The Shareholder: A Japanese Watershed

Article excerpt

Japan's long-running economic woes have given its companies a wake-up call. This proxy season many of the most hidebound Japanese corporations intensified disclosure.

The routine nature of Japan's June proxy season, during which thousands of companies hold their annual meetings and shareholders rubber-stamp management actions, may soon be a thing of the past. In the wake of the country's recent economic woes, 1999 has proved to be a watershed for Japanese corporate governance, as many companies have made unprecedented changes in their disclosure practices and board composition.

These corporate developments have corresponded with increased activity on the part of Japanese shareholders, many of whom have reacted to Japan's recent financial troubles by becoming more vigilant monitors of management. The result has been heightened attention to shareholder concerns across the board this proxy season. Indeed, the events may herald the dawn of what one Japanese institutional investor has called "year one" for Japanese corporate governance.

One notable area of improvement this year has been in the timely release of proxy information. Because of the cramped meeting schedule, shareholders who hold stakes in more than a few companies generally have insufficient time to examine all the proxies and make informed voting decisions.

This year, several companies took steps to ease this crunch by releasing their materials well in advance of their meeting dates. Sony, Hitachi, Honda Motor, and Nikko Securities all issued their proxy documents to shareholders three or four weeks before their meetings-well beyond the minimum two weeks required by law, to which most companies adhere religiously.

Companies are also modifying their board composition to add independent directors. Sanyo proposed an article amendment to slash the maximum size of its board from 36 directors to just 15. The company also nominated Corazon Aquino, former president of the Philippines (where Sanyo has extensive operations), to the board. In addition, Sony and NT Data both now have two independent directors on their boards. Softbank went even further, appointing five outside directors to its nine-member board. Other firms, while not installing independent directors, are taking steps toward greater independence by forming outside advisory boards that meet with management to discuss operational issues.

Changes in proxy activity have extended to institutional shareholders, many of whom have become more aggressive in their oversight of companies in their portfolio. …