Votes at shareholders meetings show strict view of company management

The Yomiuri ShimbunShareholders are fixing an increasingly strict gaze on companies. Corporate executives must get serious about their efforts to increase corporate value.

The season of general shareholders meetings of listed companies that closed their books in March has ended. The votes cast against items submitted by companies were conspicuous. It can be said that shareholders meetings — previously occasions for shareholders to simply give the nod to company policies — have turned into arenas for serious contests.

Appointment proposals put forward by companies have usually been approved by votes of more than 90 percent. However, proposals to appoint people from parent companies, large shareholders and main financing banks to positions as directors or auditors received vote percentages in the 60s and 70s at many companies this year.

This is probably because shareholders doubt such appointments will appropriately function to monitor the business. At Isetan Mitsukoshi Holdings Ltd., a proposal to appoint a person who had served as the president of its main financing bank as a director received only 66 percent of the votes.

Shareholders of companies where scandals broke out responded severely. At Nomura Holdings, Inc., which was shaken by an information leak scandal, approval votes for a proposal to appoint the head of the company to be a director dove to only 62 percent.

One factor that affected voting was institutional investors such as pension funds. The Stewardship Code — guidelines for institutional investors — was revised in 2017, and such investors are required to disclose whether they voted for or against each item put to a vote at shareholders meetings.

Since the appropriateness of their voting is evaluated, institutional investors need to scrutinize shareholders meeting proposals in detail. Such an effect has apparently spread.

Take longer-term view

Meanwhile, the number of investors who make decisions based on recommendations from overseas proxy advisory firms is increasing. Essentially, shareholders should exercise their voting rights based on their own careful thought, and it is not ideal to depend on proxy advisory firms. This is because following their recommendations will not necessarily bring positive results to companies and shareholders.

Shouldn’t there be regulations to enhance the transparency of proxy advisory firms, such as at least having them disclose the grounds for their recommendations?

A record-high 54 companies saw proposals from shareholders. At Lixil Group Corp., where current and former chiefs confronted each other, the company and a group of shareholders each submitted their own proposals for appointments of directors, and the top management lineup was revamped.

Shareholder awareness regarding corporate management appears to be increasing. It is important for companies to constantly examine themselves on the appropriateness of their personnel appointments and capital policies.

Stock buybacks and dividend raises tend to increase share prices. That would benefit shareholders and executives who receive remuneration that is linked to share prices. However, companies should avoid opting for easy measures for share prices.

If excessive payouts to shareholders are implemented, financial resources available for capital investment and other purposes will decline, thus harming corporate value. Companies should be managed with medium- and long-term perspectives, and with due consideration to such factors as improved treatment of employees.

(From The Yomiuri Shimbun, July 3, 2019)Speech


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