(Reuters) TOKYO – In the most recent proxy battle between activist investors wanting greater independent control of Japanese companies, Singapore-based hedge fund 3D Investment Partners on Sunday succeeded in getting two of its nominees elected to the board of software company Fuji Soft Inc.
After nearly a decade of governance reform that significantly expanded the number of independent directors, three disputes in recent months have called into question how separate from management Japan’s outside board members are.
According to governance experts, if outside directors have close links to management or don’t provide adequate monitoring, their Independence is essentially notional.
In Sunday’s extraordinary general meeting (EGM), 3D, which owns more than 20% of Fuji Soft, proposed four new board members, claiming that the company’s current outside directors had not addressed years of wasteful capital allocation.
In a statement to Reuters, the Yokohama-based company defended its present board, stating that the Independence of its outside directors “has been guaranteed that there are no shareholders’ interests in conflict. They have contributed to encouraging lively debate by providing unbiased viewpoints “.
In order to restart a strategic evaluation of the conglomerate and investigate all available alternatives, including going private, 3D this year requested an EGM at Toshiba Corp.
On Thursday, Hong Kong-based Oasis Management requested that Fujitec Co Ltd convene an EGM to oust the six current outside directors and install seven replacements that the fund had proposed.
Following discoveries of real estate transactions involving his family, the elevator manufacturer abandoned a petition to re-elect its top executive to the board only an hour before its shareholders’ meeting in June. He was then named unelected chairman by the board.
The board “decided to egregiously infringe shareholders’ most fundamental right – the ability to vote and hold directors responsible,” according to Oasis, which owns 16.5% of Fujitec, showing a complete absence of independent counterbalancing authority.
Oasis’s EGM request’s substance has not yet been validated, according to Fujitec, which declined to comment.
JUST HOW INDEPENDENT?
92% of the nearly 1,800 companies in the prime area of the Tokyo Stock Exchange describe at least one-third of its directors as independent, according to the exchange. Beyond a set of established standards, it isn’t easy to assess their Independence from management, nevertheless.
However, just 3.9% of the top-tier businesses have a statutory nominating committee, which is required to comprise a majority of outside directors. Governance experts claim that establishing a committee to propose directors would assist assure such Independence.
Strategic Capital, located in Tokyo, has requested an EGM at Japan Securities Finance Co (JSF) to conduct an independent inquiry into the securities finance providers.
The main aim of the inquiry is to check the long-standing practice of appointing former Bank of Japan, Finance Ministry, and Tokyo Stock Exchange officials to top management and director positions.
Long denounced as a source of corruption in the Japanese bureaucracy, the habit of senior government employees taking post-retirement positions in the private sector.