Reference material

2nd survey report on the JIAA member
companies to the questionnaire for the Japan
Stewardship Code (At the end of August, 2015)

April 26, 2016
Chairman, Japan Investment Advisers Association
Yoichiro Iwama* The Japanese version should be referred to for the accurate content of this material

Contents
1.

Survey overview

2.

Main point of survey results3.

Remaining concerns

4.

Requests to investee companies

11. Survey Overview

2Survey overview
Objective: To contribute to improving corporate governance in Japan by understanding the state ofannouncement by our members on their acceptance of Japan’s Stewardship Code (hereinafter“Japan SSC”) and the state of their system preparation, and disseminating and establishingeffective Stewardship activities.

Target of survey:
 A total of 206 member companies, consisting of 197 member companies who are investment
management companies (excluding members who handle only real estate related business)and 9 other member companies who have announced their acceptance of Japan SSC.

Number of respondent and response(companies): 184 companies／206 companies (89％ response rate based on number of companies)

Survey contents:






“Establishing a clear policy (principle 1, 2)”“Appropriate monitoring of conditions and constructive dialogue” (engagement)(principle 3, 4)”“Views on exercise of voting rights, state of voting activity and reporting system (principle 5, 6)”“Possession of in-depth knowledge (principle 7)’“Others”
3State of establishment of Japan SSC (based on number of ourmembers and Japanese stock balance) In terms of the number of member companies, approx. 60% have alreadyestablished or are establishing, while in terms of the Japanese stock balance, thenumber of our companies that have already established is almost 100%.

* The figures reflect the Japanese stock balance of all
responding companies (including listed/non-listed).

4

(Ref.) State of declaration of acceptance of Japan SSC (as of end of
February, 2016)
No. of institutional investors sighing up
of which No. of our membersof which No. of ourinvestment mgmt.
membersof which No. of ourinvestment advisory /agency members

Feb.

Aug.

Dif.

Feb.

Aug.

Dif.

Feb.

Aug.

Dif.

Feb.

Aug.

Dif.

Investment
managers

144

139

+5

99

99

±0

95

95

±0

4

4

±0

Trust banks

7

7

±0

4

4

±0

4

4

±0

-

-

-

Insurancecompanies

22

21

+1

3

2

+1

-

-

-

3

2

+1

Others(Service
providers etc.)

7

7

±0

3

3

±0

1

1

±0

2

2

±0

Pension funds

25

23

+2

-

-

-

-

-

-

-

-

-

Total

205

197

+8

109

108

+1

100

100

±0

9

8

+1

(Source) Compiled by JIAA from FSA materials

52. Main points of survey results- With a focus on changes from the 2014 survey -6

1. Establishment of a policy on prevention of conflicts of interest
 High level of awareness among members concerning prevention of conflicts ofinterest with their customers•

For two consecutive years more than 90% of the members (based on Japanese stockbalance and Japan SSC declaration) have already established a policy on prevention of
conflicts of interest.

* The figures are based on the members who have a Japanesestock investment balance out of the companies that responded(as of end of August 2014, end of August 2015)* The figures are based on the members who have declared
their acceptance of Japan SSC out of the companies that
responded (as of end of August 2014, end of August 2015)7

1. Disclosure of a policy on prevention of conflicts of interest
 High level of awareness among members concerning prevention of conflicts ofinterest with their customers•

More than 80% of the members (based on Japanese stock balance and Japan SSC
declaration) have already disclosed a policy concerning prevention of conflicts of interest,
and the disclosure rates have increased in terms of both Japanese stock balance andJapan SSC declaration.

* The figures are based on the members who have a Japanesestock investment balance out of the companies that responded(as of end of August 2014, end of August 2015)* The figures are based on the members who have declared
their acceptance of Japan SSC out of the companies that
responded (as of end of August 2014, end of August 2015)8

1. Effectiveness of policy on prevention of conflicts of interest
High level of awareness among members concerning
prevention of conflicts of interest with their customers•

In this fiscal year, a survey was conducted on the state of revision of thepolicy on prevention of conflicts of interest in the past 12 months andconcrete measures for the prevention of conflicts of interest.

