General Shareholder Meetings: Management Appointments Now Source of Serious Confrontations

Shareholders have been gaining a greater voice in corporate management. It is hoped that management will deepen dialogue at general shareholder meetings and link this to medium- and long-term corporate growth.

The general shareholder meetings for listed companies have reached their peak. About 670 firms, or about 30% of companies whose fiscal year ends in March, held meetings on June 27, the busiest day for such gatherings. A record number of 91 companies received proposals from shareholders, and the number of individual proposals reached about 340.

Daidoh Ltd., which promotes the Newyorker clothing brand, has posted operating losses for 11 consecutive years through the fiscal year ending March 2024, and a domestic investment fund called for a renewal of its management. Three of the six candidates proposed by the fund for the board of directors were elected at the general shareholder meeting.

Toyo Securities Co., a midsize securities firm, withdrew its proposal to reappoint its president as a board director and the president stepped down from that post just before the general shareholder meeting, as it was highly likely that the proposal would be rejected in response to the company’s prolonged slump.

Shareholders can be said to have turned sterner eyes toward companies’ performance and stock prices, and this no longer appears to be a time in which management can be easily reappointed. Companies must listen seriously to their shareholders and tackle reform with a sense of urgency.

Accountability for corporate governance is also becoming more important. At Toyota Motor Corp., where fraudulent practices involving testing related to model certification came to light, the percentage of votes in favor of the proposal to reappoint Chairman Akio Toyoda as a board director fell about 13 percentage points from the previous year to slightly more than 70%.

The growing strength of shareholders’ voices was spurred partly by the management improvement measures requested of listed companies by the Tokyo Stock Exchange in the spring of 2023. Focusing on the price-book value ratio, which indicates whether a stock price is undervalued or overvalued, the TSE required companies to formulate strategies that would contribute to improving stock prices.

Another element boosting shareholders’ influence is the decrease in the number of “loyal shareholders” who agree in principle to company proposals due to accelerating moves by companies to sell cross-shareholdings that they have held to maintain ties with business partners and for other purposes.

Against this backdrop, activist shareholders who strongly press for reform are apparently growing more vocal. However, it is worrisome that there were many proposals for measures to return profits to shareholders though such means as stock buybacks and increasing dividends.

Even if these measures are effective in raising share prices for the time being, they could have a negative impact on corporate management if funds for medium- to long-term growth become scarce. Sustainable growth cannot be expected if companies are always swayed by demands that are biased toward short-term profits.

The Nikkei Stock Average is at a historic high of nearly 40,000. Foreign investors are highly interested in Japanese stocks, partly because the weak yen makes Japanese stocks undervalued.

The expansion of the Nippon Individual Savings Account investment program, which exempts gains on small investments from tax, is likely to broaden the base of individual investors. Companies should consider that they will only be able to gain the approval of many shareholders by refining their growth strategies.

(From The Yomiuri Shimbun, July 2, 2024)