Reflecting on the 2024 Japan AGM Season

Shareholder action remained robust, with a record 91 companies[1] receiving shareholder-proposed resolutions, many of which focused on returns and governance issues.

The trend of low support for senior board members at companies with issues related to board composition and capital management, which began last year, has continued. In addition to ongoing concerns, many of this year's dissenting votes were also driven by misconduct and governance failures.

Below is a snapshot of some of the season’s takeaways related to AGM concentration, board composition, climate-related shareholder proposals, and divestment of cross-shareholdings.

AGM concentration: Limits to progress

In late-June, over 1,600 AGMs took place during a single week. Moreover, a record 650 AGMs, representing 29.5% of companies with a March business year-end, were held on June 27.[2] This uptick signals a reversal in the trend towards reducing AGM concentration and suggests the limits of incremental change.

We continue to encourage companies to shift their record dates away from the fiscal year-end, which would enable later AGM scheduling and offer benefits such as more time to prepare the annual securities report (Yuho) for publication before the meeting.

While companies often cite challenges in altering this long-standing practice, we believe that without such adjustments – or regulatory action – AGM dates are unlikely to spread out beyond the current concentrated period.

Board diversity and independence: Steady progress towards baseline expectations

Our voting policy for Japan has emphasized the importance of board independence since 2010 and board diversity since 2020. Each year, we review these policies to ensure realistic and meaningful progress towards well-structured, diverse boards. This complements our focus on the nomination process and how companies promote diversity and inclusion at all levels.

This year, we refined our independence criteria, excluding directors serving over 12 years from being considered independent. We have continued to vote against hundreds of director reappointments due to concerns about independence, as one in four companies[3] still has less than one-third independence on the board.

Meanwhile, 98.2% companies in the Prime market now have independent directors accounting for at least one-third of the board, compared to 73.1% in 2021 when the Corporate Governance Code first introduced this benchmark.[4] Additionally, the percentage of Prime-listed companies with a majority independent board surpassed 20% for the first time this year.

We did not update our board diversity voting policy[5] this year, having last revised it in 2023. Notably, the number of our votes against re-elections based on diversity concerns dropped from 75 last year to 27 this June. This decline indicates progress in meeting the most minimum standards of board diversity, likely reflecting the impact of the Tokyo Stock Exchange’s listing rules on female ‘officers’ and growing investor pressure.

From 2025, we will broaden our scope to vote against TOPIX 500 companies with boards having less than 15% women and require at least one woman on the board of all our investee companies in Japan.

Climate-related proposals: Expanding focus and growing support

Support for climate-related proposals has grown, with 10 receiving over 20% backing at Japan's top 500 companies, up from four last year.[6] This broader focus now includes an expectation for directors to have the competency to manage climate-related risks effectively and to link executive compensation to emission-reduction targets.

Nippon Steel*, Japan’s largest steelmaker, has been a particular focus for us due to its substantial emissions, expanding global operations, and policy influence. This year, after years of engaging with the company, we co-filed a resolution calling for greater transparency in climate lobbying.[7] The proposal received 28% support – the highest[8] for any environmental proposal in Japan this year. Notably, this support came from both non-Japanese and domestic shareholders.[9]

The growing scope and support for climate-related proposals could suggest that more sectors may face similar pressures in the future.

Divestment of allegiant and cross-shareholdings: First steps

Cross-shareholdings remain a major concern, often leading to poor corporate governance, inefficient capital use, and potential anti-competitive behavior.

We scrutinize these holdings when assessing director independence. We also vote against top executives if a company allocates 20% or more of its net assets to cross-shareholdings without clear justification or a strong reduction policy. In June, we voted against 65 companies for this reason, down from 96 last year. We view this threshold as a temporary benchmark, with the expectation of ongoing reduction to eventually zero.

Pushes bring progress

While gradual improvements in corporate governance are visible, challenges persist. Recent pushes by the Tokyo Stock Exchange and evolving investor behaviour are driving companies toward greater accountability. However, sustained efforts and potentially stronger regulatory measures will be crucial for achieving meaningful, long-term reform.

Key risks:

*For illustrative purposes only. Reference to a particular security is on a historic basis and does not mean that the security is currently held or will be held within an LGIM portfolio. The above information does not constitute a recommendation to buy or sell any security.

[1] Source: SMTB.

[2] Source: Tokyo Stock Exchange. The concentration rates for 2021, 2022, and 2023 were 27.3%, 26.0%, and 26.1%, respectively. The concentration of AGMs has gradually declined since 1988, when 91% of AGMs were held on a single day, flattening at around 30% since 2016.

[3] Source: SMTB.

[4] Source: Japan Association of Corporate Directors (JACD).

[5] We vote against the most senior board member or the chair of the nomination committee if the following diversity thresholds are not met: at least 15% women on the board for TOPIX 100 companies, and at least one woman on the board for Prime Market companies outside the TOPIX 100. (We do not count kansayaku as board members.)

[6] Source: LGIM’s analysis.

[7] More information can be found here (in English) and here (in Japanese). We also pre-declared our support for Resolutions 6 (Amend Articles to Disclose Greenhouse Gas Emission Reduction Targets Aligned with Goals of Paris Agreement) and 7 (Amend Articles to Introduce Executive Compensation System Linked to Greenhouse Gas Emission Reduction Target and Disclose How Compensation Policy Contributes to Achievement of the Target), which received 21% and 23% support respectively.

[8] Source: LGIM’s analysis.

[9] According to Nippon Steel, Japanese institutional investors represent 20.6% of the total shareholder base.