June 27, 2019

Collective Hearing Agenda
Key Issues Concerning Governance ofParent and Subsidiary Listed Companies

The Institutional Investors Collective Engagement Forum (hereinafter referred to as “IICEF”)
considers “governance of parent and subsidiary listed companies” as an appropriate theme for thecollective engagement agendas. The focus lies in what should be kept in mind from the standpoint
mainly of corporate governance in order to improve corporate value of both the parent company andthe subsidiary(ies) in the mid- to long-term. Aiming to make this theme an effective engagementagenda, IICEF started exchange of opinions (i.e., collective hearing) with companies in March 2019 incooperation with ICJ, Inc. * as a preparation phase to summarize common views among investors.
As part of its efforts toward exchange of constructive opinions, IICEF has briefly summarized thekey issues concerning awareness of the issues related to parent-subsidiary listings from theperspective of investors and particular matters that investors would like to ask companies as follows.

1. Awareness of the issues among investors
While there are diverse opinions concerning advantages and disadvantages of so-called parentsubsidiary listings, there are some doubts and concerns over them from the standpoint of investors,
as follows.
(i)

Wouldn’t it cause disadvantage to minority shareholders?
Conflict of interest between minority shareholders and controlling shareholders may arise ina listed company with controlling shareholders (listed subsidiary). In such a case, is it
possible to claim the interest of the minority shareholders is appropriately protected?

(ii) Are advantages of a parent-subsidiary listing adequate enough for both the parent company
and the subsidiary(ies)?
Are advantages of a parent-subsidiary listing so great as to surpass disadvantages including
concerns of investors? Is a parent-subsidiary listing advantageous in terms of improving
corporate value as compared with options such as to make a company a wholly-owned
subsidiary or to dissolve a parent-subsidiary relationship?
(iii) There is a risk that causes “distortion” in the stock price formation.
As indicated as a hypothetical example in “Note” below, parent-subsidiary listings are likely
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to induce a stock price discount because it causes difficulty and complexity in the evaluationof the stock price.
(iv) “Don’t hold them if you don’t want to” would not work for passive investors.
Among the predominant counterarguments against the position of criticizing parentsubsidiary listings are that “the fact of a parent-subsidiary listing is in the public domain andeach investor can decide how the fact should be evaluated” and that “you don’t have toinvest in the company if you are not happy about its parent-subsidiary listing.” However, it isdifficult, for example, for passive investors to choose not to hold those shares. Portfolio
structuring methods which final beneficiaries demand of asset managers are diverse, and if
the asset managers adopt a passive portfolio strategy, it is part of the fiduciary responsibility
to try to mitigate, to the extent possible, any risks which may be a negative contributor on
the index as a whole.
2. Questions for companies
Based on the above-mentioned awareness of the issue, investors would like to ask companies(hereinafter, personified as “you”) specifically the questions as follows;(i)

What are the matters that you bear in mind or are struggling in connection to the reality ofparent-subsidiary listings?
Are there any special efforts or measures specific to parent-subsidiary listings in terms of, forexample, corporate governance? What about in terms of IR activities and information
disclosure?

(ii) What do you think of advantages of parent-subsidiary listings? What are disadvantages
which may arise in the case of making a company a wholly-owned subsidiary or dissolving aparent-subsidiary relationship?
In the first place, what are specific advantages of maintaining a state of parent-subsidiarylistings? What disadvantages would companies expect to arise when you make a company awholly-owned subsidiary or dissolve a parent-subsidiary relationship?
(iii) How do you think of disadvantages of parent-subsidiary listings?
How do you honestly think of disadvantages arising from parent-subsidiary listings andburdens of maintaining the listings?
(iv) What are the measures to protect minority shareholders, which you think of in terms ofcorporate governance and the like?
What methods would be possible from the perspective of companies in terms of corporate
governance and information disclosure in order to reduce investors’ concerns that interestof minority shareholders is being impaired.
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(v) Do you feel that proxy-voting guidelines which require minimum percentage of outside
directors in a board are effective as “disciplines” from the companies’ viewpoint?
At present, proxy-voting guidelines of some institutional investors have set a high bar
concerning the number and the composition of directors of a listed company withcontrolling shareholders. Do you think that these criteria are effective to attain thecontemplated purpose (to restraint to protect interest of minority shareholders)?

After summarizing the arguments as described above, IICEF started exchange of opinions (i.e.,collective hearing) with companies. Based on the exchange of opinions, IICEF plans to sort out andseparately disclose the common views as a collective engagement agenda.
Contact information:
Institutional Investors Collective Engagement Forum
Directors in charge: Yuki Kimura, Naomi Yamazaki and Ryusuke OhoriAddress: Tokyo Entre Salon, Shinmaki-chou Building Annex 1, 3-2-14, Nihonbashi, Chuo-ku,
Tokyo 103-0027 JAPANE-mail: info@iicef.jp
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*About ICJ, Inc. (from its web site)
Business Description:

Operating and Managing Electronic Voting System Platform

Founded: July 1, 2004
Shareholders: Tokyo Stock Exchange, Inc. (50%) and Broadridge Financial Solutions, Inc. (50%)

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