Examples of revision of policy on prevention of conflicts of interest:•

Sorting out and clarifying the connection between types of transactions which
could involve conflicts of interest and representative examples.

•

Describing details concerning a policy on exercise of voting rights withrespect to companies with which one has business relations .

Examples of concrete measures on prevention of conflicts of interest:•

Development of a system for complying with guidelines/regulations etc.
concerning exercise of voting rights (e.g., installing a department thatspecializes in handling matters related to exercise of voting rights).

•

Delegating judgment to a third party institution such as an advisory institution,etc. when exercising voting rights on the shares of main shareholders, etc.

•

Development of a management/reporting system when a conflict of interest issuspected or has occurred (e.g., reporting to a compliance officer, sample
checks run by a compliance department). Regular implementation of inhouse training.

•

Establishment of regulations related to self-trading of officers, etc.
* On both cases, the figures are based on the members who
have a Japanese stock investment balance out of thecompanies that responded (as of end of August 2015)9

1. Concreteness of policy on prevention of conflicts of interest as seenfrom disclosures of individual companies
 We conducted a survey on the disclosure of a policy on prevention of conflicts ofinterest among the top 20 member companies in terms of Japanese stock balance,
and the contents of policy disclosure can be broadly divided into the 3 types of cases
below:
1.

Cases in which the main types of conflicts of interest transactions are clearly indicated and amanagement policy has been disclosed for each type.

2.

Cases in which mainly matters concerning the response to exercise of voting rights in relatedcompanies have been disclosed.

 In many cases, policies and guidelines on directions for exercise of voting rights are separately
disclosed, and a policy on prevention of conflicts of interest is included among them.
3.

Cases in which a policy on prevention of conflicts of interest has been disclosed as a parent
company group.

102. State of explanation of Japan SSC policy to investment consultants Hope for proactive evaluation by investment consultants•

The state of inquiries from investment consultants remains at less than half of members(based on Japanese stock balance). According to a survey on specific questions that we
conducted this year, it appears that the inquiries are general questions such asconfirmation of the Japan SSC policy and state of exercise of voting rights, and so on.

* The figures are based on the members who have aJapanese stock investment balance out of the companies that
responded (as of end of August 2014, end of August 2015)* The figures are based on the members who have a Japanesestock investment balance out of the companies that responded(as of end of August 2015)11

3. State of preparation of evaluation criteria for exercise of voting
rights Our members who have announced their acceptance of Japan SCC haveappropriately prepared evaluation criteria for exercise of voting rights.
••

Among the our members who have announced their acceptance of the Japan SSC,
86% (91 companies) of the members have prepared a system of directions on exercise
of voting rights, clarified the decision-making process, and set up evaluation criteria forexercise of voting rights (guidelines etc).
The remaining members have provided clear explanations of why they have not madepreparations.
Breakdown of 15 members who replied that they
have not prepared [evaluation criteria for exercise of
voting rights]:* The figures are based on the members who have declared
their acceptance of Japan SSC out of the companies that
responded (as of end of August 2014, end of August 2015)

12 members: These are members who have announced
their acceptance of the Japan SSC, but do not have any
Japanese stock balance (mainly investment advisory
members, pension consulting, gatekeeper businesses)

2 members: These are members who have announced
their acceptance of the Japan SSC and have a Japanesestock balance, but their investee companies are nonlisted shares or private equity.



1 member: This member has announced its acceptanceof the Japan SSC and has a Japanese stock balance, but
the investments are from wrap accounts without any
voting rights.

12

3. State of disclosure of voting activity
 Our members who have announced their acceptance of Japan SCC haveappropriately made disclosures of their voting activity.
••

Among the our members who have announced their acceptance of the Japan SSC, 75%(74 companies) of the members have disclosed their voting activity or their reasons for
not doing so.
The breakdown of the companies who have not disclosed their voting activity and theirreasons for not doing so is as follows.

