Japan reviews acting in concert rules to boost shareholder engagement

A similar initiative is being considered by German regulator BaFin.

Japan’s Financial Services Agency (FSA) is looking at clarifying existing securities laws in a bid to boost constructive engagements between companies and shareholders.

Under local rules, “acting in concert” – where two or more shareholders coordinate their influence over a company through voting or ownership decisions – can trigger onerous disclosure filings or insider trading charges in some cases.

Much of the regulatory landscape in Japan is derived from the US, where acting in concert rules are perceived in some quarters as a key regulatory barrier to collaborative shareholder engagement. Criticism levied by US conservative groups against the Climate Action 100+ for example has notably described the investor network as being “a coordinated conspiracy” over concerns that it falls foul of acting in concert rules.

FSA director of corporate governance Toshitake Inoue told Responsible Investor that a review of the existing rules could be necessary to prevent the hampering of shareholder engagement.

“The notion of acting in concert in Japan is deeply unclear, especially for European investors, so we may want to qualify the notion that there will be in a safe harbour,” Inoue said. “There should not be any acting in concert concerns for ESG issues which are usually thematic and does not target individual companies.”

Concerns over Japan’s acting in concert rules have been raised by members of the FSA’s expert advisory group on the local stewardship and corporate governance codes in recent years, and described as having a “chilling effect”. Members such as ICGN have petitioned the government for more clarity on the topic as early as 2016.

The financial regulator is also reviewing shareholder disclosure systems to allow companies to identify major shareholders as part of a broader corporate governance drive. According to the FSA’s Inoue, the lack of readily available shareholder information could hamper effective engagements if issuers are not able to conduct dialogue with their beneficial owners.

The FSA is due to present a finalised workplan to boost corporate governance in April, in line with a broader government initiative to improve the competitiveness of Japanese companies announced by prime minister Fumio Kishida in New York last year.

The workplan is being developed by the FSA’s expert advisory group and will be informed by a corporate survey carried out by the regulator in partnership with influential business lobby Keidanren. The results of a separate corporate governance review by the Tokyo Stock Exchange is expected to coincide with the workplan’s release.

It comes as Japanese companies prepare to comply with new sustainability disclosure rules which will come into force in the next financial year (beginning in April) covering diversity, human capital, director roles and remuneration, in addition to ESG governance, metrics and targets, risk management and strategy.

Separately, German financial regulator BaFin is set to issue a comment on its enforcement of acting in concert rules as investors in the country look to establish a collaborative engagement platform.

Following discussions with the Ministry of Finance and the government’s Sustainable Finance Advisory Council, the regulator will issue a publication in the near future covering “existing administrative practice based on the applicable legal situation and case law” as well as examining case studies supplied by market participants.