Report on the Study Group concerning Promoting Dialogue between Companies and Investors for Sustainable Growth
The Study Group concerning Promoting Dialogue between Companies and Investors for Sustainable Growth, which the Ministry of Economy, Trade and Industry (METI) established in September 2014, hereby announces the release of a report. The report recommends the establishment of an environment in which companies and investors can develop a mutual understanding through high-quality dialogue and create corporate value over the mid- to long-term. In particular, the report describes measures for realizing a “dialogue-rich nation,” including comprehensive information disclosure by companies, enhancement of information that is useful for making investment decisions, setting a schedule aimed at achieving dialogue-oriented processes for shareholder meetings, and the promotion of electronification.
In order for companies and investors (including shareholders) to develop a mutual understanding through dialogue and to achieve the goal of sustainable growth or mid- to long-term corporate value creation, this Report aims to establish a high-quality environment, even by international standards, for dialogue. As such, the Report comprehensively examines the various elements that comprise the environment for dialogue –including information disclosures, and its audit, schedules for shareholders meetings, agenda items at shareholders meetings, and the promotion of electronification – and proposes measures to optimize these elements. In particular, the Report noted the importance of the reciprocal and synergistic effects of high-quality information disclosures raising the quality of dialogue, and in turn, high-quality dialogue enhancing information disclosures..
The proposals of the Report include the following measures.
1) Comprehensive and integrated corporate disclosure – development of a “module-based integrated disclosure system”
In order to provide information useful to investors more effectively and efficiently, the Report proposes measures for companies to provide both mandatory disclosures (pursuant to the Financial Instruments and Exchange Act, the Companies Act, and the Listing Regulations) and voluntary disclosures in an integrated manner. As a basic conceptual design for integrated disclosures, the Report describes an idea called a “module-based integrated disclosure system.” This is a concept in which based on the overall picture of information to be disclosed (a complete set of comprehensive and integrated corporate reports), “modules” (clustered constituent elements) of information necessary for investors are extracted and provided at the appropriate timing.
In order to develop such a system, the Report describes the specific steps for companies, investors, and relevant organizations behind the mandatory disclosure system to meet together in order to (1) comprehensively analyze and verify the details of annual disclosures and (2) deliberate the overall picture of integrated disclosure and modules. In addition, the Report recommends the practical unification of audits and the consolidation of quarterly disclosures.
2) Enhancement of information for evaluation and analysis of mid- to long-term corporate value
The Report recommends the enhancement of information necessary for investors to evaluate mid- to long-term corporate value and deliberation on more effective disclosure methods. The importance of information disclosures that enable a comprehensive understanding of how corporate visions, management policies, strategies, governance, and the like contribute to the achievements, financial status, and sustainable value creation of a company was pointed out.
The Report recommends considering disclosure of mid-term management plans and information on ESG (environment, society, and governance) as well as the ideal state of integrated reporting as necessary information disclosure supportive of dialogue between companies and investors aimed at enhancing mid- to long-term corporate value creation.
3) Towards dialogue-oriented shareholder meetings
The Report captures the entire process leading to shareholder meetings as a component of dialogue between companies and shareholders, and recommends re-examining the process from the following perspectives.
(1) Appropriate scheduling and information provision that allow shareholders to deliberate agenda items and engage in dialogue
Compared to other countries shareholder meetings in Japan are held relatively soon after the fiscal year end and such meetings are concentrated in late June, therefore not allowing for sufficient time for shareholders to deliberate agenda items and engage in dialogue. Also, information necessary for shareholders are required to be disclosed/provided in a prompt and convenient manner.
This Report describes measures for shareholders to secure sufficient time to deepen their understanding through deliberating agenda items and engaging in dialogue with companies, as well as to obtain information in a timely manner in preparation for shareholder meetings. In particular, this Report describes conditions necessary to realize a “process for dialogue-oriented shareholder meetings,”, and the principles and methods for reviewing the scheduling of shareholder meetings and determining record dates for voting rights.