* The figures are based on the members who have declared
their acceptance of Japan SSC out of the companies that
responded (as of end of August 2014, end of August 2015)

12 members: These are members who have announced theiracceptance of the Japan SSC, but do not have any Japanese stockbalance (mainly investment advisory members, pension consulting,gatekeeper businesses).



1 member: This member has announced its acceptance of the Japan
SSC and has a Japanese stock balance, but has announced that it will
not conform to Principle 6.



10 members: These are members who have announced theiracceptance of the Japan SSC and have a Japanese stock balance, butthey qualify for exemption from disclosure under the JIAA’s selfregulatory rules (refer to the next page) (total asset managementbalance of Japanese stocks 25 billion yen or less (market value)).



2 members: These are members who have announced theiracceptance of the Japan SSC and have a Japanese stock balance ofmore than 25 billion yen, but they qualify for exemption from disclosure
under the JIAA’s self-regulatory rules (refer to next page) (5 or lessdiscretionary investment advisory contracts of Japanese stocks).

13

3. (Ref.) JIAA’s self-regulatory rules
 On the appropriate exercise of directions for the exercise of voting rights, etc. in
relation to discretionary investment management contracts (excerpt)
As of April 24, 2002
(Omitted)

2. Establishment of guidelines on directions for exercise of voting rights
Members shall prepare a system concerning directions on exercise of voting rights, clarify the decision-making
process, and set up evaluation criteria to give directions for exercise of voting rights (hereinafter “guidelines”).

3. Disclosure of basic view on the guidelines
Members shall disclose their basic thinking concerning the guidelines on their homepage, etc.
(Middle section omitted)

6. Disclosure of aggregate results of directions for exercise of voting rights(1)

Members shall in principle aggregate the results of directions for the exercise of voting rights at thegeneral shareholder meetings held in May and June as shown in the appendix, and disclose suchaggregate results on their homepage, etc. by the end of August.

(2)

Members may refrain from making disclosures provided for in (1) in cases where the number of
discretionary investment management contracts with Japanese stocks as the target of management is 5
or less ,or the total asset management balance of Japanese stocks is 25 billion yen or less (market value)
as of end of March.

14

4. Possession of in-depth knowledge – Main points of the survey
results

The number of asset management members indicating that they “have new initiatives”
with the aim of improving the effectiveness of engagement activities within the mostrecent 12 months is 41 (39%).※

Question on the self-evaluation of members with respect to dialogue with investee
companies. The following is an example to show that it was appropriate to conduct
dialogue with companies and stewardship activities: improvement in performance thatwas expected in areas such as overall business, capital efficiency, capital policy
among other things on the side of companies.

On the other hand, following are examples to show that it was inappropriate: noprogress in dialogue, the attitude towards dialogue on the part of investors, atendency of the short-term oriented concerns, the management not showing a stanceof incorporating the views of investors.



There are also some members who disclosed on their HP a report of the state of theirstewardship activities which reflected the results of their voting activity, but the
number of such members is less than 10. We look forward to an expansion of similar
initiatives in future.

※ The figures are based on the members who have declared
their acceptance of Japan SSC out of the companies that
responded (as of end of August 2015)15

4. Possession of in-depth knowledge – Examples of new initiatives bymembers
Main views from members (examples of new initiatives):【Accumulation of examples/information sharing/activity review】•

Preparing an in-house process for conducting constructive dialogue (creating individual reports
concerning changes in efforts on the part of companies/sharing such information within
investment management departments/making use of such information in reviewing dialogue
policy, sharing best practices of dialogue examples, installing an exclusive governance officer
who specializes in governance system/mid to long-term business strategies and carries out
dialogue with companies)【Implementation of study sessions and training】•

Implementing study sessions to which external experts and specialists were invited•

Organizing in-house workshops and bringing up examples of companies which serve as thebench mark in discussions on management reform that were targeted at corporate value creation

16

4. Possession of in-depth knowledge – Stewardship activities, selfevaluation concerning dialogue with companies (1)Main views from members (self-evaluation): Appropriate examples【Business in general】•

We have been conducting continuous discussions about a shareholder return policy with several
companies, and they decided to implement increased divided and purchase of own stocks within
the last 12 months.

