Activism in Japan 本資料の一切の権利は株式会社アイ アールジャパンに帰属しており 電子的または機械的な方法を問わず いかなる目的であれ 無断で引用 複製または転送等により使用しないようお願いいたします 本資料の第三者への開示は厳重に禁じます

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1 R Japan Activism in Japan October 24 th, The data in this presentation material are compiled solely by 本資料の一切の権利は株式会社アイ アールジャパンに帰属しており 電子的または機械的な方法を問わず いかなる目的であれ 無断で引用 複製または転送等により使用しないようお願いいたします 本資料の第三者への開示は厳重に禁じます

2 Company Defenses vs. Activists are Under Pressure Regulatory Reform Shareholder Rights in Japan Institutional Shareholder s Power vs. Cross-shareholdings Voting Transparency and Takeover Defense Policies Trend of Independent Directors on Boards in Japan 1

3 2015: The Schedule For Corporate Governance Reform Jan - Mar Apr - Jun Jul - Sep Oct - Dec Jan - Mar Apr - Jun Jul - Sept Oct - Revised Companies Act Revision Enacted on June 20, 2014 To be carried out on May 1, 2015 Disclosure regarding a lack of independence Introduction of Audit Committee System Reexamine independence requirements June 2016~ End of interim measures Tokyo Stock Exchange Corporate Governance Code Introduced on June 1, 2015 For companies with March year-ends, Code-related disclosures required by December Japan s Stewardship Code Finalized on February 26, 2014 As of May 31, firms have adopted the Stewardship Code, among which 31 are overseas firms 2014/5 2014/8 2014/ /2 2015/5 Signers Overseas Japan Revitalization Strategy Revised in 2015 By August September 2015 Create and disclose a policy that specifies to what extent Boards of Directors can entrust business decisions to management and explains the range of duties that can be conducted by truly independent outside directors. By December 2016 To ensure the swift provision of information, companies must consider and ultimately decide on measures to implement electronic disclosure. By March 2016 Reexamine the disclosure rules established in the Companies Act, the Financial Instruments and Exchange Law, and securities exchanges, and consider and adopt a system of integrated disclosure. Continue to monitor developments in the election of independent outside directors and the reduction of crossshareholdings JPX-Nikkei 400 Change of Component Companies Aug 7: Announcement Aug 31: Reshuffle August Components to be reshuffled Based on the Japan Revitalization Strategy 2014 Revision, the Forum was established so top Management Investor Forum management from companies, domestic and overseas institutional investors, and other businesspeople at the forefront of the global economy could gather to discuss policies for continuous growth and the creation of corporate value in the mid-to-long term. 2

4 The Reformation of Corporate Governance Code in Challenges to the Old Corporate Governance Code On December 8, 2017, the cabinet decided to revise the Corporate Governance Code to prompt companies to take on the five challenges below, improve profitability, and revolutionize productivity through promoting investment.(new economic policy package) 1 Management s decisive decisions in response to changes in the business environment, including withdrawing/selling business and reviewing business portfolios 2 Effective strategic and systematic investments in fixed assets, R&D, and human resources 3 Promote the establishment of an independent nomination/remuneration committee to form structured policies for CEO appointment/dismissal and development, as well as effective supervision/advisory from the independent, outside directors to management. 4 Clearly disclose policy regarding the reduction of cross-shareholdings as well as the understanding of shareholders 5 Fulfill roles expected as public pension funds asset owners, through the support of the parent corporation. March 13, 2018: Announcement of RCGC(Financial Services Agency) 3

