognize that board diversification is ultimately key to the product manufacturing process."

Ryushiro Kodaira, a specialist journalist from Japan's Nikkei Newspaper, attended the '2024 Asian Financial Forum' held on the 9th at the Chosun Hotel in Jung-gu, Seoul, delivering a keynote speech titled "The Secret to the Revival of the Japanese Stock Market - Focusing on Japan's Independent Outside Director System and the Role of the Exchange." Photo by Yongjun Cho jun21@

He said, "I think the results are not bad," but emphasized, "Improving corporate governance is a journey, not a destination. It must be an ongoing task." He also noted, "There are still many areas for improvement, and investors will make increasingly demanding requests." In fact, Nomura Asset Management has stated that if outside directors do not constitute a majority of the board, it will oppose the reappointment of the board chair or CEO. Currently, the proportion of Japanese listed companies with outside directors making up more than half of the board is 15.9%. Although this is a 14.5 percentage point increase from 1.4% in 2014, it is still considered insufficient.

Diversity issues are also cited as areas for improvement. Last year, Fujio Mitarai, Chairman of Canon, faced the risk of failing reappointment because there were no women on the board. This was because a U.S. company exercising proxy voting stated it would oppose the chairman's reappointment if the number of female directors was low. According to the Tokyo Stock Exchange, companies without female directors still account for 10.9%.

Outside directors lacking expertise are sometimes appointed. Kodaira pointed out, "It is common for former CEOs, lawyers, prosecutors, and foreign individuals involved in the business world to become outside directors of Japanese companies," adding, "Outside directors are supposed to monitor whether corporate strategies are properly implemented and whether decision-making is proceeding well, but in reality, outside directors who lack sufficient qualifications fail to fulfill this role."