Vitalizing general shareholder meetings is indispensable to improve management efficiency and corporate values. The provision of voting rights, which is the basis of such efforts, should not be neglected.
Sumitomo Mitsui Trust Bank and Mizuho Trust and Banking were found to have invalidated some of the ballots in vote-counting for general shareholder meetings that they undertook for client firms, despite voting forms being delivered via post by the deadlines.
The number of companies for whom vote-counting in their general shareholder meetings between May and July this year was improperly handled by the two trust banks reached 1,346, about one-third of listed companies.
Voting is an important right for shareholders that allows them to participate in decisions on important management matters at the general meetings. It cannot be overlooked that their rights were unreasonably impaired.
One of the main businesses of a trust bank is transfer agent services, for which it undertakes the management of shareholder lists or clerical work related to general shareholder meetings on behalf of client companies. The two trust banks have been outsourcing the vote-counting work to a fifty-fifty joint venture company that they set up.
To streamline operations during the intensive period when many firms hold their general shareholder meetings, the joint venture consulted with post offices and arranged to receive voting forms by mail one day earlier than scheduled. According to the trust banks, voting forms that were received on a deadline date were treated as having been delivered after the deadline, and were thus nullified.
The Civil Code stipulates that the manifestation of intent by mail takes effect upon arrival. It is obvious that it is valid if it arrives within the deadline. Although the two trust banks explained that they could not confirm any cases in which the results of voting for proposals at general shareholder meetings were affected by the inappropriate handling of ballots, the situation undermines confidence in the management of the meetings.
The problem surfaced when an overseas investment fund pointed out that their mail-in ballot was not reflected in the tally at the general shareholder meeting of Toshiba Corp., and the trust banks began to investigate the situation.
There is a possibility that this practice has continued for as long as 20 years. Haven't the two trust banks disregarded the trend of reforming general shareholder meetings?
In the past, general shareholder meetings were called "shan shan sokai" in Japanese, sokai meaning general meeting. Shan shan refers to the sound of ceremonial hand-clapping at the successful close of the stage-managed meetings. At most of these meetings, proposals presented by companies were passed without any discussion. This is because many companies maintained the cross-shareholding system, which preserved their inefficient management.
In 2014, the Financial Services Agency drew up guidelines to encourage institutional investors to actively exercise their voting rights, asking them in 2017 to disclose their approval or disapproval of individual proposals.
As a result, in some cases proposals were narrowly passed due to an increase in the number of shareholders who voted against them. As general shareholder meetings have become a place of earnest competition between companies and shareholders, the weight of voting rights is increasing.
Japan lags behind other advanced countries in terms of digitizing voting rights. It is said that in the United States and Britain, more than 90% of institutional investors exercise their voting rights through personal computers and other devices. Japan must promote digitization as soon as possible.
Another factor behind the improper handling of voting forms this time is the concentration of general shareholder meeting dates. One challenge is to reduce the burden of clerical work by spreading out the dates.
-- The original Japanese article appeared in The Yomiuri Shimbun on Sept. 29, 2020.
Read more from The Japan News at https://japannews.yomiuri.co.jp/
