Viewpoints of Institutional Investors concerning Shareholder Meeting Notices

Transcription

1 Viewpoints of Institutional Investors concerning Shareholder Meeting Notices - Taking into account the introduction of Japan s Stewardship Code - Corporate Reporting Lab - Working Group for Analyzing Case Examples of Good Practices (Secretariat) - Corporate Accounting, Disclosure and CSR Policy Office, Ministry of Economy, Trade and Industry - Business Policy Forum, Japan

2 2 I. Executive Summary (1) Overview Given that Notices of Ordinary General Meetings of Shareholders ( NOGMS ) (including Business Report) are an important means for investors (shareholders) to communicate with companies, this survey sought to explicitly identify characteristics of NOGMS using actual case examples. Specifically, the survey aimed to understand what particular areas institutional investors focus on and which points they view as good or bad examples. Background The survey was conducted as part of the Corporate Reporting Lab *1 project. Members of the lab proposed that broadly collecting and introducing some good and bad case examples concerning NOGMS agendas from the viewpoints of institutional investors would be useful for people in enterprises who are involved in holding shareholders meetings and conducting Investor Relations (IR) activities. In response, a Working Group for Analyzing Case Examples of Good Practices was established in Last year the Working Group launched the project as a pilot program, and solicited survey responses from January to March 2014 from major institutional investors. The results were announced based on the responses in May ( Implementation Recently, discussion has intensified about the ways in which dialogue should be conducted between companies and institutional investors following the introduction of Japan's Stewardship Code, as well as discussions about the Corporate Governance Code, and the publication of the Ito Review. Questions in this survey conducted from January to March 2015, were redesigned based on the preliminary survey on 2014 to enhance the dialogue between Japanese companies and domestic and foreign investors, and to assist in the establishment of good relationships. Survey Recipients Survey questions were sent to 149 institutional investor organizations (excluding pension funds) (27 in 2014) who signed for the adoption of Japan s Stewardship Code, and 64 organizations responded (16 in 2013). The survey results also contain the viewpoints of global investors overseas, international organizations of investors.

3 I. Executive Summary (2) Survey Response Breakdown Survey Recipients Respondents Companies that provided a reason for not responding Response rate 149 companies 64 companies 6 companies 43% Responses from investors who are members of the international investment organizations (ACGA, ICGN, and groups of global investors) are italicized. Examples of companies that provided a reason for not responding are following. e.g. They do not invest in the individual companies stock. They send senior officers to the companies they invest in and conduct usual dialogue and engagement. Survey Period January to March 2015 Outline of the Survey The survey questionnaire asked the following points: 1. Investors general viewpoints on the description and contents of shareholder meeting notices 2. Disclosure items which investors need for their evaluation, investment decision-making and proposal at a shareholder meeting 3. Important points regarding the methods of delivering shareholder meeting notices 4. Important points regarding activities based on Japan's Stewardship Code 3

4 I. Executive Summary (3) Survey Result Highlights 1. Among Shareholder Meeting agenda items, investors put a priority on election of board of directors and Audit & Supervisory Board members and takeover defense measures. Institutional investors tend to evaluate favorably notices that are detailed and easy to understand. In particular, they emphasize on reasons for appointment of directors and Audit & Supervisory Board members and adequate explanation of the strategic necessity of the implementation of anti-takeover measures. 2. Institutional investors have a strong tendency to request direct dialogue with the CEO, or explanations from the CEO him/herself regarding measures towards the growth of corporate value (including achieving a higher ROE) and matters related to management strategies. While other items (including matters relating to IR; management risks; environment, society, and governance (ESG); corporate governance systems, such as members of the Board of Directors; the CEO; incentive plans for directors; and takeover defense measures) were still considered important, the need for an explanation from the CEO him/herself was relatively low and the majority of the respondents noted that information disclosure would be sufficient for these matters. 3. As for the media of the provision and disclosure of information for evaluating each proposal, they judge not only based on meeting notices (and business reports) but also information in other media. In addition, depending on the proposals and content, they regard other media such as annual reports as appropriate choices. As for the information provision methods, they desire the prompt delivery of notices and appropriate responses to their inquiries. *1 Corporate Reporting Lab In 2012, METI established the Corporate Reporting Lab, aiming to provide enterprises and investors with opportunities to have better dialogue with the purpose of enhancing corporate value as well as to discuss, study, and propose more effective disclosures regarding corporate values. (Secretariats: METI and the Business Policy Forum, Japan) *2 Major differences from the previous preliminary survey 1) Recipients and number of responses Survey questions were sent to 149 institutional investor organizations (excluding pension funds) who signed for the adoption of Japan s Stewardship Code, and 64 organizations responded (16 in 2013). Moreover, with assistance from international investment organizations interested in Japanese market, feedback from global (foreign) investors is included in these survey results. 2) Improved information beneficial for companies The number of responding companies has increased from the prior year, which would improve the usefulness of the survey results for people at enterprises involved in holding shareholder meetings and conducting IR activities. 3) Added questions on activities in relation to Japan s Stewardship Code The survey adds questions on points which institutional investors would require to facilitate direct dialogue with management ( CEO ) related to their stewardship activities. 4

5 5

6 1. Investors general viewpoints on the description and contents of shareholder meeting notices (Outline) Institutional Investors point out following two major points for their evaluation of the shareholder meeting notices. 1. Adequate information Substantial information on the important agenda items 2. Plain explanation Clear explanation Contrivance on the layout and place of items. 6

7 1. Investors general viewpoints on the description and contents of shareholder meeting notices (Good examples) 40 companies cited as good examples 12 companies below were cited by more than one institutional investors as good examples Company Period Positive points (reason) Eisai Co., Ltd Recent FY Does not simply churn out information but provides information useful for shareholders when they exercise voting rights. Every year has revisions reflecting investor opinions; this practice created a very good impression. Recent FY FYE03/2014 FYE03/2014 FYE03/2014 June 2014 General Shareholders Meeting June 2014 General Shareholders Meeting Recent FY Details on the corporate governance system is useful, and furthermore, both the content and quantity of information provided in the NOGMS significantly exceeds that provided by peers and is often referenced by shareholders when exercising voting rights. Categorizes officers (e.g. newly appointed, reappointed, inside, outside, or independent) and explicitly states the reason for candidacy, years of service and background of candidates. Signed messages from the candidates to shareholders were also included. Eisai s strong willingness to make us more knowledgeable about their officers is apparent. Information specified the reason for election, neutrality and independence of Directors and Audit & Supervisory Board Member candidates. Information specified the reason for election, neutrality and independence of Directors and Audit & Supervisory Board Members candidates. Sufficient details are provided on the background of outside directors, their attendance rates at board of director meetings, and declarations to shareholders and other information. General shareholders meeting representative was present and discussed the necessity of improving the NOGMS and other issues. Necessary information is easy to locate All information on the appointment/reappointment of new directors, their backgrounds, attendance rates, and other information can be confirmed at the proposal for the selection of directors page. June 2014 General Shareholders Meeting Every year AGM Notice for June 2013 The reader-friendly information layout is something I would like to highlight. Information included as the financial position and profit/loss status as well as the balance sheet and statement of changes in equity. Eisai also reported on the background and activities of executive officers in the status of officers; other status were also in an easy-to-understand format. NOGMS was easy to read and all relevant information was provided (including Articles of Incorporation). Clearly demonstrated consistency between the changes and the company's strategy. Clear explanations on rationale for changes in each item. 7

