On the Agenda: Five Questions Answered on Japan’s 2026 Governance Trends and Reforms

On the Agenda is an interview series featuring Glass Lewis experts sharing their insights and perspectives on today’s governance and stewardship issues facing institutional investors. On this occasion, Naoko Ueno, Vice President, Japan and South Korea Research and Engagement, sat down with Jermaine Reyes, Director, Content and Thought Leadership, to get her thoughts on Japan’s governance reforms and trends for this year.

Naoko joined Glass Lewis in 2010 as an analyst on the Research Team, with a focus on corporate governance in Japan. She later expanded her expertise to cover the broader Asia-Pacific region. In 2020, she assumed operational leadership of the Tokyo office and currently oversees the firm’s research and engagement activities in both the Japanese and South Korean markets.

On Changing Criteria for Shareholder Proposals

Jermaine Reyes: Thanks again Naoko for taking the time to share your insights on the Japanese market. So let’s get started. What has prompted Japanese legislators to push for tighter rules on shareholder proposals? Will these potential changes impact the 2026 proxy season?

Naoko Ueno: Under Japan’s Companies Act, shareholders may submit proposals if they hold either 1% of voting rights or 300 voting units for at least six months. A currently proposed amendment would abolish the 300 voting units threshold. The unit's amendment is driven partly by concerns that Japan’s relatively low threshold for shareholder proposals, combined with stock splits lowering investment costs, has increased the risk of excessive or abusive proposals.

Shareholder proposals, particularly from shareholder proponents seeking governance, strategic, or capital allocation changes, have increased in both number and scope in recent years. This has raised concerns regarding the associated administrative burden and the submission of overly detailed or repetitive proposals. While the amendment is unlikely to materially affect large institutional or engagement-focused investors, who generally satisfy the 1% ownership requirement, it could significantly limit proposal rights for retail shareholders and minority investors.

Some critics argue that the change could weaken minority shareholder voices and reduce challenges to management. However, as the legislation remains under discussion, the proposed amendment is unlikely to affect the 2026 proxy season.

On Activism and Opposition Campaigns

JR: In addition to shareholder proposals, other forms of activism are becoming more common. How should Japanese boards prepare for potential vote-no campaigns and contested director elections?

NU: Vote-no campaigns and contested director elections have become increasingly visible in Japan, particularly at companies facing governance, capital efficiency, and valuation concerns. Many companies targeted by shareholder opposition appear to lag their peers in implementing governance best practices, while also exhibiting weak capital efficiency, low price-to-book ratio (PBR), and limited market confidence.

Companies should proactively address governance and performance concerns before shareholder dissatisfaction escalates into shareholder proposals or opposition campaigns. The Corporate Governance Code, Tokyo Stock Exchange (TSE) initiatives, and investor engagement provide companies with substantial guidance regarding market expectations, including the importance of shareholder dialogue, accountability, and transparent disclosures.

Even if actions taken now may not materially affect the 2026 proxy season, boards should avoid dismissing shareholder proponents and instead communicate a clear, specific long-term strategy while strengthening engagement with shareholders.

On Capital Efficiency

JR: Demand for capital efficiency has helped to drive the recent growth in activism. Have companies sufficiently addressed shareholder concerns around high cross-shareholding ratios, persistently low PBR  levels, and excessive cash holdings? Or will these issues continue to influence shareholder voting?

And beyond capital efficiency, which governance issues are most likely to shape investor scrutiny in Japan’s 2026 proxy season?

NU: While shareholder concerns around capital efficiency have not been fully resolved, Japanese companies have made meaningful progress since the introduction of the Corporate Governance Code in 2015. Many companies now demonstrate greater awareness of capital costs, valuation, and shareholder expectations, and some have delivered tangible improvements in capital efficiency and corporate value.

However, some companies’ disclosures regarding capital efficiency targets and improvement plans remain largely formalistic, with limited evidence of execution or measurable outcomes. As a result, issues such as persistently low PBR, excessive cash holdings, and slow reductions in cross-shareholdings are likely to continue influencing shareholder voting and investor scrutiny in the 2026 proxy season.

In addition to capital efficiency, traditional governance concerns — including director tenure, as well as board independence, diversity, and overall effectiveness — are also expected to remain key areas of investor focus.

On Dividend Authority Proposals

JR: What does the strong support for dividend authority proposals in 2025 suggest about investor expectations for board accountability on capital allocation policy?

NU: In Japan, dividend authority has historically been treated as a matter for shareholder approval at annual general meetings, and proposals to delegate that authority solely to the board may raise concerns about limiting shareholder rights. Strong support for dividend authority proposals in 2025 suggests that investors increasingly expect boards to demonstrate greater accountability and discipline regarding capital allocation decisions.

The revised 2026 Corporate Governance Code further reinforces these concerns by emphasizing the need for companies to explain the necessity, rationale, and strategic use of financial assets, including cash holdings. In this context, strong support for dividend authority proposals indicates that investors increasingly expect boards to take more proactive, transparent, and accountable approaches to capital allocation and shareholder returns.

On Meaningful Governance Reforms

JR: Last season, we saw more activism on board accountability and governance issues, including at Fuji Media and Taiyo Holdings. Was that a one-off due to company-specific issues, or are investors applying higher scrutiny across the market? What signs should investors look for in 2026 to determine whether Japanese companies are making meaningful governance reforms rather than surface-level changes?

NU: The cases at Fuji Media and Taiyo Holdings were largely driven by company-specific circumstances rather than representing a broad market-wide trend. And most Japanese companies do not face governance issues of that scale. However, investor scrutiny across the Japanese market is increasing, particularly toward companies facing serious governance, compliance, or accounting-related issues.

When governance failures occur, companies are often criticized for focusing on “check-the-box” compliance with governance requirements. Investors should assess whether companies are sincerely addressing governance best practices through constructive shareholder engagement, transparent disclosure, board accountability, and responsiveness to investor concerns.

Meaningful governance reform is best evaluated through a company’s long-term track record — including sustained improvements in disclosure quality, board effectiveness, capital allocation, and shareholder communication — rather than through symbolic or surface-level changes alone.

JR: And with that, I want to thank you once again Naoko for taking the time to share your on-the-ground insights into governance in Japan.

NU: Thank you. It’s been a pleasure.