Below are key takeaways from ISS’ recently released Japan 2021 Proxy Season Preview. The full report is available to institutional subscribers by logging into ProxyExchange 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.
- Peak meeting date: This year’s peak Japan meeting day is expected to be June 29, when 27 percent of June annual meetings are likely to be held, followed by June 25 (25 percent).
- Board Independence: Multiple number of outside directors are now the norm on Japanese boards; 90 percent of companies covered by ISS during the first half of 2020 had appointed at least two outside directors, and the percentage of companies where at least one third of board members are outsiders rose to 61 percent based on companies covered during the first half of 2020, up from 48 percent in 2019.
- Equity Compensation Plans: More equity compensation plans are expected to be seen on ballots this year. An increasing number of Japanese companies are now proposing performance-based and equity-based compensation to better align the interests of directors with those of shareholders, a trend partially stimulated by Japan’s Corporate Governance Code.
- ISS Policy Changes Announced: There are two policy changes which, although they will not be implemented in ISS voting recommendations until 2022 to give companies time to adapt if they wish, signify the direction of change in Japan. One relates to board independence requirements for companies with a statutory auditor system. From 2022, ISS will recommend a vote against a company’s top executive if at least one-third of the board members, after the shareholder meeting, will not be outside directors. The other change relates to cross-shareholdings. From 2022, ISS will recommend a vote against a company’s top executive if the company allocates a significant portion (20 percent or more) of its net assets to cross-shareholdings.
- Shareholder Proposals: The number of proposals made by shareholders is increasing, 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.
- Climate: Last year at Mizuho Financial Group, the first climate-related shareholder resolution was voted on at a Japanese company. This year, Mitsubishi UFJ Financial Group will put to a vote a similar climate proposal at its June AGM. Likewise, reportedly Sumitomo Corp. received a similar proposal from an environmental NGO.
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By Japan Governance Research Team