By Makiko Yamazaki
TOKYO (Reuters) – Japanese asset managers have ratcheted up the volume at shareholder meetings this year, increasingly opposing management proposals and giving momentum to a policy of attraction of foreign investors initiated by former Prime Minister Shinzo Abe.
Nikko Asset Management, Asset Management One and others have emerged as distinct voices in Japan’s new activism, countering foreign criticism of asset manager bloc voting.
The couple opposed the management of a national company by voting for board candidates proposed by a foreign investor, while in another high-profile case, the management of the company canned a proposal after some asset managers supported a foreign investor’s objection.
This year’s cases add to a gradual shift in voting triggered by Abe’s corporate stewardship code in 2014, which gained momentum in 2017 with a revision requiring the disclosure of voting records for each item on the agenda at shareholders’ meetings. Abe was shot and killed this month during an election campaign.
The review “has increased asset manager engagement because every manager is held accountable for every voting decision,” said Katsuya Kikuchi, managing partner at Tokio Marine Asset Management.
Increased domestic activism is likely to help companies strengthen their credentials on issues as varied as the environment, society and governance, thereby boosting their appeal to foreign investors looking to increase their exposure to Japan, the officials said. asset managers.
Domestic asset managers have voted “against management in increasing amounts every year for the past five years,” said Seth Fischer, founder of Hong Kong-based Oasis Management, which has invested in Japanese companies such as Toshiba Corp.
Yet only a fraction of shareholder proposals win the support of domestic institutional investors. Last year, these investors supported an average of only 6.8% of these proposals at shareholder meetings served by the electric voting platform operator ICJ, compared to 15% among their foreign counterparts.
Foreigners lead shareholder activism in Japan, with domestic asset managers mostly playing a supporting role, although some investors said they hoped domestic managers would take more initiative and come up with their own management proposals. of the company.
Some domestic asset managers backed Oasis which questioned related party transactions at Fujitec Co Ltd and opposed a management proposal to appoint its chief executive to the board. The elevator maker withdrew its proposal an hour before its annual shareholder meeting last month.
In another vote this year, Singapore-based 3D Investment Partners’ campaign to bring its nominees to the board of IT company Fuji Soft Inc received surprisingly high support at nearly 40%.
Those who voted in favor included Mitsubishi UFJ Trust and Banking of Mitsubishi UFJ Financial Group Inc, Asset Management One of Mizuho Financial Group Inc and Nikko Asset Management of Sumitomo Mitsui Trust Holdings Inc.
“Before 2014, we would hear from profiteering companies complaining about strict foreign investor voting policies,” said Hidenori Yoshikawa, a corporate governance consultant at the Daiwa Institute of Research. “But while domestic institutional investors have tightened their stance, we are now hearing from corporate issuers that domestic investors are being tougher.”
Domestic asset managers have been less supportive of company management than some global peers, showed a report by shareholder adviser SquareWell Partners that analyzed voting for incumbent board elections at Japan’s 100 largest companies.
The average support rates from 2019 to 2021 were 95.9% at Asset Management One, 94.2% at Nikko Asset Management and 88.9% at Sumitomo Mitsui DS Asset Management. This compares to 99.9% and 99.7% at US peers Vanguard and BlackRock respectively.
Yet it’s rare for an activist shareholder motion to gain approval in Japan where only four cases have been successful, in part because management is often insulated by passive ownership.
But domestic asset managers are increasingly turning to management protection schemes, such as takeover defenses and cross-shareholding agreements.
This year, Daiwa Asset Management of Daiwa Securities Group Inc. and other major asset managers tightened voting rules for directors at companies engaged in cross-shareholdings, which still account for around 30% of Japan’s stock market from 6 trillion dollars.
Asset owners such as the Government Pension Investment Fund and the Association of Pension Funds for Local Civil Servants are also driving the change, the asset managers said.
Board independence and diversity can also be improved, said Takuya Iyoda, chief analyst at Nissay Asset Management. The rules could be tightened to the extent that boards must have a majority of independent directors, he said.
“I wouldn’t be surprised if the diversity requirements end up expanding to include not just women but also non-Japanese.”
(Reporting by Makiko Yamazaki; Editing by Sumeet Chatterjee and Christopher Cushing)