8 1. Investors general viewpoints on the description and contents of shareholder meeting notices (Good examples) Company Period Positive points (reasons) OMRON Corporation Period not given Period not given May 30, 2014 Convocation notice for the 77th General Shareholders Meeting June 2014 General Shareholders Meeting Detailed explanation of the performance-linked compensation system and independence requirements for outside officers Use of pictures and graphs makes it easy to understand and points were explained in detail. For the agenda item of the mid-term performance-linked bonus scheme for directors, in addition to a 600 million yen payout, Omron went as far as to specifically disclose that if it achieves 100% of the FY2018 consolidated operating profit target of 90 billion yen, in accordance with its 100% payout policy, it would change the payout ratio to reflect the target achievement ratio (payout ratio: 150% maximum upside, 0% downside). For the Election of Board of Directors Agenda, sufficient information was provided in explanatory notes to asses the independence of outside director candidates and other factors. June 2014 General Shareholders Meeting Information was provided in a reader-friendly format, with each segment broken down into domestic or overseas operations and Subsegments. Shiseido Company, Limited June 2014 General Shareholders Meeting AGM Notice for June 2014 Period not given Period not given FYE03/2014 FYE03/2014 FYE03/2014 June 2014 General Shareholders Meeting Agenda items were listed clearly on the cover page. Presented clear criteria for independence of outside directors Reasons and expectations for each outside director candidate, as well as detailed background information, related business interest and other outside positions Information on the company s overall corporate governance approach, including the establishment of advisory committees (e.g. corporate governance committee, remuneration and nomination committees) Explanation on performance-linked compensation system and the overall capacity to provide information Sufficient information disclosure, including concerning the compensation ratio for directors and their long-term compensation incentives While there were no director resolutions, business reports were reader-friendly and the compensation system was very transparent as it is linked to Shiseido s performance. Sufficient explanation of the executive officer compensation system Eagerness to provide thorough explanations to shareholders was apparent The Election of Director and Audit & Supervisory Board Member agenda items were in a reader-friendly format. Each candidate was categorized into outside or inside, and new appointment or reappointment, with information on years of service, board of director meetings attendance rate, and the independence of external directors. Information was sufficient in explaining revisions of the compensation system due to the abolition of the officers retirement benefits plan in the previous period. AGM Notice for June 2014 Earlier publish of AGM Notice (20 May 2014) Well-articulated remuneration structure in the context of business strategy 8

9 1. Investors general viewpoints on the description and contents of shareholder meeting notices (Good examples) Company Period Positive points (reasons) Komatsu Ltd June 2014 General Shareholders Meeting Director and Audit & Supervisory Board Member agenda items were in a reader-friendly format. Each candidate was categorized into outside or inside and new appointment or reappointment, with information on years of service, board of director meetings attendance rate, and the independence of outside directors. It is possible to make decisions based solely on the Agenda. FY2014 The status of outside directors even contained remarks on the major activities of outside directors Easy to understand Komatsu s activities owing to the extent of information on corporate governance and CSR as well as business reports Asahi Group Holdings, Ltd Mitsui & Co., Ltd Mitsubishi Corporation FY2014 Period not given Period not given FYE12/2013 FYE12/2013 FY2014 NOGMS June 2014 June 2014 General Shareholders Meeting Period not given FY2013 Annual general shareholders meeting Sufficient disclosure regarding compensation Candidate column for outside directors went beyond background and concurrent posts, and provided comprehensive information required to review the agenda, including years of service, board of director meetings attendance rate, election, reason for election, independence and other factors. Item explaining the appropriation of retained earnings was specific. For example, along with the divided payout ratio, it explained numerical targets for the total shareholder returns ratio, which are 30% and plus-50%, respectively. Charts showing the dividend per share and dividend payout ratio trends were also easy to understand. Policies to enhance corporate value were clear. Policies to enhance corporate value were clear (this answer was provided by a company in the same group as the above respondent) The agenda item for the election of directors clearly indicated the board of director meeting attendance rate for outside director candidates, reasons for their candidacy and years of service as directors. Information on whether an officer is an outside director, independent officer, newly appointed and attendance ratios was all included under the election of directors agenda item. 1. Information indicating whether an officer was newly appointed/reappointed, an outside director, their independence profile as well as board of director meeting attendance rates was also included. 2. While the stock option scheme was relatively complex, Mitsui & Co., Ltd provided specifics regarding the strike price and other items. The agenda item for the appropriation of retained earnings explained Mitsubishi Corporation s shareholder returns policy and the basis for calculating the dividend payout amount. The candidate column for outside directors went beyond candidate backgrounds and major concurrent posts to provide comprehensive information required to conduct a review, including years of service, board of director meetings attendance rates, election, reason for election and independence. I was able to understand the particular decision-making process behind agenda items raised for discussion because Mitsubishi Corporation provided explanations linking basic policies to each agenda item. For example, the appropriation of retained earnings agenda item was linked to the basic shareholder returns policy, and the proposal for approval of executive bonuses was linked to basic policy concerning executive compensation. June, 2014 General shareholders meeting 1. Outside directors were categorized separately, and in addition to specifics on each director (new appointment/reappointment, independent officer, and board of director meetings attendance rate) the agenda also contained the reason for election. Mitsubishi Corporation s willingness to explain its policies to shareholders was apparent. 2. June is when most companies host general shareholder meetings. When agenda items are listed on the first page, it makes the process more efficient. 9

10 1. Investors general viewpoints on the description and contents of shareholder meeting notices (Good examples) Company Period Positive points (reasons) Lawson, Inc Sekisui Chemical Co., Ltd Fujitsu Limited Trusco Nakayama Corporation May 2013 General Shareholders Meeting FYE02/2014 June 2014 General Shareholders Meeting June 2014 General Shareholders Meeting June General Shareholders Meeting FYE03/2014 FYE03/2014 Sufficient information on agenda items (appropriation of retained earnings, amendments to the Articles of Incorporation) Explanation of independence of officers was well presented. Agenda item for the election of Directors and Audit & Supervisory Board Members contained information on the background and reason for candidacy of each candidate, making it easier to understand. Takeover defense measure explanation utilized charts, which also made it easy to understand. The director election agenda item was comprehensive, explaining whether candidates were outside directors, independent offices, reappointed, and had information on their attendance rates, years of service, and reasons for their candidacies. The director election agenda item clearly explained the board of director meeting attendance rates for outside director candidates, reasons for their candidacies, and years of service. It also stated that Fujitsu had transactions worth 5 billion yen with a company for which an outside director candidate served as advisor, allowing investors to confirm that the amount was indeed insignificant. The director election agenda item included reference materials on Fujitsu s corporate governance system. There was ample information, and explanations were easy to understand. Information was disseminated to shareholders regardless of the format. Autobacks Seven Co., Ltd FYE03/2014 Every year Information on outside director candidates backgrounds, reason for election, and resolutions were presented collectively and easy to understand. Details on agenda items and director candidates were included and easy to understand. 10

11 1. Investors general viewpoints on the description and contents of shareholder meeting notices (Good examples Companies policies etc.) 1Example of companies with clear company policies (Asahi Group Holdings) Source: 90 th General Shareholders Meeting Notice of Asahi Group Holdings 11

12 1. Investors general viewpoints on the description and contents of shareholder meeting notices (Good examples Companies policies etc.) 2Example of companies with sufficient explanation of their basic policies (Mitsubishi Corporation) Source: FY 2013 General Shareholders Meeting Notice of Mitsubishi Corporation 12

13 1. Investors general viewpoints on the description and contents of shareholder meeting notices (Good examples Companies policies etc.) 3 Example of companies that disclose sufficient and easy to understand information on their management policies (Trusco Nakayama Corporation) Source: 51 th General Shareholders Meeting Notice of Trusco Nakayama Corporation 13

14 1. Investors general viewpoints on the description and contents of shareholder meeting notices (Good examples Compensation schemes) 4 Example of companies that disclose sufficient information on their compensation schemes (Komatsu, Ltd.) Source: 145th General Shareholders Meeting Notice of Komatsu, Ltd. 14

