Proposed Amendments to Japanese Shareholder Proposal Regulations
Introduction
The Japanese government is considering legislative revisions to increase the requirements for shareholders wishing to submit formal proposals, following requests from corporate entities and legislative bodies.
Main Body
The current regulatory framework permits the submission of shareholder proposals to individuals or entities that have maintained either 1% of voting rights or 300 voting units for a period of six months. Critics of the existing system contend that the 300-unit threshold has become insufficiently rigorous due to corporate stock splits and the reduction of minimum share lot sizes, which have lowered the financial barrier to entry. Consequently, a record 52 companies received activist proposals during June of the previous year, an increase from 46 in the preceding year, a trend attributed to corporate governance reforms initiated in the mid-2010s. In response to these developments, a parliamentary group within the ruling party intends to advise Prime Minister Sanae Takaichi on raising these thresholds and restricting proposals concerning business execution. A Justice Ministry advisory panel has proposed two primary options for the revision of the Companies Act: the total elimination of the unit-based criterion in favor of a strict 1% voting rights requirement, or an increase in the 300-unit minimum. While some business lobbies have advocated for a higher threshold of 5% or further limitations on execution-related proposals, these specific measures are not currently under review by the advisory panel. Stakeholder perspectives on these proposed changes are divided. Representatives of certain investment firms, such as Maso Capital, suggest that restricting shareholder engagement may impede corporate reform. Conversely, analysts from the Daiwa Institute of Research posit that the removal of the unit-based rule would primarily affect individual investors rather than institutional activists, who typically hold more than 1% of target companies. This tension is exemplified by recent activity, such as Palliser Capital's investment in SMC Corp and its request for a $3.8 billion share buyback. From a policy perspective, the Takaichi administration is attempting to balance the attraction of foreign capital with the promotion of long-term domestic growth. Prime Minister Takaichi has previously indicated that there has been a disproportionate emphasis on shareholder returns. The administration's current objective is to encourage the allocation of corporate resources toward wage increases, human capital, and new business ventures rather than exclusively toward short-term investor demands.
Conclusion
The Japanese Justice Ministry is currently soliciting public feedback before introducing a bill to parliament next year to modify the Companies Act and tighten shareholder proposal eligibility.