(2) Promotion of electronification
From the viewpoint of securing time for deliberation of agenda items and dialogue, making the entire process more efficient, and realizing comprehensive information disclosure, the Report recommends the electronification of the shareholder meeting process. Specifically, the following measures were proposed.
- Earlier (than the delivery of the meeting notice) disclosure of information on agenda items and documents that are to be attached to shareholder meeting notices (documents relating to shareholder meeting notices) through websites
- Eelectronification of documents relating to shareholder meeting notices
- Electronification of the exercise of voting rights
(3) Providing an environment for meaningful shareholder meetings, such as facilitating shareholder participation
The Report recommends measures to facilitate the participation of institutional investors and individual shareholders in shareholder meetings. For example, the Report proposes the formulation of guidance for cases where institutional investors, not on the shareholder registrar, indicate that they would like to attend the shareholder meeting. In addition, the operation of shareholder meetings should be examined with a focus on individual shareholders, including improving the ratio of shareholders who exercise voting rights. Along with this, dialogue and information disclosure at various other occasions should be considered as well.
Furthermore, the Report suggests specific points to be considered when examining how shareholder meeting agendas are set and the appropriate use of the right to make shareholder proposals.
4) Attitudes and behaviors of companies and investors, and the role of the dialogue-supporting industry
The Report points out the importance of companies and investors developing a common understanding towards dialogue, and improving their perceptions and competencies. Based on these, this Report suggests that company management and investors should understand any concerns and issues impeding dialogue, and examine and clarify the underlying reasons for such concerns and problems.
This Report also expresses an expectation that parties such as trust banks, securities agents, attorneys, consultants, and analysts – given their role of supporting dialogue between companies and investors as a “dialogue-supporting industry” – will further strengthen their respective roles towards this end.
2. Background of the Study Group
The Revised Japan Revitalization Strategy, which was approved by the Cabinet on June 24, 2014, lists measures for improving productivity and profitability through the strengthening of corporate governance, promotion of risk money supply, and enhancement of the investment chain as measures to restore Japan's “earning power.”
As background to this Strategy is an understanding that strengthening corporate governance, along with a consciousness towards cost of capital, and enhancing sustainable corporate value is critical in order to grow corporate earnings through enhanced productivity, and in turn, contribute to wage increases, reinvestment, and shareholder returns.
Therefore, not only the efforts of companies themselves but also the strengthening of the investment chain –a series of flows of money with investment returns ultimately delivered to households – towards long-term corporate value creation has been raised as an important policy issue. This series of measures will drive a virtuous cycle of the economy and also serves as a response to securing the future national wealth of Japan, which faces the challenge of a declining population..
In order to realize such a virtuous cycle of value creation, it is indispensable that companies, as key players, and investors, as suppliers of risk capital, deepen a mutual understanding through high-quality dialogue and together aim towards sustainable growth. To this end, the Revised Japan Revitalization Strategy includes “the promotion of dialogue between companies and investors towards sustainable corporate value creation” as a key measure.
As a part of this strategy, the Study Group concerning Promoting Dialogue between Companies and Investors for Sustainable Growth was established in September 2014 and comprised of company management, investors, market participants, experts, relevant groups, and relevant ministries and agencies(*). This group met four times to examine and discuss the nature of dialogue between companies and investors from a broad range of perspectives.
Furthermore, the Working Group on Corporate Disclosures and the Working Group on General Shareholders’ Meeting Processes were established under the Study Group and each held a total of seven meetings to have focused discussions on the current situation, issues, and desirable future state of dialogue.
The discussions of the Study Group took into consideration various other measures that share in the background and objective towards strengthening corporate governance, promoting the supply of risk capital, and enhancing the investment chain. In particular, associations with (1) Japan's Stewardship Code and (2) the corporate governance code, together the “two codes”, as well as (3) the Final Report of the Ito Review “Competitiveness and Incentives for Sustainable Growth: Building Favorable Relationships between Companies and Investors” were taken into consideration and reflected in this Report.
* For the participants of the Study Group and full text of the report, see the Japanese language press release.
April 23, 2015
Division in Charge
Corporate Accounting, Disclosure and CSR Policy Office, Economic and Industrial Policy Bureau