•

We proposed the introduction and disclosure of Return on Invested Capital (ROIC) management
by department, and in the mid-term business plan that was announced later, the company
announced the ROIC target by department.

【Capital efficiency/capital policy】•

After going through a dialogue on the view of capital policy such as ROE, the company
presented concrete information on ROE targets and business strategy at its briefing session on
financial results.

•

In a certain company, there was harsh criticism of the internal reserve allocation by short-term
investors, and after we conveyed our view as a long-term investor, the company organizedcorporate briefing sessions and briefing sessions for individual investors, which it had neverreally done before, as part of an effort to create long-term shareholders.

17

4. Possession of in-depth knowledge – Stewardship activities, selfevaluation concerning dialogue with companies (2)Main views from members (self-evaluation): Non-appropriate examples【Progress was not seen in dialogue】•

Even though we made requests for dialogue with the management team, nothing materialized,
and productive discussion could not be carried out.

•

We carried out dialogue with the hope of achieving improvement, but the contents of the dialogue
did not develop any further, and as a result, no improvement was achieved.

【Problems in contents of dialogue】•

There is a problem in that our in-house analysts still do not have sufficient competency to handle
long-term continuous dialogue.

【Others】•

Regional companies and some medium-sized companies are showing a significant delay inmaking improvements in corporate governance.

18

5. Main points of survey results (others) The results indicated an overall trend where members are trying to achieve steadyevolution with an appropriate awareness of the problems.

Main replies, view from members:•

With respect to companies that have chosen Explain for the Corporate Governance Code, there are many
asset management members who adopt a policy of response in which they will strengthen dialogue, request for
additional explanation and make decisions based on an evaluation of the contents of Explain.

•

In cases where companies have chosen Explain with respect to various principles concerning independent
directors, the evaluation of many asset management members is that they will confirm the supervision system,
conduct dialogue based on a careful examination of the contents without defining specific criteria.

•

Followings were raised as some of the factors that inhibit investments from a mid to long-term perspective (longtermism): factors originating from the institutional investors themselves (problems in personnel affairs/
evaluation/remuneration, mismatches in timing between investors ad companies), factors originating in investee
companies (information disclosure of non-financial information that contribute to long term-ism/lack of aproactive attitude to dialogue), and factors originating in customers (final investors) (tendency to pursue shortterm investment performance results).

•

The number of asset management members that “think” collective engagement is required has increased to 49
members (53%) compared to the previous year (39 members, 43%).

•

In the discussions at the Management Investor Forum (MIF), some of the items that were hoped for include aplatform for giving advice to companies, a platform for exchange of opinions among investors and a platform forreviewing the ideal shape of dialogue among other things.

19

3. Remaining concerns- Reflection in the next survey -20

1. Penetration into passive management (engagement target)
Current: The penetration of engagement activities into passive management is going totake place from now on.
•

There are 43 asset management members (59%) that try to reflect the results ofengagement in “all active products only,” but there are only 16 asset management
members (22%) that do so for “all products including index investment products.”

