EDITORIAL: Shareholder meetings

Many annual shareholder meetings in Japan are trouble-free events handled by attendants supporting the management. But this is about to change.

Starting this year, the Financial Services Agency is requiring companies to comply with tightened corporate information disclosure rules at shareholder meetings. The action is expected to prompt companies to change how they handle such meetings and their management.

For the fiscal year that ended in March, listed companies generally posted combined net profits, but many also cut dividends for the second year in a row.

While improving short-term performances is important, Japanese companies really need to develop visions and strategies for surviving global competition, amid such challenges as newly emerging countries and global warming. Shareholders must share such visions and strategies with management.

Critical for such mutual understanding are information disclosure and dialogue. The FSA's new rules are aimed at bringing about more of that.

One controversial rule obliges companies to disclose the names of all executives who are paid 100 million yen ($1.1 million) or more a year and list their remunerations. In many cases, such data and the standards for calculating the remunerations are included in financial statements companies publish after their shareholder meetings.

In Western countries, companies generally offer information about remunerations for their top executives. Since the global financial crisis triggered by the collapse of U.S. investment bank Lehman Brothers, extravagant executive bonuses have been blamed for leading top executives to take excessive risks. Such criticism has led to much closer scrutiny of executive pay.

Japan's business community is peeved by this trend because generally Japanese executives are paid much less than their U.S. and European counterparts. But the FSA has decided to impose the requirement to attract foreign investment by stressing its commitment to promoting corporate information disclosure.

If the pay of individual executives is disclosed, shareholders will start asking more questions at shareholder meetings. Top executives should answer such questions clearly and convince shareholders that their compensation is reasonable. The information should be included in the notification of the general shareholder meeting sent to shareholders.

A company's willingness to explain the value of its top executives' contributions is important to ensure meaningful dialogue between management and shareholders on management credo, strategy and operations.

Another new rule, likely as influential as the disclosure of executive pay, requires companies to reveal the ratio between yes and no votes on each motion presented. Previously, such decisions at shareholder meetings were described only as "approved by a majority vote." From now on, detailed vote results will be made public.

The figures will be an indicator of shareholder support for the management team. The data will be included in extraordinary reports on shareholder meetings that companies submit to the FSA. Such reports will affect the way shareholders assess the management and exercise their voting rights.

Japanese corporate management style is still evolving. The new rules should be used effectively to develop new Japanese management models through discussions with shareholders.

While the stricter disclosure rules will create tension among top executives, they will also stir up interest in corporate management among shareholders, employees and consumers.

Matured relations based on mutual trust between companies and a broad range of stakeholders will likely help accelerate greater flows of money from savings accounts into investment instruments--a long-cherished but so far elusive goal of Japan's economic policy.

--The Asahi Shimbun, June 22