5 Rights and Obligations of Japanese Company Shareholders by Percentage Held % Holding Rights and Obligations of the Japanese Shareholder More than 1% Right to place items on the agenda (Shareholder Proposals: Company Law Articles 303,304, 305): Holders of more than 1% of the voting rights or 300 voting units of a company acquire the right to place items on the agenda to be voted on at the ordinary general meeting. Shareholders must be in their own name on the company register for six months in advance of the meeting and must claim their right to place an item on the agenda eight weeks in advance of the meeting. Right to demand appointment of an auditor of a general meeting (Company Law Article 306) Holders of more than 1% of the voting rights of a company have the right to demand from a court of law appointment and selection of an auditor of the conduct of voting and how resolutions are passed at a general meeting of shareholders. More than 3% Right to demand a shareholders meeting (Company Law Article 297) Holders of more than 3% of a company s voting rights in their own name for a period greater than six months may demand that management hold a shareholders meeting. The shareholder must communicate to management the object of the meeting and the purpose of the convocation. If management does not hold the meeting, the shareholder can hold a meeting if permission is obtained from a court of law. Right to demand the dismissal of a director or auditor (Company Law Article 854) Holders of more than 3% of voting rights of a company or 3% of its issued shares in their own name for a period of six months or greater have the right to appeal in the court of law for the dismissal of a director or auditor in the case that the director or auditor in question has committed a wrongful act, violated the law or has acted in violation of the company s articles AND a resolution to dismiss said director or auditor is rejected. Right to view the company s accounts (Company Law Article 433) Holders of more than 3% of the voting rights of a company or its issued shares in their own name for a period of six months or greater have the right to view a company s accounts and related documentation and to demand copies. More than 5% Shareholders are required to file significant shareholding reports with the Local Finance Bureau More than 10% Right to demand breakup of the company (Company Law Article 833) Holders of more than 10% of the voting rights of a company or its issued shares have the right to demand in the court of law the liquidation of the company. More than 1/3 Shareholders can prevent the passage of special resolutions. More than 50% More than 2/3 Acquisition of Control= Appointment and dismissal of directors becomes possible Passage of special resolutions becomes possible

6 Institutional Holdings vs. Cross-shareholdings 35.0% 30.2% (+0.1pt) 30.0% 25.0% 30.1% 21.8% ( 0.3pt) 20.0% 20.1% 15.0% 14.9% 20.4% (+0.8pt) 10.0% 12.8% 17.0% ( 0.1pt) 5.0% 7.3% 3.3% (±0.0pt) 0.0% 5.3% Overseas Trust Banks Individuals Life Insurance Corporate Banks (Commercial & Local) 3.2% (±0.0pt) Percentage change from the previous year 5

7 Adoption / Elimination of Takeover Defense Plans All Listed Companies Takeover Defense Plans Adopted: 386 (As of the end of June 2018) (Adopted) (Eliminated) Total Number Adopted Number of Eliminated Plans

8 Against Votes vs. Takeover Defense Plans Source: Company Filings Opposition Vote Percentage Top 10 Ranking In regards to trust account, top 10 ownership ratio is added Rank Code Company Name Market Cap ($1 mil) Opposition Percentage and Votes Against for the Top 5 Companies Against/Abstain Composition of Shareholders Latest Prior 2017 Foreign Trust Account Toyobo Co., Ltd. 1, % 48.85% 17.63% 21.40% Japan Steel Works Ltd. 1, % 46.16% 25.84% 15.38% Inaba Denki Sangyo Co., Ltd. 1, % 46.06% 22.61% 18.01% Minebea Mitsumi Inc. 6, % 44.56% 37.46% 17.44% Morinaga & Company Ltd. 2, % 41.71% 26.13% 9.14% NTN Corporation 2, % 39.24% 19.88% 13.65% Toda Corporation 2, % 38.52% 27.49% 5.21% Kansai Paint Co. Ltd. 6, % 37.18% 30.14% 10.06% Seino Holdings Co. Ltd. 2, % 36.63% 25.74% 14.74% Oji Holdings Corp. 5, % 36.63% 23.50% 17.90% Rank Code Company Name 2017 Opposition Trust Banks SMTB MUFG Resona AM One Daiwa Asset Major Asset Management Firms Daiwa Nikko Nomura SBI Asset Asset Toyobo 48.85% For Against Against Against Against Against Against Against Against Against Japan Steel Works 46.16% Against Against For Against For Against Against Against Against Against Inaba Denki Sangyo 46.06% Against Against Against Against Against Against Against Against Against Against SMAM MUFG Asset Minebea Mitsumi 44.56% For For For Against Against Against For Against Against Against Morinaga & Company 41.71% For Against For Against Against Against Against Against Against Against 7

