May 22, 2020

2020 Japan Proxy Season Preview

Below are key takeaways from ISS’ recently released 2020 Japan Proxy Season Preview covering governance and compensation issues. The full report is available to institutional subscribers by logging into ISS Link then selecting the Governance Exchange and its Report Center tab and to corporate subscribers by logging into Governance Analytics then selecting the Governance Exchange and the Report Center tab.

The impact of the COVID-19 pandemic on annual meeting formats: Delays in audit completion are anticipated at many Japanese companies because of various operational difficulties imposed by the COVID19 pandemic. Companies that do not have audited financial statements available in time for their annual meetings in June have two options: either to postpone or to adjourn the meeting. Under the postponement option, the full meeting will be held at a later date once the audited financial statements are available and shareholders are able to vote on all agenda items at that time. Under the adjournment option, the company will hold its meeting as originally planned, and shareholders will need to vote on agenda items without the audited financial statements being available. After voting is completed, the meeting will be adjourned and reconvened at a later date when the financial statements are available. There will however be no ability for shareholders to cast votes at the reconvened meeting or to change their earlier voting decisions. Only a small number of Japanese companies have yet confirmed their intention to use either option.

ISS policy changes in response to COVID-19 pandemic: ISS normally uses an ROE (Return on Equity) policy as part of the assessment of director elections. However, because of the significant impact of the pandemic, the ROE policy will be suspended for the time being. In addition, changes are also being introduced for companies that chose the adjournment option for their meetings. These changes take into account the highly unusual situation that under this option shareholders will need to make their voting decisions without the availability of audited financial statements and business reports.

Peak meeting date: This year’s peak Japan meeting day is expected to be June 26, when about one-third of June annual meetings are likely to be held.

Board independence: In recent years, many Japanese boards have improved independence levels and gender diversity. These improvements are set to continue this year.

Shareholder proposals: The number of proposals made by shareholders at Japanese companies has increased year-over-year in recent years, including proposals seeking higher shareholder returns via dividends and share buybacks, better board practices, improved disclosure on boards, and the phase-out of nuclear power generation. However, in 2020, because of the COVID-19 pandemic, the number of shareholder proposals is expected to remain near last year’s level or decrease. The first Japanese shareholder proposal related to climate change and the goals of the Paris Agreement will come up at Mizuho Financial Group’s meeting.

By Japan Governance Research Team

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