15 1. Investors general viewpoints on the description and contents of shareholder meeting notices (Good examples Compensation schemes) 5 Example of companies that disclose sufficient information on their compensation schemes (Mitsui & Co., Ltd.) ( (omission)) Source: 95 th General Shareholders Meeting Notice of Mitsui & Co., Ltd. 15

16 1. Investors general viewpoints on the description and contents of shareholder meeting notices (Good examples Election of directors) 6 Example of companies that disclose sufficient information on agenda item of the election of directors (Fujitsu Limited) Source: 114 th General Shareholders Meeting Notice of Fujitsu Limited 16

17 1. Investors general viewpoints on the description and contents of shareholder meeting notices (Good examples Election of directors) 7 Example of companies that disclose sufficient and easy to understand information on agenda items of the election of directors (Autobacks Seven Co., Ltd.) 17 Source: 67 th General Shareholders Meeting Notice of Autobacks Seven Co., Ltd

18 1. Investors general viewpoints on the description and contents of shareholder meeting notices (Good examples Appropriation of retained earnings) 8Example of companies that disclose sufficient information on agenda item of the appropriation of retained earnings (Lawson, Inc.) Source: 39 th General Shareholders Meeting Notice of Lawson, Inc. 18

19 1. Investors general viewpoints on the description and contents of shareholder meeting notices (Good examples Takeover defense measures) 9 Example of companies that clearly explain their takeover defense measures (Sekisui Chemical Co., Ltd.) Source: 92 th General Shareholders Meeting Notice of Sekisui Chemical Co., Ltd. 19

20 1. Investors general viewpoints on the description and contents of shareholder meeting notices (Bad example) Reasons for negative impressions can largely be broken down into the following two elements. Insufficient explanation of agenda items and difficulty of finding the necessary information 22 companies cited as bad examples The table below lists negative points: Section Independence of directors Negative points (reasons) Agenda for the election of directors did not provide explanatory notes about familial relationships between major shareholders and directors. Without knowing the size of transactions handled by the company and its counterparties, it is difficult to determine the independence of outside directors. There was no information in the stock option agenda item on whether outside directors would also be eligible for payouts. Stock option Assigning of stock options to executive officers was raised as an agenda item, but there was absolutely no explanation of specifics regarding mid-to-long term performance targets. I believe information such as performance targets should have been included in the agenda. Specific amounts, policies, and the thought-process behind the overall executive officer compensation system were not disclosed. Executive compensation Activities of directors Performance analysis in business reports An agenda item raised the issue of expanding the amount set aside for Audit & Supervisory Board Member compensation but did not include an explanation of the specific reasons for the increase even though the extent of the increase was significant. The company should have included more specifics. Specific amounts and policies were not disclosed, and since the company did not disclose the thoughtprocess behind the overall executive officer compensation system, it was difficult to determine the merits of individual agenda items or whether the system included incentives to enhance the company s mid-to-long term performance. There were no specifics regarding the major activities of outside officers, and therefore, I was unable to understand their activities. There was also no detailed information on the reasons for the appointment of outside officers. The agenda for the Election of Directors did not clearly explain the current occupations of directors or provide information on their respective backgrounds, etc. While business reports contained a lot of information on management s effectiveness and efforts, business performance analysis was limited. 20

21 2. The priority of each agenda item (Compared with P21 and 22,) The survey shows tendencies seeking for Agenda item over Business report. Election of directors is rated high in necessity level. (86%) (Survey Answer Options) (Survey Results) 1 Amendments to Articles of Incorporation 2 Changes in the number and the term of directors 3 Election of directors 4 Election of Audit & Supervisory Board Members 5 Executive compensation (including directors' retirement benefits) 6 Takeover defense measures 7 Appropriation of retained earnings Comments As I already provided general answers to the survey, since the level of importance varies for each agenda item, it is difficult to rank my preferences. Each agenda item for the ordinary general meeting of shareholders is extremely important and I cannot recall any items that are not important. Companies need to strive harder to enhance shareholders understanding of agenda items by improving the contents of the NOGMS and supplementary information. 21

22 2. The priority of each agenda item As for business reports, Matters related to outside directors under executive compensation is rated high in importance level. (65%) (Survey Results) (Survey Answer Options) 8 Business progress and achievements 9 Business Issues to be addressed 10 Main business activities 11 Matters related to inside directors 12 Executives Matters related to outside directors 13 Executive compensation Others (e.g. issuance of new shares or reorganization 14 ) Comments Unless the amount of related-party transactions involving outside directors is revealed, the materiality of the transactions cannot be assessed and it is difficult to give one s approval. Details on the limited liability agreement with outside directors are disclosed, but I would like the company to have included an explanation indicating whether an indemnity agreement with inside directors is also included in the Articles of Incorporation. Regarding remuneration, I would like to see information on the number of employees and their remuneration. 22

23 2-1. Disclosure items which investors need for their evaluation, investment decision-making and proposal at a shareholder meeting (1) Amendments to the Articles of Incorporation (excluding changes in the number and the term of directors) Grounds for changes required are explicitly explained is rated high in necessity level. (91%) (Survey Answer Options) (Survey Results) 1 Grounds for changes required are explicitly explained Consistency between the changes and the company's strategy is adequately demonstrated. Explanation of the changes which may affect shareholders is adequately provided. When authorized capital is increased, the reasons for it and the company's growth strategy are properly explained. 5 Others ( No response ) Comments (Most satisfied) It seems more companies have been explaining amendments to the Articles of Incorporation that affect their shareholders. (Least satisfied) Some companies only give standardized explanations about their amendments to the Articles of Incorporation, but I prefer to see more detailed explanations. From a corporate governance perspective, it is important that details are included in annual and integrated reports as well, not only in business reports. Need more complete information explaining why amendments are necessary. Insufficient explanation of agenda items, such as the delegation of authority to the board of directors to appropriate retained earnings or increasing the number of authorized shares. (Opinions) We make an effort to create opportunities to have meetings with the management on a regular basis in order to obtain the most up-to-date information on the companies in our portfolio. Companies are responsible for providing detailed information to shareholders for assisting them when they exercise voting rights. We would vote to disapprove the agenda item if the information provided is insufficient and shareholder rights may be in jeopardy. If companies require amendment to Articles for adopt[ing] [a] new governance system of [the] Board with [the] Supervisory Committee, we would expect a sufficient explanation [of] the rationale, relevant skills and expertise expected for independent directors (especially if they were former outside statutory auditors of the company), and whether there [is] a plan for establishing optional advisory committees to enhance function of boards (e.g. regarding nomination and remuneration matters). Amendments to Articles of Association or other proposals (potentially) affecting shareholder rights are analyzed on a case-by-case basis. 23

24 2-1. Disclosure items which investors need for their evaluation, investment decision-making and proposal at a shareholder meeting (2) Changes in the number and the term of directors due to amendments to the Articles of Incorporation Explicitly states the purpose and grounds for the changes in the number and the term of directors is rated high in the necessity level. (89%) (Survey Results) (Survey Answer Options) Explicitly states the purpose and grounds for the changes in the number and the term of directors. Explicitly states that the changes are consistent with the company's strategy and efforts to strengthen corporate governance. Clearly states that the changes will not impair common interests of shareholders. 4 Others ( ) No response Comments (Most satisfied) For shareholders, it is preferable for companies to present their initiatives clearly, such as when evaluating directors with management titles and reducing the number of directors in line with the business size and management. (Least satisfied) There are some cases when an agenda item to increase the number of directors lacks a detailed explanation of the background and rationale for the increase. More information should be provided. More information on changes in the number of directors is preferred, e.g., breakdown of the member change 10 retiring directors (8 inside directors and 2 outside directors) and 11 elected directors (10 inside directors and 1 outside director). Many cases of companies providing ambiguous reasons or explanations Insufficient rationale for increasing the number of directors Unclear reasons for changes (Opinions) Companies are responsible for providing detailed information to shareholders for assisting them when they exercise voting rights. We would vote to disapprove the agenda item if the information provided is insufficient and shareholder rights may be in jeopardy. A template should be created to standardize the form used to propose an increase in the number of directors (and its rationale). 24

