The votes are in: Japanese investors are finding it easier to say no.
A third of companies had a motion opposed by at least 10 percent of shareholders at their latest annual meeting, according to IR Japan Inc., which tallies the results of the ballots. That’s the highest proportion since the consultancy began keeping records in 2010. The latest figures cover 2,449 firms with March year-ends.
The increased willingness to oppose management will be welcomed by Prime Minister Shinzo Abe, who has revamped rules for companies and investors as he seeks to reduce cozy ties between executives and shareholders. Shirou Terashita, president of IR Japan, says the changes are already yielding results.
“It’s a fairly harsh evaluation of Japanese management,” Terashita said. ” ‘No’ votes are rising fast. It was never like this in the past.”
Japan started a stewardship code last year, designed to encourage hitherto-silent institutional investors to press management to boost returns. It began complementary rules for companies in June, which also take aim at friendly stock owners. Firms holding equity for relationship purposes in group companies, suppliers and customers must explain the rationale for the investments, which is expected to prompt them to sell these stakes.
Influential proxy adviser Institutional Shareholder Services Inc. added to pressure on management, saying it would oppose the appointment of senior executives at companies whose five-year return on equity fell short of 5 percent.
“Japanese executives had a real sense of nervousness this time,” Terashita said.
In the most high-profile case of dissent, Toyota Motor Corp.’s plan to introduce a new class of equity was opposed by about 25 percent of shareholders, an unusually high figure. The stock, which has debt-like characteristics and can’t be sold for five years, drew criticism for benefiting select investors exclusively in Japan.
While opposition is growing at AGMs, it’s still not enough to scupper management plans. Fewer than 4 percent of companies were opposed on anything by more than 30 percent of shareholders. About 13 percent of firms had “no” votes from at least 20 percent of their stock owners.
Still, Terashita says the trend of greater opposition is just beginning.
“The start of the stewardship code was really important,” he said. “Foreign investors are more serious about voting no. And that’s not all. We’re also seeing domestic institutions becoming stricter.”