Companies faced a hail of questions about governance matters, such as the hiring and firing of presidents and the role of outside directors. Through general shareholders’ meetings, shareholders put pressure on companies to pursue ESG-oriented management.

The season of general shareholders’ meetings (GSMs) in 2018 peaked in June. At general shareholders’ meetings for major companies, companies were peppered with questions about ESG (environmental, social and governance) matters.

“Is outside directorship a figurehead post?”

GSMs in 2018 in Japan came right on the heels of the announcement of the revised Corporate Governance Code by Japan Exchange Group, which operates the Tokyo Stock Exchange and other Japanese exchanges, on June 1. As a result, many questions were asked with the revised code in mind.

The revised code requires companies to enhance the role of the board of directors and ensure transparency concerning the board. It is difficult for ordinary shareholders to get a true picture of the board of directors. Shareholders asked questions concerning the effectiveness and role of the board of directors.

The season of GSMs for companies that close their current annual accounts in March 2018 peaked in June. Companies were peppered with questions concerning ESG matters.

At a GSM for Toshiba Corp., which is in the midst of a business turnaround, on June 27, a shareholder asked a tough question: “The board of directors failed to prevent the accounting fraud although the majority of the board were outside directors. Does this not mean that a sense of alertness is lacking among outside directors and that outside directorship has become a figurehead post?”

Replying to this question, Yoshimitsu Kobayashi, who is an outside director and who chairs the board, said: “The sense of alertness is in no way lacking. In the two years and nine months since assuming office as outside director, I have dedicated myself to supervising business activities. In addition to supervising business activities, I will continue to contribute to the turnaround plan through the enhancement of the corporate brand and portfolio management.”

At a GSM for Mizuho Financial Group Inc. held on June 22, doubt was voiced over the election and dismissal of the top management. “Why has Mr. Tatsufumi Sakai been elected as the new president? I would like to hear what the nomination committee has to say,” a shareholder said. As this was the first time for Mizuho Financial Group to pick someone from the group’s securities subsidiary for the top post, officials at rival financial groups also expressed surprise at the time of the announcement of Mizuho’s new management team in January.

Takashi Kawamura, chairman of the nomination committee, responded to that shareholder with the following explanation: “The top management has been elected after internal evaluation, evaluation by a third-party organization and interviews. The financial industry needs a drastic change. We attached importance to knowledge and experience in business fields outside banking as well.”

Reflecting a series of illegal practices related to product quality, many questions were asked about quality control and the management of subsidiaries.

Mitsubishi Chemical Holdings Corp. has more than 400 group companies. On the company’s GSM held on June 26, a shareholder asked about the effectiveness of group-wide governance, including at foreign subsidiaries. The company indicated plans to require subsidiaries to introduce a group governance code developed by the headquarters and provide support by establishing foreign offices responsible for overseeing governance.

Shareholders paying critical attention to human resource management and empowerment of women

Also at the focus of shareholders’ questions were matters related to recruitment of workers and employee training. Some shareholders asked companies about their hiring policy, while others pointed out a lack of human resources as the greatest risk factor. As the labor shortage in Japan is aggravating across all industries, it has become a major risk factor in the eyes of shareholders as well. Companies’ top managers were busy offering explanations on this point.

Progress in working style reform and empowerment of women was another focus of shareholders’ critical attention. At a GSM for Mitsubishi Heavy Industries held on June 21, a shareholder asked the company about its view on the diversity of the board of directors.

Of Mitsubishi Heavy’s 11 directors, only one is female. In addition, women account for only 1.8% of the company’s management posts. President Shunichi Miyanaga asked for shareholders’ understanding by saying: “We will promote diversity as a pillar of the medium-term business plan (which was announced in May). We will contribute to capital gains by achieving growth based on our human resource strategy.”

President Hitoshi Ochi of Mitsubishi Chemical Holdings is advocating the contribution to the Sustainable Development Goals (SDGs) as a means to increase enterprises value. Responding to a shareholder’s complaint about the level of Mitsubishi Chemical’s share price, he explained the company’s long-term approach as follows: “Contributing to society through an increase in non-financial value and contributions to the SDGs will lead to an improvement in our overall enterprise value.”

At a GSM on June 25, Fujitsu elected Professor Yoshiko Kojo of the University of Tokyo’s Graduate School of Arts and Sciences as an outside director. Professor Kojo is an expert on international political affairs. Introducing Professor Kojo to shareholders, Fujitsu President Tatsuya Tanaka said: “I am expecting advice concerning the SDGs initiative.” Foreign sales accounted for 36.5% of Fujitsu’s overall sales in 2017, and the company aims to raise the foreign sales ratio to 50% or higher in the future. Fujitsu is hoping to take advantage of the SDGs initiative to expand its foreign businesses.

Shareholders are encouraging companies to pursue ESG-oriented management through GSMs.

Shareholders’ questions at GSMs for major companies and replies by the companies
TCFD:Task Force on Climate-related Financial Disclosures; FSC:Forest Stewardship Council; PEFC: Programme for the Endorsement of Forest Certification: SDGs:Sustainable Development Goals