25 2-1. Disclosure items which investors need for their evaluation, investment decision-making and proposal at a shareholder meeting (3) Election of directors Information about attributes and independence of candidates for outside directors, and the basis for such conclusions is rated high in the necessity level. (80%) (Survey Answer Options) (Survey Results) 1 2 Convincing explanation that proposals, such as director candidates and the number of candidates, are appropriately in line with business results to date and strategy going forward Adequate explanation which supports your judgment about the suitability of the current management, such as management's self-review of business results and management perspective on business strategy. 3 If a candidate has been currently serving as an outside director, his/her activities and roles up to the present 4 Information about attributes and independence of candidates for outside directors, and the basis for such conclusions 5 Reasons for appointment of an outside director, and description of his/her expected role 6 Sufficient information to judge director candidates' ability, knowledge, and stance, such as a candidate's aspirations 7 Sufficient information to judge a director candidate's ability and expected involvement, such as other positions currently held and his/her background 8 Others ( ) No response (3) Importance of management Indicators to judge company s operating results ROE is rated high as judgement of the results.(72%) (Survey Answer Options) Performance indicators Return on equity (ROE) Net income (including accumulated income) Ordinary income (including accumulated income) Level of dividend/dividend payout ratio Cash flows (e.g. free cash flows (FCF)) Other indicators of capital efficiency (e.g. return on investment capital (ROIC)) 25

26 2-1. Disclosure items which investors need for their evaluation, investment decision-making and proposal at a shareholder meeting (3) Election of directors Comments (Least satisfied) In some cases, information is insufficient. Some outside directors have a vested interest in the company and are unable to fulfill their independent audit and supervisory functions. The amount of disclosed information necessary for electing directors should be increased. Unclear information on concurrent position(s) held by directors and date(s) of retirement from their previous positions (Opinions) Ideally the majority of directors should be outside directors. Shareholders often face difficulties in assessing independence of some outside directors or outside statutory auditors. We would encourage companies to proactively provide more details and more clarity on related business interest of the nominated candidates with the company. When assessing nominee directors in Japanese companies, we pay attention to their qualifications, knowledge and track record in the industry and any other directorships, for which we thoroughly study their biographies. We also are interested in identifying any related party transactions between the company and the nominee. Disclosure from the company in this respect is very desirable, but we notice that it is not common practice among Japanese companies. It is extremely important that enough non executive directors are independent and that [a majority of] members of the audit committee are independent as well. We believe that the best practice composition of the board and audit committee should be at least three-quarters outside and independent directors. We regard the election of the board of directors as the most important agenda item for an ordinary shareholder meeting. The directors represent shareholder interests and should be accountable to shareholders. 26

27 2-1. Disclosure items which investors need for their evaluation, investment decision-making and proposal at a shareholder meeting (4) Election of Audit & Supervisory Board Member Adequate explanation for the reasons for appointment, attributes, and independence is rated high in the necessity level. (80%) (Survey Answer Options) (Survey Results) 1 Adequate explanation for the reasons for appointment, attributes, and independence of outside Audit & Supervisory Board Members 2 Adequate explanation of the activities of outside Audit & Supervisory Board Members 3 Adequate explanation of the activities of the Audit & Supervisory Board, such as valid audit activities 4 Sufficient information to judge outside Audit & Supervisory Board Member candidates' ability, knowledge, and stance, such as a candidate's aspirations 5 Sufficient information to judge the Audit & Supervisory Board Member candidate's ability and expected involvement, such as other position currently held and his/her background 6 Others ( No response ) Comments (Least satisfied) In some cases, information is insufficient. Independence of outside audit and supervisory board members is not necessarily guaranteed and there are instances where they do not effectively fulfill their audit and supervisory functions. The amount of disclosed information necessary for electing directors should be increased. 27

28 2-1. Disclosure items which investors need for their evaluation, investment decision-making and proposal at a shareholder meeting (5) Executive compensation (including directors' retirement benefits) Impact of stock options or offer schemes on common interests of shareholders (e.g. rate of dilution) is rated high in necessity level. (72%) (Survey Answer Options) (Survey Results) 1 Information regarding the framework for overall executive compensation plans, beyond the minimum explanation necessary in an agenda for stock options 2 Explanations for the relevance of the overall compensation plan and business strategy, and the link to business performance 3 Disclosure of compensation for each officer 4 Impacts of stock options or other schemes on common interests of shareholders (e.g. rate of dilution) 5 Explanation for the amounts (gross or individual) and the basis for calculating the directors' retirement benefits 6 Others ( No response ) Comments (Most satisfied) Total compensation and breakdown for inside and outside directors needs to be clearly explained as such information is necessary when casting votes. I am satisfied that many companies disclose this information. (Least satisfied) Some companies' disclosure of the profile of stock option recipients (e.g. whether outside directors are included or not) is insufficient. In some cases, the details regarding retirement benefits and granted amount under stock options plans to outside directors are not clear. Companies should improve these disclosures. Individual executives compensation and their schemes (e.g. performance-based pay) need to be disclosed explicitly. The agenda item for directors bonuses only lists amounts, and does not provide information for assessment if the amount is appropriate. Unable to determine how stock options and other incentives for the mid- to long-term growth of the company are embedded in the executive compensation scheme. (Opinions) Disclosure of a company s thoughts on their executive compensation practices is desirable. It will be easier to understand if the executive compensation agenda item is explained in relation to the company s executive compensation structure using diagrams and other user-friendly formats. It is difficult to determine the appropriate level of executive compensation and retirement benefits. It is important that companies are able to articulate their remuneration structure and provide clear performance criteria (KPIs) for senior executives, so as to ensure that remuneration schemes align management incentives with strategic objectives, key drivers of business performance and long-term value creation for shareholders. We find it important that companies explain the elements of executive compensation. We expect that compensation plans that [incentivize] short and long-term performance are balanced in a way that shareholder interests are promoted. 28

29 2-1. Disclosure items which investors need for their evaluation, investment decision-making and proposal at a shareholder meeting (6) Takeover defense measures Adequate explanation of the strategic necessity of the implementation of takeover defense measures is rated high in necessity level. (79%) (Survey Results) (Survey Answer Options) 1 Detailed explanation of conditions for triggering takeover defense measures 2 Adequate explanation of members of a decision-making organization (e.g. the independent committee), and their attributes Adequate explanation of prevention of abuse of takeover defense measures Adequate explanation of the strategic necessity of the implementation of takeover defense measures Quantitative targets, such as a mid-term management plan, in return for the implementation of defense measures Others ( No response ) Comments (Most satisfied) As well as details on triggering conditions and the attributes and background of independent committee members, scheme flowcharts make information easier to understand. This is highly appreciated. Companies provide sufficient information explaining the overall process leading to the triggering event. (Least satisfied) No company has presented an exit strategy that contemplates the termination of takeover defense measures. The composition of the independent committee is not clear. Intentions of shareholders cannot be reflected because takeover defense measures are adopted upon a Board of Directors resolution and the term of directors is either two years or a different length of time depending on the director. Insufficient disclosure on the independence of independent committee members. (Opinions) I am generally against takeover defense measures. I always cast a disapproval vote. (4 other similar responses) These days, fewer companies are implementing takeover defense measures. The necessity of implementing or updating takeover defense measures should be sufficiently explained to investors. The company s requirements for implementing takeover defense measures include independent directors, but I am generally not against the implementation of such measures. All transactions are carefully studied to determine the impact [on] shareholder interests. We believe that any form of anti-takeover measure generally is not in the interest of shareholders. Shareholder rights plans ( poison pills ) or other structures that act as antitakeover mechanisms should be avoided. 29

