Home -> Law Blog Directory -> Corporate & Securities Law Blogs -> Institutional Shareholder Services -- Corporate Governance Blog

Corporate & Securities Law

: Institutional Shareholder Services -- Corporate Governance Blog

Japanese Investors Step Up Opposition to PillsSubmitted by: John Taylor, Japan Research Group

Corporate Japan may have a tougher time deploying ?poison pills? as opposition to the use of such defenses mounts. In the latest signal that financial market participants have grown wary of the use of pills, shareholders of the Japanese payroll management company Works Applications were able to halt management efforts to install the defense. In September, the company became the first known to RiskMetrics Group to drop a poison pill takeover defense plan from its annual meeting agenda, acknowledging that votes posted in advance of the meeting had ?fallen well short of anticipated support? for the measure.

Notably, the company sports just 15 percent foreign ownership, underscoring that domestic institutions are joining their foreign counterparts in opposing takeover defenses.

Works Applications? recent retreat received scant media attention in Japan beyond a brief article in the Sept. 23 on-line edition of business daily Nihon Keizai Shimbun. According to the article, management told shareholders at the company?s Sept. 24 annual meeting that it had decided not to seek renewal of the plan in view of the paucity of shareholder support. According to a company statement released on the eve of the meeting, the company had ?concluded that more careful study of the proposal content [was] required, and that it was resolved to delete these items from [the] annual meeting agenda.?

The move may be the latest manifestation of growing pushback to the growing prevalence of pills at Japanese companies. According to RiskMetrics data, more than 500 Japanese firms have adopted the defense since 2005 when legal experts deemed the defense to be legitimate under Japanese corporate law.

But by August 2007, Japan?s influential Ministry of Economy, Trade, and Industry began to publicly voice concerns over the use of pills. In its annual white paper on economic and finance issues, the agency singled out managements using pills as a means to entrench their positions, noting ?hostile takeovers can boost productivity and corporate value by removing inefficient executives and improving management (the efficiency effect on management).?

METI?s pronouncement, coupled with increasing skepticism of pill usage from Japan?s business press, officials at the Tokyo Stock Exchange, and others, has decidedly altered views on defenses and helped dampen a feared explosion of poison pill adoptions during Japan?s 2008 annual meeting season. Although shareholder approval is increasingly treated as a prerequisite, if not legal requirement, for pill deployments, the incident at Works Applications would suggest that pill adoptions will decline heading into 2009, and firms may be increasingly reluctant to seek plan renewals.

Full post as published by Institutional Shareholder Services -- Corporate Governance Blog on November 04, 2008 (boomark / email).