This year, 81% of Japanese companies held their AGMs in a single week. 33% – that’s 747 companies – had their meetings on the last Friday of June alone.
2020 was by no means a one-off. Japan’s busy AGM season was exacerbated this year as companies scrambled to make preparations amid the pandemic, but having 70-80% of AGMs occur during one week is a norm in the country, and has historical roots. In the 80s and 90s, gangsters known as ‘sokaiya’ would blackmail board members, threatening to disrupt AGMs by shouting accusations if they weren’t paid off. The clustering of AGMs was a bid to thwart the gangsters’ effort, and at its peak 2,351 companies held their AGMs on the same day.
Nowadays, with sokaiya not nearly as prevalent, the problem of attendance falls on the shoulders of shareholders, not gangsters.
For Legal & General Investment Management (LGIM), this is not just a nuisance – it’s an ESG issue. For Japan ESG Manager Aina Fukuda, who took up the newly-created role towards the end of 2019, it goes without saying that the jam-packed AGM season inhibits meaningful engagement. “It’s a hassle to even vote”, she says.
The UK insurer’s asset management arm is throwing some effort into promoting an extension of the AGM window. “If AGMs were spread out more, it would leave more time for investors to go through the materials and to have meaningful engagement," Fukuda says. “AGMs need to be a forum where investors can question the board members in a public forum and to hold these directors accountable.”
Change will have to come from both companies and regulators, as there are both regulatory and corporate-cultural reasons the phenomenon persists, Fukuda explains. Japanese law requires a company to hold their AGM within three months from the record date. Technically, companies have the remit to choose their own record date, but in practice are setting it at the end of March, the day the business year ends.
“This means their AGMs all come at the end of June,” she says. “So Japanese companies are kind of shooting themselves in the foot.” By contrast, most other markets in Europe, North America and even Asia require AGMs to be held within four to six months of the end of the business year.
There’s also the issue of audits. Japanese companies are required by law to make two different audits during the three-month window, and there’s also an expectation for them to translate AGM materials into English. “This time pressure we believe can be easily changed by companies if they were to change the record date,” Fukuda says.
Another obstacle to moving AGM dates is Japan’s requirement for quarterly reporting. This year companies did, in fact, have the option to postpone their AGMs past the three-month window, but, Fukuda says, “companies told us that they couldn't move the AGM, because it would make their quarterly reporting period much, much more challenging.” That’s because, in July, companies and auditors are already busy with the Q1 report, which is due 45 days from the end of March, the previous business year. Although, these deadlines were also extended this year (“so that excuse doesn’t exactly fly”, Fukuda admits), she says it’s a sure signal that quarterly reporting along the year is a barrier for companies to move their AGMs.
“We fundamentally don't think that quarterly review is the best use of executives' time. As long-term investors, the relevant risks are more long term and more rooted in governance issues, and across ESG and sustainability. And these aren't captured in that quarterly report.”
On extending the AGM window and streamlining audits, LGIM is working with other investor groups, like the Asian Corporate Governance Association and the International Corporate Governance Network (ICGN). The ICGN Policy Priorities for Japan also raise these issues and include, for example, a recommendation for companies to move the record date from March to April, enabling AGMs to be held in July.
LGIM Director of Investor Stewardship, Sacha Sadan, raised the issue at a conference in Tokyo last year, where he “met some allies”, Fukuda says. “We are building a network of like-minded investors.”
The quarterly reporting requirement, meanwhile, draws more mixed views, she admits. “That’s something we’re pushing for more on our own.”
Extending the AGM window formally will be a legislative process involving both the Ministry of Justice and the Financial Services Agency. “It will be quite an uphill marathon. We don't think that it will come easy, but we think that it's a shared interest among many investors.”
LGIM is also supporting regulatory reforms that would require one audit, rather than two, and reconsider the quarterly reporting requirement. The streamlining of audits, Fukuda anticipates “will be a great challenge”. “But we believe it’s important to continue to raise this issue.”
Easier in the short-term, Fukuda says, would be to engage with companies to convince them to change their record date. As part of this, LGIM will push for the next revision of the Corporate Governance Code – due next year – to encourage companies to move the record date, by responding to the consultation when it opens.
“No change is easy for Japanese companies, but a longer AGM window, and in turn a more staggered AGM season, is beneficial for everyone – for investors, companies and auditors.”