Concern: Need to review together with customers (asset owners) whether it is necessary to haveengagement activities in passive management.
Examples of initiative in Japan and overseas concerning
engagement in passive management:
GPIF: In the “Summary Report of GPIF’s Stewardship Activities
in 2015” that was released in Jan 28, 2016, it is stated that “Forpassive management, engagement with companies considered
to have some problems is required to promote a sustainableimprovement of corporate value of those companies, so that thelevel of equity markets can be raised on a long-term basis.”
http://www.gpif.go.jp/en/topics/pdf/20160129_stewardship_code_voti
ng.pdfAccording to newspaper reports, in overseas countries, mainly
the US and Europe, there are cases whereby institutional
investors such as asset owners and asset managers actively
carry out engagement for passive management (such as
securing an engagement budget).
* The figures are based on the members who have aJapanese stock investment balance out of the companies that
responded (as of end of August 2014, end of August 2015)21

2. State of explanation to customers
Current:
 Only a limited number of asset management members adopt an active approachto providing explanations of their policy towards the Japan SCC and their voting
activity to all their customers.
••

Cases in which explanations were provided directly only to customers who request to do so compose
more than half (Japan SSC policy: 43 members (60%), voting activity result: 52 members (62%))
In the background to this, factors such as the constraint of costs involved in providing explanations,the degree of asset owner awareness and interest could perhaps be raised.

Concern: Understand the ratio of customers who requested such explanations andpromote further improvement in the quality of reports on stewardship activities.

* The figures are based on the members who have aJapanese stock investment balance out of the companies that
responded (as of end of August 2014, end of August 2015)22

3. General shareholder meeting: Change in approval/disapproval of
proposals submitted by company
Current: The objection/abstention rate of proposals submitted by companies shows adeclining trend in the last 10 years, but recently there is a high rate ofobjection/abstention concerning retirement allowances (more than 30%)
Concern:
 Confirm the depth of dialogue with investee companies such as whether there
were any proposals on which the decision to approve/disapprove was changed
after receiving explanations in advance from the investee company.
State of voting in general shareholder
meetings held in May, June 2015
The number of companies in which avote to object/abstain was cast is on
average 135 companies per member
company (37% with respect to theaverage total number of 362 companies
that were subject to voting by eachmember company)
The number of proposals that were
objected to/abstained from is on
average 267 proposals per member
company (8% with respect to theaverage total number of 3,213 proposals
that were subject to voting by eachmember company)

23

3. (Ref.) General shareholder meetings: Change inapproval/disapproval of proposals submitted by shareholders
Current state: The approval rate of shareholder proposals shows a declining trend in the last 10
years in the same way as the objection/abstention rate of proposals submitted bycompanies Recently, the approval rate concerning disclosure of director’s remuneration ishigh (more than 50%)

24

4. State of usage of proxy advisors in voting
Current:
 Asset management members that “made use of” proxy advisors compose
approx. half at 40 members (47%).
 With regard to the contents of recommendations made by proxy advisors, thenumber of asset management members who indicated that they “refer to such
recommendations when evaluating the directions for exercise of voting rights” isthe highest at 21 (53%), followed by 14 companies (35%) who indicated thatthey “basically give directions for exercise of voting rights according to such
recommendations although there may be rare occasions when they act
differently.”* The figures are based on the members who have aJapanese stock investment balance out of the companies that
responded (as of end of August 2014, end of August 2015)25

4. State of usage of proxy advisors in voting
Current:
 With regard to the disclosure of the state of usage of proxy advisors, the majorityof the asset management members have already made disclosures, but 10
members (33%) “have not made any disclosures and have not provided any
reason for not doing so.”Concern: With regard to member companies who make use of proxy advisors, check thereasons for not making disclosures, and for those members who conform to
Principle 5 of the Japan SSC, check the consistency between conformity to thesaid principle and non-disclosure of usage of proxy advisors.
 Carefully examine the state of concrete efforts by understanding the intensity of
disclosures by asset management members that have made disclosures.
 Confirm initiatives by member companies concerning evaluation of proxy advisors.
(Reference) Japan SSC Guidance 5-4
When institutional investors use the service of proxy advisors, theyshould not mechanically depend on the advisors’ recommendations but
should exercise their voting rights at their own responsibility andjudgment and based on the results of the monitoring of the investee
companies and dialogue with them. When disclosing their voting
activities, institutional investors using the service of proxy advisors
should publicly disclose the fact and how they utilize the service inmaking voting judgments.
* The figures are based on the members who have aJapanese stock investment balance out of the companies that
responded (as of end of August 2014, end of August 2015)26

4. Requests to investee companies

27

1. Matters that are considered important and matters that have been
debated during engagement
 Matters that are considered important and matters that have been debated during
engagement with investee companies•

Governance structure, corporate strategy, shareholder return policy, corporate
performance and long-term prospect, risk factors are considered important.