9 Trend in Ratio of Outside Directors (Companies with March FY-End) TSE 1 st Section a All TSE 1 st Section 1,359 1,330 1,326 1,327 1,337 1,390 1,418 1,447 1,450 1,480 Avg. Size of Board Avg. No. of Outside Dir Companies with Outside Directors Companies with No Outside Directors Ratio of Comp. with Outside Directors Companies w/board of Auditors ,087 1,390 1,439 1,446 1, % 49.0% 52.3% 55.8% 62.5% 78.2% 98.0% 99.5% 99.7% 99.9% 1,315 1,294 1,290 1,292 1,302 1,352 1,292 1,143 1,103 1,086 Avg. Size of Board Avg. No. of Outside Dir Companies with Outside Directors Ratio of Comp. with Outside Directors ,049 1,264 1,135 1,099 1, % 47.6% 51.0% 54.6% 61.5% 77.6% 97.8% 99.3% 99.6% 99.7% Companies w/a US-Type Three Committee Structure Avg. Size of Board Avg. No. of Outside Dir. Companies with Audit and Supervisory Committee Avg. Size of Board Avg. No. of Outside Dir *Data is for TSE 1 st Section Listed Companies with a March Year End (Source: TSE Corporate Governance Information Service as of July 11, 2017) 8

10 Establishment of Voluntary Advisory Committee All Listed Companies Nomination Committee Compensation Committee July 2015 July 2016 July 2017 July 2018 Trend in Number of Directors on Committees Committee Structure Nomination Committee Committee Structure Compensation Committee Average Size Average Size Avg. Number of Outside Directors Avg. Number of Outside Directors Structure Comparison as of July 2018 Structure No. Outside Directors Majority Outside Directors Entirely Outside Directors Nomination Committee 22/730 Companies 361/730 Companies 10/730 Companies Compensation Committee 34/697 Companies 386/697 Companies 15/697 Companies 9

11 Shareholder Proposals and Activism in Japan Shareholder Proposals since 2003 Activism in Japan from 2014 Activist Investors in Japan Exit Strategy: Share Buyback 10

12 Shareholder Proposals in Japan Since 2004 Number of Shareholder Proposals and Companies Receiving Proposals Listed Companies with June Shareholder Meetings (Companies) (Proposals) Foreign Activists Enter the Market Lehman Crisis, Earthquake and Tidal Wave CG Study Groups PM Abe The Three Arrows CG Reform Osaka vs. Kansai Effissimo and Loeb Activism Picks Up Overseas Activists Mushroom Pre-Activist Japan Up to Companies Proposals

13 Activism in Japan the Trend in Activist Campains Trend in Activists movements in Japan * 25 Total : US/European Activists Asian/Oceanian Activists Japanese Activists 15 Total : Total : Total : 9 6 Total : * Method of Counting Funds by IR Japan The number of funds listed are those that have used activist strategies either in domestic or overseas markets and have been investing in Japanese stocks. If a certain fund invested in Japanese companies while it did not adopted activist strategies at that time, this fund is not included in the count for that year. The data were based on shareholder proposals, publicly released demands, materials released publicly in the media such as letters, campaign sites. Data Source: as of October 5,

14 Activism in Japan Activists from Around the World Activist Funds Japan * United Kingdom Asset Value Investors (2017) Hong Kong Oasis(2015) Argyle Street(2016) Ascender Capital(2018) Japan Reno, Office Support (2014) Strategic Capital (2014) Sparx Asset (2017) M&S LLC (2017) AlphaLeo (2018) United States Dalton Investments (2000s) Third Point (2013) Greenlight Capital (2014) Prospect Capital (2015) RMB Capital (2016) Elliott Management (2017) Volta Global (2018) ValueAct Capital (2018) King Street Capital (2018) Singapore Effissimo Capital (2000s) Australia Morphic Asset (2018) Uruguay Horizon Capital (2016) * Regarding the numbers in parenthesis The numbers show when each fund management firm started its campaign in Japan or when each firm s investment in particular Japanese stocks became public via significant shareholding reports or other public information. The names of the fund management firms making their first activist campaign from 2017 are highlighted using bold font Data Source: as of October 5,

15 Exit Strategies via Share Buyback (LBOs, TOBs and Appraisal Rights) Large Activist Shareholdings: Nissan Shatai / Ontario Teachers Pension Plan (Effissimo Capital) Maruhachi Warehouse / Prospect Asset Management TOC / Effissimo Capital Kuroda Electric / Reno (Murakami Fund) Sanshin Electronics / C&I Holdings (Murakami Fund) Toshiba / Effissimo Capital Third Point Oasis Argyle Street, etc. Campaigns vs Overseas Companies Associated with Japanese Firms Fujifilm (Associated Company: Xerox) / Carl Icahn Yahoo! Japan (Parent Company: Altaba) / TCI Fund Nissin Foods (Invested Business Partner: Premier Food) / Oasis Management 14

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