Japanese Shareholders Starting to Show Their Teeth

http://www.nytimes.com/2012/06/28/business/global/japanese-shareholders-starting-to-show-their-teeth.html?pagewanted=all

New York Times

By HIROKO TABUCHI
Published: June 27, 2012

TOKYO — To say that Yui Kimura is a distressed investor might be an understatement: She is a small shareholder in the operator of the nuclear power plant at Fukushima, Tokyo Electric Power, whose shares have lost nine-tenths of their value.

Now, she would like the company to at least face up to its responsibilities to the more than 100,000 people who have been driven from their homes after the tsunami disaster. She co-sponsored four resolutions at the annual shareholders’ meeting Wednesday, including one demanding that the company decommission all of its nuclear reactors.

“As the company behind a devastating disaster, we feel it needs to go that distance,” she said.

Ms. Kimura is part of an emerging breed of individual Japanese investors who are starting to break the traditionally docile ranks of shareholders and hold company managers accountable, for issues like missed management targets and corporate scandals.

Shareholder meetings this summer have been marked by a flurry of proposals from investors challenging the management — opposing board appointments, for example, or simply expressing anger at executives.

One proposal put forward by a frustrated shareholder at Nomura Holdings suggested that the global investment bank, which is embroiled in an insider-trading inquiry, show its shame by changing its name to Vegetable Holdings. The proposal was voted down at Nomura’s shareholder meeting Wednesday.

Individual investors in Japan still hold little power compared with the institutional shareholders that make up much of the investor base, often as part of a web of cross-shareholdings among creditor banks, suppliers, customers and other interrelated companies that invest in one another to insulate themselves from the market.

“You could say Japan is finally experiencing its own kind of ‘shareholder spring,’ though there’s still a long way to go,” said Nicholas Benes, a representative director at the Board Director Training Institute of Japan, a nonprofit organization specializing in corporate governance and director training.

Any rise in individual shareholder activism in Japan would be a sea change, as investors have long put up with low returns and the most rudimentary corporate governance setups. The benchmark Nikkei 225-stock average remains almost four-fifths below a peak it reached at the end of 1989, and companies continue to hoard cash, instead of rewarding investors.

About half of the companies listed on the Tokyo Stock Exchange do not have any outside directors on their boards, according to Nomura Securities.

Kazuo Kino, the former head of investor relations at Japan Airlines, said the common understanding among many Japanese companies was that individual investors did not care much about company performance.

Instead, they often invest for the corporate perks accorded to shareholders — in the case of JAL, deeply discounted airline tickets. JAL shareholders got a reality check in early 2010, however, when the airline went bankrupt.

“The company going bust was, of course, a big shock for investors,” Mr. Kino said. “But excluding an event like that, most individual shareholders are not much interested in the minutiae of earnings.”

In the mid-2000s, Japan got a taste of shareholder activism when a series of high-profile foreign activist funds sought majority interests in underperforming Japanese companies and sought to change their governance.

The companies spurned their attempts with “poison pills” — moves designed to deliberately dilute the company’s value — and court orders, in the end driving many of those foreign funds to throw in the towel in Japan and dealing a blow to corporate governance. One such fund, Steel Partners of New York, said last year that it was liquidating its Japan fund after fighting for years with companies like the brewer Sapporo Holdings and the candy maker Ezaki Glico.

During the past year, however, large-scale corporate scandals have again put the spotlight on corporate governance, and this time, individual investors are demanding more answers.

One extreme case has been Olympus, a maker of cameras and endoscopes, which last year admitted it had hidden $1.7 billion in losses, a scandal that at one point caused it to lose 80 percent of its market value.

Its managers faced much heckling at its shareholders’ meeting in June, with one investor urging them to use one of their endoscopes to probe the company coffers. Olympus now faces legal action from shareholders over the scandal.

Kengo Nishiyama, a corporate governance analyst at Nomura Securities, said such scandals were particularly damaging for Japanese companies because their shares were supposed to be low-risk, low-return investments. “Investors are right to be concerned,” Mr. Nishiyama said.