30 2-1. Disclosure items which investors need for their evaluation, investment decision-making and proposal at a shareholder meeting (7) Appropriation of retained earnings 1 Explicitly provided the resource allocation policy (e.g. capital expenditure, financial improvement, and M&A), which is inconsistent with the mid- to long-term management strategies is rated high in necessity level. (79%) (Survey Results) (Survey Answer Options) Explicitly provided the resource allocation policy (e.g. capital expenditure, financial improvement, and M&A), which is consistent with the mid- to long-term management strategies. 2 3 Explicitly stated that the dividend policy for the current period is supported by the appropriate basis for the shareholders. Explicitly provided the overall policy on shareholder returns not only for the current period, but over the mid/long-term. 4 Others ( No response ) Comments (Most satisfied) It is desirable for companies to provide detailed explanations of their thoughts regarding the mid- to long-term total return ratio. (Least satisfied) When appropriation of retained earnings is deliberated by the board of directors, there are cases where the explanation of the dividend policy is insufficient. Investors expect adequate and clear explanations from companies. I am unable to locate the total annual dividend payments in the NOGMS when notes disclosure is available at the company s website. I definitely would like to see the mid- to long-term shareholder returns policy. (Opinions) We make an effort to create opportunities to have meetings with the management on a regular basis in order to obtain the most up-to-date information on the companies. Explanation on shareholder returns in relation to a capital policy is desirable. It would be useful if information on annual dividend payments, total annual dividend payments, dividend payout ratio, and DOE (dividend on equity ratio) is also provided. If the acquisition cost of treasury stock is provided as reference data, then it will be easier to assess the total return ratio and the rate of total distribution on net assets. We would expect companies to be able to demonstrate a solid understanding of cost of capital and a strategic plan for OVERALL capital management (including the optimal capital structure, capital expenditure and etc.), as well as sufficient explanations on efficient use of shareholder capital. 30

31 2-2. Important matters in the business report to evaluate agenda items of Shareholder meeting business progress and achievements is rated high in necessity level. (63%) Respondents note that they refer to business-related information and materials in the agenda item election of directors and appropriation of retained earnings. Concerning executive compensation-related information and materials, they refer to agenda items election of directors and executive compensation. (Survey Answer Options) (Survey Results) No response (For which agenda item(s) you refer to these options) Others includes: 9. Issues to be addressed: financial Information, organizational restructuring 10. Main business activities: financial information 31

32 2-2. Important matters in the business report to evaluate agenda items of Shareholder meeting Comments (Least satisfied) More detailed communication from management is necessary regarding business performance, achievements, and issues to be addressed. Companies should improve disclosures concerning outside directors. When going through many companies agenda items and making decisions, it is difficult if the information is almost identical to that in the earnings digest. Companies should strive harder to summarize information or utilize diagrams for the benefit of readers. 32

33 3. Important points regarding the methods of delivering shareholder meeting notices As for the information provision methods, institutional investors desire the prompt delivery of notices and appropriate responses to their inquiries. prompt delivery of notices is rated high. (63%) information in the notices is insufficient and cannot decide whether to approve proposals without referring to other materials and cannot utilize the annual report as a basis for exercising voting rights because the repot for the most recent fiscal year is not filed before or during the exercise period are seen as a problem. (Survey Answer Options) (Survey Results) 1 The NOGMS is not mailed in a timely manner. 2 Information in the NOGMS is insufficient and we cannot decide whether to approve proposals without referring to other materials. 3 Some or all of the information in the business report is available in digital form only. 4 We do not feel the company's enthusiasm to obtain shareholders' understanding because the explanation of agendas is the minimum necessary. 5 The NOGMS and the business report are separate. 6 We cannot obtain a proper response to our inquiry about the contents of the NOGMS. 7 We cannot download the NOGMS in PDF format from the company's website within a few days from the mailing date. 8 The uploaded NOGMS is separated into multiple PDF files and we cannot download them all at once. 9 The company does not participate in an electronic voting rights exercise platform. 10 An English version of the NOGMS is not available in a timely manner, available partially, or not available. 11 We cannot utilize the annual securities report as a basis for exercising voting rights because the report for the most recent fiscal year is not filed before or during the exercise period. 12 Others ( No response ) Comments 2 Least satisfied Unable to download the NOGMS from the company s website. Annual securities report is not filed during the exercise period for voting. 33

34 4. Important points regarding activities based on Japan s Stewardship Code Questions in this survey were designed as to the following chart to identify what institutional investors expect from companies in terms of their activities based on Japan s Stewardship Code. Degree of desire to require companies to disclose information Question (1)-1~(1)-4 The media of the provision and disclosure of information Disclosure of information Explanation from/ Dialogue with the CEO Ideal way to disclose the required information Question (1) -1~(1) -4 Agenda items and the degree of desire to ask for explanation from the CEO Question (2) Agenda items and the degree of desire to ask for direct dialogue with the CEO Question (3) 34

35 4. Important points regarding activities based on Japan s Stewardship Code (Outline) The survey analyzed the necessity level for the media of the information provision, i.e. disclosure, explanation from the CEO and direct dialogue with the CEO, in relation to each agenda item. (Scale of necessity level is as follows. 1.Mandatory, 2.Necessary, 3.Preffered, 4.Minimal; and 5.Not necessary. The figure indicated below is an average score. The smaller the figure, the greater the importance.) Compared with the score of Q (1) and Q (2) and (3), if the latter is high (indicated ), the survey shows that institutional investors consider that disclosure is more adequate than explanation from the CEO or direct dialogue with the CEO (e.g. Matters related to IR). On the other hand, means that the survey shows tendencies of institutional investors seeking explanations and direct dialogues over disclosure (e.g. Making a commitment to achieve target ROE) Q(1) Degree of desire to require companies to disclose information Q(2) Agenda items and their degree of desire to ask for explanation from the CEO Q(3) Agenda items and their degree of desire to ask for direct dialogue with the CEO Measures towards the growth of corporate value (including achieving a higher ROE) Matters related to management strategies Seeking explanations and direct dialogues with CEO over disclosures Items Q(1) Q(2) Q(3) Views on equity/debt strategies and recognition of the impacts of the current financing and dividends on the shareholders' economic value 1.41 ( 1.55 ) ( 1.59 ) Making a commitment to achieve target ROE 1.75 ( 1.55 ) ( 1.72 ) Strategy for a higher ROE 1.39 ( 1.39 ) ( 1.52 ) Progress on the strategy mentioned above 1.49 ( 1.53 ) ( 1.66 ) Policies of dividend payments and stock repurchases 1.42 ( 1.52 ) ( 1.58 ) Future policy for strategic-holding stocks 1.89 ( 1.81 ) ( 1.95 ) Mid/long-term management strategies 1.28 ( 1.22 ) ( 1.28 ) Recognition of the current circumstances related to the management strategies mentioned above and 1.33 ( 1.30 ) ( 1.39 ) future actions Awareness of future competitive environment, such as industry trends, and company's own efforts 1.56 ( 1.47 ) ( 1.50 ) against it Basic policy for business portfolio, such as rules for withdrawing from unprofitable businesses 1.64 ( 1.44 ) ( 1.49 ) Future business portfolio strategy 1.50 ( 1.44 ) ( 1.52 ) Company's stance on industry reorganization and M&A 1.80 ( 1.55 ) ( 1.66 ) 35

36 4. Important points regarding activities based on Japan s Stewardship Code (Outline) Items Q(1) Q(2) Q(3) Matters related to IR Matters concerning management risks Matters related to environment, society, and governance (ESG) Corporate governance systems, such as members of the Board of Directors Stance on information disclosure 1.88 ( 2.08 ) ( 2.16 ) Earnings forecasts 1.80 ( 2.11 ) ( 2.22 ) Fundamental framework for risk management 1.92 ( 2.15 ) ( 2.19 ) Internal control system 1.86 ( 2.11 ) ( 2.21 ) Measures to enhance the authenticity of financial reports 2.27 ( 2.41 ) ( 2.39 ) Fraud prevention measures for employees 2.25 ( 2.41 ) ( 2.33 ) Efforts toward environmental matters 2.30 ( 2.30 ) ( 2.31 ) Issues related to society 2.31 ( 2.27 ) ( 2.28 ) Efforts for "diversity" 2.33 ( 2.33 ) ( 2.30 ) Issues related to other ESG 2.33 ( 2.36 ) ( 2.35 ) Whether there are (independent) outside directors or not, and reasons for that 1.42 ( 1.88 ) ( 1.88 ) Reasons for appointment of (independent) outside directors and their roles 1.45 ( 1.95 ) ( 1.92 ) Concurrent positions held by outside directors 1.78 ( 2.28 ) ( 2.22 ) Criteria for Independence of outside directors 1.66 ( 2.20 ) ( 2.16 ) System to support the activities of outside directors 2.08 ( 2.34 ) ( 2.27 ) Status of activities of (independent) outside directors 1.61 ( 2.10 ) ( 2.02 ) Reasons for the adoption of the current organizational framework from several options, such as being a company with committees, a company with Audit & Supervisory Board 1.94 ( 2.20 ) ( 2.11 ) Member, or a company with an audit committee, and policies going forward 36

37 . Survey Results 4. Important points regarding activities based on Japan s Stewardship Code (Outline) Items Q(1) Q(2) Q(3) Corporate governance systems, such as members of the Board of Directors Matters related to the CEO Matters related to incentive plans for directors Matters concerning takeover defense measures Status of activities of the Audit & Supervisory Board 1.86 ( 2.17 ) ( 2.14 ) Status of activities of Audit & supervisory Board Members at the board of directors meeting 1.84 ( 2.22 ) ( 2.19 ) Members and their roles in committees 2.03 ( 2.20 ) ( 2.24 ) Status of activities of each committee 2.05 ( 2.33 ) ( 2.24 ) Criteria for appointment of (inside/outside) directors and training programs 2.11 ( 2.34 ) ( 2.28 ) Principle of "diversity" and effectiveness of directors (e.g. a scale of activities involved and backgrounds) 2.03 ( 2.19 ) ( 2.20 ) System which does not impair the interests of shareholders, such as a system to manage conflicts of interest in related-party transactions ( 2.13 ) ( 2.16 ) Leadership and authority of CEO 1.64 ( 1.75 ) ( 1.81 ) Policy for the appointment of CEO 1.78 ( 1.88 ) ( 1.92 ) Succession plan and training plan 1.91 ( 1.86 ) ( 1.89 ) Criteria for appointment of directors and training programs 2.06 ( 2.13 ) ( 2.08 ) Rules for executive compensation (basis for calculation) 1.89 ( 2.16 ) ( 2.11 ) Rules for executive compensation (decisionmaker) 1.99 ( 2.17 ) ( 2.06 ) Disclosure of compensation for each director 2.44 ( 2.15 ) ( 2.04 ) Necessity of takeover defense measures 1.43 ( 1.66 ) ( 1.74 ) Scheme for takeover defense measures 1.46 ( 1.86 ) ( 1.92 ) 37

38 4. Important points regarding activities based on Japan s Stewardship Code The result shows a strong tendency to request direct dialogue with the management ( CEO ) or explanations from the CEO him/herself regarding measures towards the growth of corporate value (including achieving a higher ROE) and matters related to management strategies. While other items (matters relating to IR; management risks; environment, society, and governance (ESG); corporate governance systems, such as members of the Board of Directors; the CEO; incentive plans for directors; and takeover defense measures) are still considered important, the survey reveals that disclosure is considered more important for these items. (1) Information that investors prefer disclosure to direct dialogue/explanation (Overview) Measures towards the growth of corporate value (including achieving a higher ROE), matters related to management strategies, and matters concerning takeover defense measures are highly desired for information disclosure. Matters related to the growth of corporate value and management strategies As to the growth of corporate value, a high proportion of respondents regard views on equity/debt strategies and recognition of the impacts of the current financing and dividends on the shareholders' economic value, strategy for a higher ROE, progress on the strategy for a higher ROE, and policies of dividend payments and stock repurchases as important. As to management strategies, a high proportion of respondents view mid/long-term management strategies and recognition of the current circumstances related to the management strategies mentioned above and future actions as important. Matters related to IR, management risks, and ESG Among relevant items, a relatively high proportion of respondents place emphasis on stance on information disclosure and earnings forecasts regarding matters related to IR. Corporate governance systems, such as members of the Board of Directors Respondents put a high degree of emphasis on whether there are (independent) outside directors or not, and reasons for that and reasons for appointment of (independent) outside directors and their roles. Matters related to CEO, incentive plans for directors, and takeover defense measures Among these items, respondents put a high degree of emphasis on necessity of takeover defense measures and scheme for takeover defense measures related to matters concerning takeover defense measures. 38

39 4. Important points regarding activities based on Japan s Stewardship Code (1)-1 Degree of desire to require companies to disclose (corporate value and management strategies) Matters related to the growth of corporate value and management strategies As to the growth of corporate value, a high proportion of respondents regard Views on equity/debt strategies and recognition of the impacts of the current financing and dividends on the shareholders' economic value, strategy for a higher ROE, progress on the strategy for a higher ROE, and policies of dividend payments and stock repurchases as important. As to management strategies, a high proportion of respondents view mid/long-term management strategies and recognition of the current circumstances related to the management strategies mentioned above and future actions as important. (Survey Answer Options) 1. Views on equity/debt strategies and recognition of the impacts of the current financing and dividends on the shareholders' economic value (Survey Results) 2. Making a commitment to achieve target ROE Measures towards the growth of corporate value (including achieving a higher ROE) 3. Strategy for a higher ROE 4. Progress on the strategy mentioned above 5. Policies of dividend payments and stock repurchases 6. Future policy for strategic-holding stocks 7. Mid/long-term management strategies 8. Recognition of the current circumstances related to the management strategies mentioned above and future actions Matters related to management strategies 9. Awareness of future competitive environment, such as industry trends, and company's own efforts against it 10. Basic policy for business portfolio, such as rules for withdrawing from unprofitable businesses 11. Future business portfolio strategy 12. Company's stance on industry reorganization and M&A 39

40 4. Important points regarding activities based on Japan s Stewardship Code (1) -1 Media of the provision and disclosure of information (corporate value and management strategies) Matters related to the growth of corporate value and management strategies The survey shows tendencies that not only disclosure by business report but also by other materials such as annual report and others are appropriate. (Appropriate Disclosure Medium) (Survey Answer Options) 1. Views on equity/debt strategies and recognition of the impacts of the current financing and dividends on the shareholders' economic value 2. Making a commitment to achieve target ROE Measures towards the growth of corporate value (including achieving a higher ROE) 3. Strategy for a higher ROE 4. Progress on the strategy mentioned above 5. Policies of dividend payments and stock repurchases 6. Future policy for strategic-holding stocks (Breakdown of Others) 7. Mid/long-term management strategies Matters related to management strategies 8. Recognition of the current circumstances related to the management strategies mentioned above and future actions 9. Awareness of future competitive environment, such as industry trends, and company's own efforts against it 10. Basic policy for business portfolio, such as rules for withdrawing from unprofitable businesses 11. Future business portfolio strategy Other reports include: Annual Securities Report IR materials Integrated Report 12. Company's stance on industry reorganization and M&A 40