* The figures are based on the members who have aJapanese stock investment balance out of the companies that
responded (as of end of August 2014, end of August 2015)28

1. Good examples in which the company’s response during
engagement activities is considered to be beneficial and effective【Examples of companies that were considered to be good examples and the reasons】
Company A:•

Has disclosed an action policy with respect to all 73 items of the Corporate Governance Code(CGC) at the stage of enforcement of the code. Has already elected 3 independent directors.

•

Has clearly indicated a high shareholder return target with a total return ratio of 80%, and thepresident is actively conducting dialogue with the market.

Company B:•

Has actively explained to investors the company’s response to CGC. This is a company withkansayaku board, but it has installed an (optional ) nomination committee with an independent
director as the committee chairperson.

•

Various means have been designed in integration reports such as providing illustrations of thebusiness model in a form in which the state of initiatives is organically linked.

Company C:•

Has clear business strategy/capital policy. Has built a flexible governance system.

【Examples that require efforts for improvement】•

There is not a single outside director, but on the other hand, there is an increase in the numberof directors holding concurrent positions in the parent company.

•

Do not organize any interviews with investors or hold any company briefing sessions.
29

1. Requests for improvement to companies with respect toengagement
 Further improvement is expected in effectiveness of engagement between
companies and investors.
•

Based on the items that are considered important in the previous page, we would like to
ask companies to make improvement efforts concerning involvement of the management
in investee companies, awareness of engagement in companies, greater level ofappropriateness in the contents of information disclosures.

* The figures are based on the members who have a Japanesestock investment balance out of the companies that responded(as of end of August 2015)30

1. Requests for improvement to companies with respect toconvocation notice of general shareholder meeting Further improvement is expected in effectiveness of engagement between
companies and investors.
•

Among the requests for improvement to companies with respect to convocation notice ofgeneral shareholder meeting, the number of asset management members that indicated“early sending (early disclosure)” is the highest at 58 (73%), followed by 41 companies(52%) who indicated “enhancement of explanation of proposals,” and 35 companies(44%) who asked for expansion of information.

* The figures are based on the members who have a Japanesestock investment balance out of the companies that responded(as of end of August 2015)31

2. State of usage of electronic voting platform (PF) Recognition of current state:••

The number of asset management members thatare making use of electronic voting PF is 13 (15%).
Approx. half of the asset management members
are considering making use of electronic voting PF
in future.

＜Main reasons for “have no plans to use in future”＞•
Exercise of voting rights is carried out through othermeans (through trustee banks, in-house or broker
systems, etc.)•
To avoid the co-existence of different operating flow as
there are companies that are not participating.
* The figures are based on the members who have aJapanese stock investment balance out of the companies that
responded (as of end of August 2014, end of August 2015)32

2. Request for wider usage of electronic voting PF
 Expectation of greater adoption by listed companies••

This year, we conducted a survey on the extent to which member companies willswitch to an operating flow for directions on the exercise of voting rights which is basedon the usage of electronic voting PF according to the rate of adoption of electronic
voting PF by listed companies.
As for the rate of adoption of electronic voting PF by listed companies, the number ofasset management members who indicated “all listed companies” is the highest at 29(39%), followed by 19 companies (25%) who indicated that they “do not intend to
make a switch regardless of the number of companies that have adopted electronic
voting PF.”•••* The figures are based on the members who have a Japanese stock investment
balance out of the companies that responded (as of end of August 2015)

Based on the assumption of an
operating flow by trustee banks
Have already developed othermeans (through internal andexternal systems)
Investee companies are limited

33