A major focus at recent shareholder meetings has been the appointment of directors. In a survey carried out by Mr. Nishiyama this month of 1,000 individual investors and their plans for the meetings this year, a record 14.5 percent said they intended to vote against the appointment of directors and auditors chosen by the company.

His own bank, Nomura, faced challenges Wednesday as it tried to reappoint its chief executive, Kenichi Watanabe, and the board chairman, Nobuyuki Koga. The proxy advisory firm Institutional Shareholder Services had recommended that shareholders vote against both directors, who should be held accountable for a continuing inquiry into suspected insider trading, as well as its slumping shares.

But at both Olympus and Nomura, steadfast support from institutional shareholders — like Nippon Life Insurance, Bank of Tokyo-Mitsubishi UFJ and Japan Trustee Services Bank — has largely shielded the companies’ management from the ire of individual investors.

Institutional shareholders also helped Mizuho Holdings, one of Japan’s biggest consumer banks, defeat a shareholders’ proposal that would have simply required the bank to disclose what kind of training its new directors had received. Mizuho’s board opposed the proposal, calling such disclosure “unnecessary.”

“I don’t get any sense that Mizuho takes their shareholders seriously,” said Yasushi Nakayama, an individual investor who co-sponsored the proposal.

Mr. Nakayama may be right. Japanese companies have traditionally made it as difficult as possible for individual investors to raise their voices, for example by holding their shareholders’ meetings on the same day as other companies. The peak for this year was Wednesday, when 709 companies held shareholder meetings — representing 42 percent of companies with financial years ending in March listed on the Tokyo Stock Exchange.

But there are some seeds of change. The 42 percent figure has fallen from a peak of 96 percent in 1995. Some companies, especially new ones, are starting to hold shareholders’ meetings on weekends to encourage more individual shareholders to attend. The start-up company Lifenet Insurance, for example, held its first investors’ meeting on Sunday, one of 33 listed companies to hold weekend meetings.

“In Japan, it was the norm for companies to do their utmost to get as few people to come to their shareholders’ meetings, and to try to keep those meetings short,” said Daisuke Iwase, Lifenet’s co-founder and executive vice president. “But I think norms are changing. For us, the more information we put out there, the better. As a small company, it’s easy for us explain everything right down to the details.”

And even some institutional investors are starting to change. Dai-ichi Life Insurance, Japan’s third-largest life insurer with stock holdings in Japan worth ¥1.7 trillion, or $21.36 billion, at the end of March, said in April that it was tightening guidelines on exercising voting rights, and would start pushing back against companies that insisted on introducing poison pills or holding back dividends despite ample cash holdings.

“We felt that there was a need to ask for more transparency ahead of this round of shareholders’ meetings,” said Masanori Ibuki, a spokesman for Dai-ichi Life. Analysts said that pressure was building at companies like Dai-ichi Life from their own shareholders, who are demanding better returns from the companies’ equity holdings.

Fundamental changes are yet to come. At the shareholders’ meeting Wednesday for Tokyo Electric Power, motions were brought forward by Ms. Kimura and other individual investors, including providing lifelong health care for nuclear workers at Fukushima and selling off more assets to raise money for compensation. They were voted down, one after another, thanks to top institutional shareholders like Sumitomo Mitsui Banking, which is also one of the company’s main lenders.

Executives of Tokyo Electric Power, known as Tepco, largely ignored the heckling from the floor.

“I wonder if Tepco executives are wearing earplugs,” Ms. Kimura said.

Makiko Inoue contributed reporting.

This article has been revised to reflect the following correction:

Correction: June 29, 2012

An article on Thursday about a rising number of shareholder proposals in Japan quoted incorrectly from comments by Nicholas Benes of the Board Director Training Institute, a nonprofit organization involved in corporate governance. He said Japan was experiencing “its own kind of ‘shareholder spring,’ ” — not “a kind of investor’s spring.”

One Response to “Japanese Shareholders Starting to Show Their Teeth”

  1. CaptD Says:

    Hopefully we will hear much more from her and the other shareholders about shutting down these reactors before there is another meltdown or worse!
    Liked and Tweeted…

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