41 4. Important points regarding activities based on Japan s Stewardship Code (1)-2 Degree of desire to require companies to disclose (IR, management risks and ESG) Matters related to IR, management risks, and ESG Among these items, a relatively high proportion of respondents place emphasis on stance on information disclosure and earnings forecasts regarding matters related to IR. (Survey Answer Options) (Survey Results) Matters related to IR 1. Stance on information disclosure 2. Earnings forecasts 3. Fundamental framework for risk management Matters concerning management risks 4. Internal control system 5. Measures to enhance the authenticity of financial reports 6. Fraud prevention measures for employees 7. Efforts toward environmental matters Matters related to environment, society, and governance (ESG) 8. Issues related to society 9. Efforts for "diversity" 10. Issues related to other ESG 41

42 . Survey Results 4. Important points regarding activities based on Japan s Stewardship Code (1) -2 Media of the provision and disclosure of information (IR, management risks and ESG) Matters related to IR, management risks, and ESG As for matters concerning management risks, degree of desire is high in disclosed by annual report, corporate governance report and others than by business report. As for matters related to ESG, degree of desire is high in disclosed by annual report than business repot. (Appropriate Disclosure Medium) (Survey Answer Options) Matters related to IR 1. Stance on information disclosure 2. Earnings forecasts Matters concerning management risks 3. Fundamental framework for risk management 4. Internal control system 5. Measures to enhance the authenticity of financial reports 6. Fraud prevention measures for employees (Breakdown of Others) Matters related to environment, society, and governance (ESG) 7. Efforts toward environmental matters 8. Issues related to society 9. Efforts for "diversity" 10. Issues related to other ESG Other reports include: Earnings Announcement Sustainability Report Annual Securities Report IR materials Integrated Report No preference 42

43 4. Important points regarding activities based on Japan s Stewardship Code (1)-3 Degree of desire to require companies to disclose (Corporate governance system, such as members of the Board of Directors) Corporate governance systems, such as members of the Board of Directors Respondents put a high degree of emphasis on whether there are (independent) outside directors or not, and reasons for that and reasons for appointment of (independent) outside directors and their roles. (Survey Answer Options) (Survey Results) Corporate governance systems, such as members of the Board of Directors 1. Whether there are (independent) outside directors or not, and reasons for that 2. Reasons for appointment of (independent) outside directors and their roles 3. Concurrent positions held by outside directors 4. Criteria for Independence of outside directors 5. System to support the activities of outside directors 6. Status of activities of (independent) outside directors 7. Reasons for the adoption of the current organizational framework from several options, such as being a company with committees, a company with Audit & Supervisory Board Member, or a company with an audit committee, and policies going forward 8. Status of activities of the Audit & Supervisory Board 9. Status of activities of Audit & supervisory Board Members at the board of directors meeting 10. Members and their roles in committees 11. Status of activities of each committee 12. Criteria for appointment of (inside/outside) directors and training programs 13. Principle of "diversity" and effectiveness of directors (e.g. a scale of activities involved and backgrounds) 14. System which does not impair the interests of shareholders, such as a system to manage conflicts of interest in related-party transactions. 43

44 4. Important points regarding activities based on Japan s Stewardship Code (1) -3 Media of the provision and disclosure of information (Corporate governance system, such as members of the Board of Directors) Corporate governance systems, such as members of the Board of Directors Survey shows tendencies not only the disclosure by business report but also by corporate governance report and others are appropriate. (Appropriate Disclosure Medium) (Survey Answer Options) Corporate governance systems, such as members of the Board of Directors 1. Whether there are (independent) outside directors or not, and reasons for that 2. Reasons for appointment of (independent) outside directors and their roles 3. Concurrent positions held by outside directors 4. Criteria for Independence of outside directors 5. System to support the activities of outside directors 6. Status of activities of (independent) outside directors 7. Reasons for the adoption of the current organizational framework from several options, such as being a company with committees, a company with Audit & Supervisory Board Member, or a company with an audit committee, and policies going forward 8. Status of activities of the Audit & Supervisory Board 9. Status of activities of Audit & supervisory Board Members at the board of directors meeting 10. Members and their roles in committees 11. Status of activities of each committee 12. Criteria for appointment of (inside/outside) directors and training programs 13. Principle of "diversity" and effectiveness of directors (e.g. a scale of activities involved and backgrounds) 14. System which does not impair the interests of shareholders, such as a system to manage conflicts of interest in related-party transactions. (Breakdown of Others) Other reports include: Annual Securities Report IR materials Integrated Report In addition to the business report, disclose the information in an annual report or an integrated report. 44

45 4. Important points regarding activities based on Japan s Stewardship Code (1)-4 Degree of desire to require companies to disclose (CEO, incentive plan for directors and takeover defense measures) Matters related to CEO, incentive plans for directors, and takeover defense measures Among these items, respondents put a high degree of emphasis on necessity of takeover defense measures and scheme for takeover defense measures related to matters concerning takeover defense measures. (Survey Answer Options) (Survey Results) 1. Leadership and authority of CEO Matters related to the CEO 2. Policy for the appointment of CEO 3. Succession plan and training plan 4. Criteria for appointment of directors and training programs Matters related to incentive plans for directors 5. Rules for executive compensation (basis for calculation) 6. Rules for executive compensation (decision-maker) 7. Disclosure of compensation for each director Matters concerning takeover defense measures 8. Necessity of takeover defense measures 9. Scheme for takeover defense measures 45

46 4. Important points regarding activities based on Japan s Stewardship Code (1) -4 Media of the provision and disclosure of information (CEO, incentive plan for directors and takeover defense measures) Matters related to CEO, incentive plans for directors, and takeover defense measures As for matters related to CEO, respondents put high degree of emphasis in disclosure by annual report than business report. As for matters related to incentive plans for directors, not only the disclosure by business report but also annual report, corporate governance report and others are appropriate. As for matters related to takeover defense measures, respondents put high degree of emphasis in disclosure by business report. (Survey Answer Options) (Appropriate Disclosure Medium) (Breakdown of Others) 1. Leadership and authority of CEO Matters related to the CEO 2. Policy for the appointment of CEO 3. Succession plan and training plan 4. Criteria for appointment of directors and training programs Matters related to incentive plans for directors 5. Rules for executive compensation (basis for calculation) 6. Rules for executive compensation (decision-maker) 7. Disclosure of compensation for each director Matters concerning takeover defense measures 8. Necessity of takeover defense measures 9. Scheme for takeover defense measures Other reports include: Annual Securities Report IR materials Integrated Report In addition to the business report, disclose the information in an annual report or an integrated report. 46

47 4. Important points regarding activities based on Japan s Stewardship Code (Details) (2) Agenda items and their degree of desire to ask for explanation from the CEO Overall, respondents were more likely to focus on measures towards the growth of corporate value (including achieving a higher ROE) and matters related to management strategies. Matters related to the growth of corporate value and management strategies A high proportion of respondents focus on mid/long-term management strategies and recognition of the current circumstances related to the mid/long-term management strategies and future actions. Matters related to IR, management risks, and ESG A low proportion of respondents reply that they would like to ask for an explanation of these matters from the CEO him/herself. Corporate governance systems, such as members of the Board of Directors A low proportion of respondents reply that they would like to ask for an explanation of these matters from the CEO him/herself. Matters related to CEO, incentive plans for directors, and takeover defense measures A low proportion of respondents reply that they would like to ask for an explanation of these matters from the CEO him/herself. 47

48 4. Important points regarding activities based on Japan s Stewardship Code (2) -1 Agenda items and their degree of desire to ask for explanation from the CEO (corporate value and management strategies) Matters related to the growth of corporate value and management strategies A high proportion of respondents focus on mid/long-term management strategies and recognition of the current circumstances related to the mid/long-term management strategies and future actions. (83%, 73% respectively) (Survey Answer Options) (Survey Results) 1. Views on equity/debt strategies and recognition of the impacts of the current financing and dividends on the shareholders' economic value 2. Making a commitment to achieve target ROE Measures towards the growth of corporate value (including achieving a higher ROE) 3. Strategy for a higher ROE 4. Progress on the strategy mentioned above 5. Policies of dividend payments and stock repurchases 6. Future policy for strategic-holding stocks 7. Mid/long-term management strategies 8. Recognition of the current circumstances related to the management strategies mentioned above and future actions Matters related to management strategies 9. Awareness of future competitive environment, such as industry trends, and company's own efforts against it 10. Basic policy for business portfolio, such as rules for withdrawing from unprofitable businesses 11. Future business portfolio strategy 12. Company's stance on industry reorganization and M&A 48

