Kyushu Railway Company
Tokyo Stock Exchange June 23
Deja vu all over again. One year on from a nearly successful effort to partially reconstitute the board of Kyushu Railway, 5% shareholder Fir Tree has returned seeking similar shifts in director composition and a material expansion of the company’s disclosure regime. Fir Tree again argues these changes are fundamentally necessary as a result of a pointed lack of alignment between the skills of the incumbent board and Kyushu’s increasingly real estate-weighted asset base. Kyushu’s rebuke, in turn, strikes some familiar chords by again highlighting what it views as the strength of its own nominees and overall plan.
Broad similarities notwithstanding, it is important to recognize this year’s campaign cannot reasonably be separated from a global health crisis that has disproportionately impinged upon several specific industries that are central to the operations of Kyushu and its closest peers. It comes after a seeming rapprochement between the two parties fell apart in May. Kyushu had adjusted its overall shareholder return policy in response to Fir Tree and engaged in a months-long process to source new outside directors, but unexpectedly rejected all of the candidates proposed by Fir Tree at the 11th hour.
Instead of working out a compromise, it’s another contested election. The company has proposed 11 directors, while Fir Tree has submitted three nominees. Shareholders will have to make some decisions: the maximum number of seats available is twelve, and votes for more than twelve candidates will be treated as invalid.
Mizuho Financial Group, Inc.
Tokyo Stock Exchange June 25
On the heels of majority-supported climate-related shareholder proposals in Canada, Australia and the U.S., a Japanese company is facing a climate-related proposal similar to those seen in the aforementioned markets. At its upcoming meeting, Mizuho Financial is being asked to outline its strategy for aligning its investments with the goals of the Paris Agreement, including disclosure of the specific metrics and targets, as part of the company’s annual reporting.
This proposal is a departure from the type of proposals that are usually submitted to Japanese companies, which can range from highly prescriptive (e.g., asking companies to halt all nuclear production) to the absurd (e.g., asking that companies install squat toilets in their facilities). Mizuho’s proposal, however, is a significant departure from these types of proposals and is more akin to proposals seen in other markets, such as the United States. While this is currently an isolated instance of a Western proposal being submitted to a Japanese company, it could indicate a more significant shift in the way that shareholders are engaging with Japanese companies and the tools they are using to effect desired changes.
Flow Traders NV
Euronext Amsterdam June 24
The coronavirus pandemic has made an already chaotic proxy season even crazier, with meetings postponed and agendas subject to change at short notice. But as it turns out, the delay of Flow Traders AGM from April to June may actually have allowed the company to smooth things out with its shareholders.
Because of the implementation of the Shareholder Rights Directive, Dutch companies are now putting their remuneration policy to an annual vote. In Flow Traders’ case, the policy includes several structural features that prompted Eumedion, the Dutch Corporate Governance Forum for institutional investors, to issue an alert highlighting, amongst other things, an unusual profit-sharing allocation more common for startups, the absence of any incentive caps as a percentage of base salary, and a lack of transparency regarding individual allocations.
The company has significant strategic ownership and just a 74% free float — but with 75% support required to approve the policy, any shareholder concerns could prove costly. The company is no stranger to opposition. Approximately 20.7% and 9.8% of shareholders voted against the reappointment of Roger Hodenius and Erik Drok, respectively, to the supervisory board at last year’s AGM. That may explain the board’s preemptive response, using the limbo of the pandemic to embark on “extensive and highly constructive discussions with various stakeholders” and provide additional disclosure regarding the company’s overall remuneration policy and specific pay decisions for 2020. Only time will tell if that willingness to engage with shareholders is enough to get the remuneration policy approved.
The Kansai Electric Power Company, Inc.
Tokyo Stock Exchange June 25
It’s been less than a year since it was revealed that the Kansai Electric Company had for decades been involved in an extensive bribery scheme involving a former deputy mayor and a local company that worked on its nuclear plant in Takahama. Despite initial attempts to limit the scope of the revelations to a handful of bad apples, as a result of third-party investigation it was revealed that 75 people had received roughly ¥360 million in cash and gifts, including clothing vouchers and sumo tickets. The bribes began in 1987 after the deputy mayor retired from office, and continued for more than three decades until they were discovered in a tax audit. While a criminal complaint appears unlikely, an independent investigatory panel nonetheless warned that Kansai’s policy on building nuclear plants “will not be sustainable unless there is transparency”.
The scandal has prompted moves to demonstrate accountability, including resignations and a remuneration waiver for several board-level executives, along with deeper governance and oversight changes. In particular, the company is seeking to amend its Articles of Incorporation to establish an audit committee, compensation committee, and nominating committee, and will shift its board structure from a two-tier board, with a board of directors and a board of statutory auditors, to a one-tier board with three committees. Moreover, any gifts and entertainment are no longer accepted and the company has implemented an enhanced compliance regime. The company also announced the establishment of both an office of compliance promotion and a director liability investigation committee comprised of independent external attorneys.
The agenda of the company’s upcoming AGM includes over 25 shareholder proposals, several of which appear to have been drafted with the bribery scandal in mind. Investors will have to decide if the company’s response has been sufficient, or if additional rules, restrictions and reporting are necessary.
In light of the dynamic nature of the ongoing crisis, we have compiled additional resources to help navigate the proxy season, including: