Lost Votes - concern mounts over corporate governance in Japan

Corporate governance has come under the spotlight in Japan after one of its biggest providers of shareholder services said it may have miscounted investor votes at almost 1,000 companies ahead of annual general meetings (AGMs).

Sumitomo Mitsui Trust Bank, which is entrusted to count votes for Japanese companies, said it had found about 3.4 million uncounted shareholder votes at 975 firms.

The bank also said that last week it mistakenly left out 1,139 voting forms votes from a Toshiba AGM. Toshiba and Sumitomo Mitsui both said the error did not affect the outcome of the meeting.

The errors highlight the problems of Japan’s reliance on mail-in voting for shareholder meetings and reluctance to move documents online. While institutional investors in the US and the UK used electronic shareholder voting for more than 90% of cases in 2017, the figure was just 14% in Japan that year.

The news comes after allegations that Japan’s government contacted several foreign shareholders in Toshiba ahead of its AGM on 31 July.

Representatives of the Ministry of Economy, Trade and Industry called at least three funds ahead of the meeting to find out if they had collaborated on shareholder voting, according to Reuters.

One of the funds took it as a signal to back Toshiba’s management and not investor proposals at the meeting. The ministry wanted to know which of the funds had collaborated with Toshiba’s top shareholder Effissimo Capital Management.

In Japan, shareholders deemed to be “acting in concert” are required to submit ownership disclosure filings and in some cases can be charged with insider trading. Some experts say this regulation prevents shareholders from working together to improve governance at companies.

It has also been reported that Toshiba engaged Goldman Sachs to sway the opinion of proxy advisory services and investors ahead of the annual meeting.

The problems are a huge setback for Toshiba after it tried to improve its corporate governance following the $1.2 billion accountancy scandal in 2015.

The Japanese government has made efforts to overhaul corporate governance regulations in recent years. Former Prime Minister Shinzo Abe introduced a number of reforms as part of his “Abenomics” growth strategy, including Japan’s Stewardship Code in 2014 and the Corporate Governance Code in 2015.

Meanwhile, last December the government amended the law requiring large companies to appoint at least one outside director.