49 4. Important points regarding activities based on Japan s Stewardship Code (2) -2 Agenda items and their degree of desire to ask for explanation from the CEO (IR, management risks and ESG) Matters related to IR, management risks, and ESG Relatively high proportion of respondents focus on earnings forecast. (37%) (Survey Answer Options) (Survey Results) Matters related to IR 1. Stance on information disclosure 2. Earnings forecasts 3. Fundamental framework for risk management Matters concerning management risks 4. Internal control system 5. Measures to enhance the authenticity of financial reports 6. Fraud prevention measures for employees 7. Efforts toward environmental matters Matters related to environment, society, and governance (ESG) 8. Issues related to society 9. Efforts for "diversity" 10. Issues related to other ESG 49

50 4. Important points regarding activities based on Japan s Stewardship Code (2) -3 Agenda items and their degree of desire to ask for explanation from the CEO (Corporate governance system, such as members of the Board of Directors) Corporate governance systems, such as members of the Board of Directors Relatively high proportion of respondents focus on reasons for appointment of (independent) outside directors and their roles. (37%) (Survey Answer Options) (Survey Results) Corporate governance systems, such as members of the Board of Directors 1. Whether there are (independent) outside directors or not, and reasons for that 2. Reasons for appointment of (independent) outside directors and their roles 3. Concurrent positions held by outside directors 4. Criteria for Independence of outside directors 5. System to support the activities of outside directors 6. Status of activities of (independent) outside directors 7. Reasons for the adoption of the current organizational framework from several options, such as being a company with committees, a company with Audit & Supervisory Board Member, or a company with an audit committee, and policies going forward 8. Status of activities of the Audit & Supervisory Board 9. Status of activities of Audit & supervisory Board Members at the board of directors meeting 10. Members and their roles in committees 11. Status of activities of each committee 12. Criteria for appointment of (inside/outside) directors and training programs 13. Principle of "diversity" and effectiveness of directors (e.g. a scale of activities involved and backgrounds) 14. System which does not impair the interests of shareholders, such as a system to manage conflicts of interest in related-party transactions. 50

51 4. Important points regarding activities based on Japan s Stewardship Code (2) -4 Agenda items and their degree of desire to ask for explanation from the CEO (CEO, incentive plan for directors and takeover defense measures) Matters related to CEO, incentive plans for directors, and takeover defense measures Relatively high proportion of respondents focus on leadership and authority of CEO. (53%) (Survey Answer Options) (Survey Results) 1. Leadership and authority of CEO Matters related to the CEO 2. Policy for the appointment of CEO 3. Succession plan and training plan 4. Criteria for appointment of directors and training programs Matters related to incentive plans for directors 5. Rules for executive compensation (basis for calculation) 6. Rules for executive compensation (decision-maker) 7. Disclosure of compensation for each director Matters concerning takeover defense measures 8. Necessity of takeover defense measures 9. Scheme for takeover defense measures 51

52 4. Important points regarding activities based on Japan s Stewardship Code (Details) (3) Agenda items and their degree of desire to ask for direct dialogue with the CEO Overall, respondents were more likely to focus on measures towards the growth of corporate value (including achieving a higher ROE) and matters related to management strategies. Matters related to the growth of corporate value and management strategies A high proportion of respondents focus on views on equity/debt strategies and recognition of the impacts of the current financing and dividends on the shareholders' economic value, strategy for a higher ROE, Policies of dividend payments and stock repurchases, mid/long-term management strategies, and recognition of the current circumstances related to the mid/long-term management strategies and future actions. Matters related to IR, management risks, and ESG A low proportion of respondents reply that they would like to ask for an explanation of these matters from the CEO him/herself. Corporate governance systems, such as members of the Board of Directors A low proportion of respondents reply that they would like to ask for an explanation of these matters from the CEO him/herself. Matters related to CEO, incentive plans for directors, and takeover defense measures A low proportion of respondents reply that they would like to ask for an explanation of these matters from the CEO him/herself. 52

53 4. Important points regarding activities based on Japan s Stewardship Code (3) Agenda items and their degree of desire to ask for direct dialogue with the CEO (corporate value and management strategies) Matters related to the growth of corporate value and management strategies A high proportion of respondents focus on Policies of dividend payments and stock repurchases and recognition of the current circumstances related to the mid/long-term management strategies and future actions. (71%, both) (Survey Answer Options) (Survey Results) 1. Views on equity/debt strategies and recognition of the impacts of the current financing and dividends on the shareholders' economic value 2. Making a commitment to achieve target ROE Measures towards the growth of corporate value (including achieving a higher ROE) 3. Strategy for a higher ROE 4. Progress on the strategy mentioned above 5. Policies of dividend payments and stock repurchases 6. Future policy for strategic-holding stocks 7. Mid/long-term management strategies 8. Recognition of the current circumstances related to the management strategies mentioned above and future actions Matters related to management strategies 9. Awareness of future competitive environment, such as industry trends, and company's own efforts against it 10. Basic policy for business portfolio, such as rules for withdrawing from unprofitable businesses 11. Future business portfolio strategy 12. Company's stance on industry reorganization and M&A 53

54 4. Important points regarding activities based on Japan s Stewardship Code (3) Agenda items and their degree of desire to ask for direct dialogue with the CEO (IR, management risks and ESG) Matters related to IR, management risks, and ESG Though a low proportion of respondents reply that they would like to ask for an explanation of these matters from the CEO, among these matters earnings forecasts is the highest. (30%) (Survey Answer Options) (Survey Results) Matters related to IR 1. Stance on information disclosure 2. Earnings forecasts 3. Fundamental framework for risk management Matters concerning management risks 4. Internal control system 5. Measures to enhance the authenticity of financial reports 6. Fraud prevention measures for employees 7. Efforts toward environmental matters Matters related to environment, society, and governance (ESG) 8. Issues related to society 9. Efforts for "diversity" 10. Issues related to other ESG 54

55 4. Important points regarding activities based on Japan s Stewardship Code (3) Agenda items and their degree of desire to ask for direct dialogue with the CEO (Corporate governance system, such as members of the Board of Directors) Matters related to Corporate governance system, such as members of the Board of Directors Though a low proportion of respondents reply that they would like to ask for an explanation of these matters from the CEO, among these matters whether there are (independent) outside directors or not, and reasons for that is the highest. (47%) (Survey Answer Options) (Survey Results) Corporate governance systems, such as members of the Board of Directors 1. Whether there are (independent) outside directors or not, and reasons for that 2. Reasons for appointment of (independent) outside directors and their roles 3. Concurrent positions held by outside directors 4. Criteria for Independence of outside directors 5. System to support the activities of outside directors 6. Status of activities of (independent) outside directors 7. Reasons for the adoption of the current organizational framework from several options, such as being a company with committees, a company with Audit & Supervisory Board Member, or a company with an audit committee, and policies going forward 8. Status of activities of the Audit & Supervisory Board 9. Status of activities of Audit & supervisory Board Members at the board of directors meeting 10. Members and their roles in committees 11. Status of activities of each committee 12. Criteria for appointment of (inside/outside) directors and training programs 13. Principle of "diversity" and effectiveness of directors (e.g. a scale of activities involved and backgrounds) 14. System which does not impair the interests of shareholders, such as a system to manage conflicts of interest in related-party transactions. 55