Japan’s General Meetings under the novel COVID-19 pandemic

Under the current novel coronavirus pandemic, the government of Japan has cautioned members of the public to avoid the "Three Cs" for preventing COVID-19 safety measures: Closed spaces, crowded places and close-contact settings.

General Meeting of shareholders each year are typically held under these circumstances involving all "three Cs", and therefore poses a challenge to hold them in the usual way in Japan, as well as in other countries. In Japan, the majority (about 66%) of listed companies have their fiscal year ending in March 31st, and hence this population are expected to hold AGMs by the end of June, which is why it's pressing issue.

Regulators have announced various guidelines to adjust normal general meetings:

• The Ministry of Economy, Trade and Industry (METI) released guidance on how to hold hybrid-virtual shareholder meetings on February 26th. It introduced two types of hybrid-virtual meetings:
  - "Participation Type" on which watching shareholders on-line cannot vote or ask questions during it is being held (should vote in advance), and
  - "Attendance Type" on which shareholders can vote and/or ask questions on-line during it is being held.

At the above guidance, based on the reply by the Ministry of Justice (MOJ) at Kokkai, the Japanese National Diet in 2018, METI explained that a virtual-only shareholders meeting is regarded not to be permissible under the current Companies Act, because the act requires to fix the "place" of the meetings while a virtual-only meeting cannot fix it. To date, the only case so far of an attendance-type virtual shareholder meeting was held by Fujisoft Incorporated in March. Some companies broadcasted their shareholder meetings to the public through their websites.

Fully virtual AGMs are now possible
However, in the "questions and answers regarding the operation of shareholders meetings[1]" released on April 2nd (revised on April 14th), METI and MOJ jointly declared that "it is possible to limit the number of shareholders" who come and attend onsite at venues. As a result, a general meeting with virtually no shareholder physically present at venues seems feasible in the current situation. Combined with the pre-released set of safety measures on hybrid-virtual shareholder meetings, it is regarded that fully virtual meetings can practically be held. Other answers in the Q&A include:

• Companies can suggest shareholders not to come and attend to the venue to prevent novel coronavirus outbreaks in the notices of convocations,
• Companies can require shareholders pre-registration to attend,
• Companies can reject attendance of shareholders with fever, and
• Companies can shorten the time spent on procedural steps at general meetings.

Another solution could be deferments of AGMs - but most companies are reluctant to do so. Under the current laws and regulations, it is possible to defer the timing of AGMs by changing the record date for AGM from March 31st to a later date. However, if dividends are to be resolved at AGM, the shareholders at March 31st are not eligible to receive dividend payment, which is generally expected. It should be noted that some companies can give authorization of dividend resolution to the board of directors. Such companies are able to defer the timing of AGMs while accepting shareholders (as at March 31st) be eligible for dividend distribution

Additionally, the Tokyo Stock Exchange released it's findings of a recent survey covering shareholder meetings of companies[2] on April 7th. It found the following:

• 1.4% of the companies are considering holding hybrid-virtual AGM (Attendance Type),
• 5.6% are considering hybrid-virtual AGM (Participation Type),
• 5.6% are considering deferring AGMs to July or later.

DIP Corporation, for example, has announced to defer its AGM to July 29th. The February-end-FY company will allow the shareholders on February 29th to be eligible to receive dividends by the resolution of board of directors. Toshiba Corporation also announced the deferment of AGM by mid-August as well as the postponement of the announcement of consolidated financial results.

Neither a hybrid-AGM nor delay will impact voting behaviours of institutional investors, as far as enough information is provided from companies during these times. They generally vote in advance of AGMs, via proxy and through the interational clearing systems as custodians as well as Broadridge or ISS. Institutional investors who expect to physically attend them are usually very limited.

Challenging Outlook
However, there is another challenge under the novel coronavirus pandemic, namely the completion of audited financial statements. Many companies have difficulties to close accounts and make financial statements completed and audited. Particularly those with foreign subsidiaries have problems, because many of their office locations are on lockdown now.

Under the circumstances, the Financial Services Agency (FSA) announced that it will extend the filing deadline[3] of annual and quarterly securities reports (Yukashoken-Hokokusho) to the end of September on April 14th and released the guideline on Corporate Year-End Closing of Accounts, Auditing and Shareholders meeting in Response to the Increasing Impact of COVID-on April 15th.

Issuers would be able to hold AGMs in 2020 without audited financial statements being provided to the market under the interim guidelines. However, it could significantly influence the voting behavior of institutional investors, because many of them make decisions on voting for Japanese companies depending on financial performances (mainly return on equity) in addition to corporate governance factors.

Recommendations
The global IHS Markit M&A and Corporate Governance team, is closely monitoring the developments and trends in the market, with ongoing interactions with all stakeholders including institutional investors, proxy advisors as ISS, Glass Lewis and others, as well as third-party research providers, custodians and obviously companies. While the current COVID-19 situation is an unprecedented crisis, the capital markets participants have an interest to support companies, while trying to make sure corporate governance standards are met. In order to comply with current market requirements and best practice standards, our team recommends the following

• Keep disclosing timely,full and fair information to the public as well as to investors.
• A virtual AGM could be a good solution. If you consider it, ensure that shareholders can exercise their rights and have a means of communication with you and the board
• If the announcement of financial reports were postponed, consider deferring AGM rather than holding it by June with a "following meeting" on a later date, to help decide investors' voting behaviour based on the financial results.
• Be courageous enough to defer your AGM schedule.
• Consider not only your own AGM date, but also the AGM calendar when setting a new AGM date. Give investors a chance to participate and vote.
• Be proactive in communicating to your investors and proxy advisors, both in disclosing information about your AGM intentions, as well as financial resuls and dividends

We will continue to monitor the developing trends in the market, both from the lens of investors as well as issuers over the next weeks and update readers in our regular ongoing Market-Perspective research pieces. If you have any questions, please do not hesitate to contact us directly below.

Market Research by the IHS Markit M&A and Corporate Governance Advisory team.

Contacts:
Kazuhiko Tahara, CFA, kazuhiko.tahara@ihsmarkit.com,
Principal Advisor, Japan Office, ESG, M&A and Corporate Governance Advisory
Andreas Posavac, MBA, andreas.posavac@ihsmarkit.com,
Global Head of ESG, M&A and Corporate Governance Advisory

[1] Source: https://www.meti.go.jp/covid-19/kabunushi_sokai_qa.html
[2] March - FY-end 2020, tentative version
[3] Source: https://www.fsa.go.jp/en/ordinary/coronavirus202001/20200415.html