Japanese Shareholders Demand More of Outside Directors

Corporate Japan’s outside directors are facing greater scrutiny from shareholders, who are increasingly disapproving of candidates plucked from client companies or incumbents who regularly miss board meetings, according to local reports.

Among recent examples cited are Toppan Printing, where just 30% of the shareholder vote went against Yoshinobu Noma, president of Kodansha, one of Japan’s biggest publishing houses. Hitachi High-Technologies’ choice of Kazuhiro Mori, a former vice president at parent Hitachi, was opposed by nearly 29%.

Instead, shareholders prefer outside directors with a high degree of independence who can exert greater oversight on boards, said Kengo Nishiyama, senior strategist at Nomura Securities. “People with management experience in a different industry (than the nominating company) are preferable.”

Shareholders also require outside directors to actually attend board meetings. Rohto Pharmaceutical’s nomination of Toshihiro Kanai, a professor of organisational behavior at Kobe University, drew a 43% ‘no’ vote. Kanai missed three of the seven board meetings held in the previous fiscal year. The company blamed his poor attendance on the schedule having been drawn up before his appointment.

Panasonic shareholders opposed the company’s choice of Ikuo Uno, an adviser at Nippon Life Insurance, by a similar margin. Uno attended seven of 12 board meetings.

“When outside directors’ attendance falls below 75%, shareholders are likely to vote against re-election on the grounds that they aren’t performing their function,” says Yuzo Fujishima, a researcher at the Ernst & Young Institute in Tokyo.

Candidates for outside director were opposed by more than 20% of shareholders at 37 major listed Japanese companies in the current shareholders meeting season, up from 32 last year, according to IR Japan. Despite the opposition, all of the choices were elected.

Overall, 240 resolutions drew ‘no’ votes of more than 20%, against 226 last year. Takeover defences, seen by institutional investors as protecting mainly incumbent executives’ jobs, met with particularly strong resistance.

Six companies saw such resolutions opposed by margins of more than 40%, compared with only two last year. Video game company Capcom’s anti-takeover proposal was defeated by a majority vote and it plans to resubmit it next year.


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