Electronic Voting Platform, etc.
Increased Awareness of Voting among Institutional Investors
During the bubble economy of the 1990s, mutual cross-shareholdings were dissolved, and the composition of shareholders in Japan‘s securities markets changed dramatically. According to the shareholding ratios by owner in the annual shareholder distribution survey conducted by stock exchanges in Japan, banks and life and non-life insurers held 33.6% of the total market in March 1990, but this share dropped to 24.0% in March 2000 and to 12.9% in March 2004. On the other hand, the share held by trust banks and foreign investors, which was 14.2% of the total market in March 1990, rose to 23.3% in March 2000 and 37.1% in March 2004, indicating that the stocks released by the unwinding of cross-holdings became eligible for investment by domestic institutional investors such as pension funds and investment trusts and foreign investors.
Originally, these institutional investors did not pay sufficient attention to the exercise of voting rights at shareholder meetings. However, in the early 1990s, the U.S. Department of Labor issued a notice regarding the ERISA Act (Employee Retirement Income Security Act), which positioned the exercise of voting rights as part of fiduciary responsibility, and public pension funds in the U.S. took a proactive stance to exercise voting rights as part of their efforts to strengthen corporate governance of the companies in which they invest. This trend has also been seen in Japan, where the presence of institutional investors who voice their opinions has rapidly increased. In Japan, this trend has been followed by an increased awareness of fiduciary responsibility and a review of how voting rights should be exercised since around 2000, when pension funds and other entities began to actively formulate guidelines for the exercise of their voting rights.
Practical Issues in Voting Rights Exercise
However, a practical problem has arisen in Japan, where domestic and foreign institutional investors, who have substantial voting rights, are unable to secure a sufficient period of time to properly consider the agenda when exercising their voting rights. This is mainly due to the fact that general shareholder meetings in Japan are concentrated in June each year and the short period of time between the dispatch of the convocation notice and the date of the meeting, but the administrative flow restrictions were also a problem that could not be ignored. In Japan, institutional investors generally receive convocation notices and other agenda information by mail via trust banks that handle asset management operations. This is because the trust bank is the shareholder (nominee shareholder) on the shareholder register. This means that it takes several days for institutional investors to actually receive the documents.
In the same way, the exercise of voting rights is also conducted through a management trust bank. The managing trust bank receives instructions from institutional investors to exercise their voting rights, tabulates them, and returns them to the issuing company (administrator of the shareholder register). In this process, in consideration of the time required for the administrative process, the deadline for institutional investors is generally set further in advance (about five business days) than the deadline set by the issuing company for the exercise of voting rights. Therefore, the period for institutional investors to consider proposals is considerably shorter than that for individual investors and other nominal shareholders. If the notice of convocation is sent out two weeks prior to the statutory deadline, the actual period for consideration of proposals would be about three business days, which would not allow sufficient time for consideration of proposals.
For foreign institutional investors, on the other hand, the process is more complicated. When foreign institutional investors hold shares in Japanese companies, the global custodian with whom they have a contract generally becomes the nominal shareholder. The global custodian is a financial institution that handles the custody of securities across multiple markets, and generally selects a standing proxy (sub-custodian) for delivery and custody of securities in each market. Therefore, in the case of overseas institutional investors, both the acquisition of proposal information and exercise instructions are routed through both the global custodian and the standing proxy, and the proposal review period is even shorter than that for domestic institutional investors.
In addition, overseas institutional investors have difficulty in obtaining the actual notice of convocation and other meeting materials, and it is common for standing proxies to translate only the agenda item "Election of Directors" and communicate it via e-mail, etc., making it difficult for them to obtain the information necessary to consider the agenda, which has been pointed out as another practical problem.
The "Platform for Electronic Exercise of Voting Rights" was established as a means to solve the practical problems described above and to create an environment in which institutional investors can exercise their voting rights appropriately.
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