Japanese Financial Regulators To Come Up With Measures Increase Shareholder Engagement

According to a senior official, Japan's financial regulator plans to compile a "action programme" in the first half of this year, with a set of measures to promote deeper company engagement with investors and to enhance board capabilities.

The move comes as the Financial Services Agency (FSA) seeks to accelerate a corporate governance reform drive in order to encourage companies in the world's third-largest economy to use capital more efficiently.

With roughly half of Japan's listed companies still trading below book value, global investors want to see ongoing governance reform result in tangible improvements in corporate value.

"The last eight years of reform has boosted corporate governance nominally, in terms of the number of independent directors for instance," said Toshitake Inoue, deputy director-general of the FSA.

"But those changes have yet to be fully translated into higher corporate value," said Inoue, who is in charge of corporate governance at the FSA, speaking in an interview.

"Our next challenges include how to ensure effective dialogue between companies and investors to achieve higher corporate value."

The FSA's push coincides with plans announced by the Tokyo Stock Exchange last month to encourage companies with underperforming stocks to implement capital-efficiency measures.

He suggested that its action plan include clearer rules for allowing institutional investors to join forces to make joint proposals to companies without violating disclosure regulations.

Current regulations require investors who are deemed to be "acting in concert" to submit ownership disclosure filings. Some investors believe that ambiguity in the rules discourages shareholders from cooperating to improve corporate governance.

Inoue also stated that increased shareholder activism in Japan demonstrates global investors' interest in the Japanese market.

"It may be hard for companies being targeted, but from overall market perspectives, it's not necessarily a bad thing," he said.