October 1, 2018

Letter on AGM Agendas with Many “Against” Votes from Shareholders (abridged translation)

IICEF and the five participants of its collective engagement program (Pension Fund Association,
Sumitomo Mitsui Asset Management, Sumitomo Mitsui Trust Asset Management, Mitsubishi UFJ
Trust Bank, and Resona Bank) have jointly started sending letters to listed companies that saw aconsiderable number of “against” votes to their proposals of the top management people
appointments as the board members, at their annual (general) shareholders’ meetings (AGMs) inMay and June 2018. In the letters we (IICEF and the participating institutional investors mentionedabove) are asking for clear explanations of outcomes of the companies’ analyses about the primaryreasons behind the opposing votes from shareholders, and their views on possible additional
dialogues with the shareholders regarding the matter.
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1. Target companies
In recent years, with more proactive and stricter proxy voting stances by investors and shareholders
in and outside of Japan, there are an increasing number of cases where quite a few votes are castagainst company proposal bills at AGMs. According to Supplementary Principle 1.1.1 of Japan’s
Corporate Governance Code, “When the board recognizes that a considerable number of votes havebeen cast against a proposal by the company and the proposal was approved, it should analyze thereasons behind opposing votes and why many shareholders opposed, and should consider the needfor shareholder dialogue and other measures.” The Code does not necessarily require the companies
to make related disclosures and presentations to the shareholders. As passive investors, however, weare very interested in how the companies have taken the outcomes of the companies’ analyses of
the relevant opposing votes, and in what kind of considerations they have made regarding the actionplans (if any).
This time, we will focus on the cases where a considerable number of votes have been cast againstcompany proposals for top management people appointments as the board members. In these cases,apparently some shareholders have found concerns over the overall management quality, businessperformances, etc., and therefore we should try to learn more about the management teams’
analyses of the reasons behind the opposing votes as well as about their considerations of the action
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plans regarding dialogues with shareholders. We have started sending letters to multiple target
companies (basically to the CEOs of them), to ask about the points mentioned above. When selecting
the target companies, we refer to overseas practices regarding “a considerable number of votes,”such as of the UK Corporate Governance Code. For now, we do not plan to disclose specific target
company names.
2. Key messages
The participating institutional investors have spent time to discuss the “against” vote agenda, to comeup with the following common views to be addressed in the letters.
(1) Investors’ perspective on many opposing votes for top management appointments
Opposing votes for board member appointments can be cast by various reasons. Especially when
they are for top management people, they do not necessarily mean that the voters are worrying
about talent, capability, etc., of the relevant individuals. It is often the case that a shareholder would
vote against top management board member appointments, when he/she is not happy with therelevant company’s efficient use of capital, corporate governance structure, and other companywidematters. Institutional investors can make similar actions. Many of the major institutional investors
disclose their proxy voting guidelines, as well as their past voting actions on individual AGM agendas.
We would encourage target company management teams to check the major institutional investors’
websites for those kinds of information.
(2) Request for clear explanations of the management teams’ analyses and action plans
We would like the target companies’ management teams to explain how they have analyzed thereasons behind the opposing votes and what they consider as to dialogues with shareholders. Morespecifically, our questions to the target companies’ management teams are:a) How have the board conducted analyses of the reasons behind many opposing votes for top
management appointments? What have been the outcomes of the analyses so far? What does
the board now think about the possible dialogues with shareholders regarding the matter?
b) Have outside directors expressed any thought about the opposing votes and the board’s analysesof the reasons? If so, please let us know the summary.
c) Based on all these considerations, what does the management team think about the company’s
key challenges in its business plans/strategies, corporate governance, efficient use of capital, andso forth? How is the management team going to deal with the challenges?
For the management team to try to answer these questions clearly will significantly help its effective
and constructive dialogues with shareholders and investors, in our view.
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On a separate note, we will highly appreciate if the management teams would think about making
clear and concise disclosures of the matter in the companies’ corporate governance reports
submitted to the stock exchanges in Japan.
Note: The UK Corporate Governance CodeIn the UK Corporate Governance Code (July 2018), the “against” vote related agenda is covered in
Chapter 1; Provision 4, as follows:
When 20 per cent or more of votes have been cast against the board recommendation for a resolution,
the company should explain, when announcing voting results, what actions it intends to take toconsult shareholders in order to understand the reasons behind the result. An update on the viewsreceived from shareholders and actions taken should be published no later than six months after theshareholder meeting. The board should then provide a final summary in the annual report and, if
applicable, in the explanatory notes to resolutions at the next shareholder meeting, on what impact
the feedback has had on the decisions the board has taken and any actions or resolutions now
proposed.
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We have initiated collective engagement dialogues with multiple companies, with the abovementioned contents. Suggestions, opinions and inquiries are welcome, from investors who haveother engagement agenda ideas, as well as from listed companies’ management teams.

Contact information:
Yuki Kimura (Representative Executive Director and Chairman) / Naomi Yamazaki (Representative
Executive Director and Administration Manager) / Ryusuke Ohori (Executive Director)
Institutional Investors Collective Engagement Forum
Tokyo Entre Salon, Shinmaki-chou Building Annex 1, 2nd floor, 3-2-14, Nihonbashi, Chuo-ku, Tokyo
103-0027 Japan(E-mail) info@iicef.jp

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