TOKYO, April 23 Influential proxy advisory firm
Institutional Shareholder Services (ISS) said it is likely to
include return on equity to its voting guidelines for Japan next
year amid efforts to change a corporate culture long criticised
for neglecting shareholders.
Japan's government has been calling for more companies to
adopt outside board members and is promoting a stock index that
weighs ROE, in an attempt to lure more individual and foreign
investors to its equities market.
It has also launched a stewardship code aimed at holding
institutional investors more accountable and encouraging
communication between shareholders and corporate boards. Such
efforts also aim to diffuse tension between foreign investors
whose demands, for example to boost ROE, have often met with
stiff resistance from management.
"There was a time when ROE was associated with something
negative, such as demands from 'greedy' shareholders," Takeyuki
Ishida, executive director of ISS in Japan, told Reuters. "But
it's becoming something normal to talk about, less negative."
Ishida said a recent survey of clients found that most
believed it was a good idea to take ROE into account in their
voting on company directors.
"Our clients think it's good to incorporate, so we'd like to
do it. We haven't yet decided on details on how it could be
done, but it is something we want to do," he said.
ROE, which measures how efficient companies are at
generating earnings from shareholder equity, has historically
been low among Japanese companies. According to the Life
Insurance Association of Japan, the average ROE among listed
domestic companies, excluding the financial sector, is around 5
percent compared with more than 15 percent in the United States.
Some foreign investors say this is due in part to companies
prioritising the interests of employees and business partners
over those of shareholders.
Ishida said ISS was not changing its voting guidelines for
Japan this year, and would decide over the next several months
on how it could incorporate ROE into its guidelines from 2015.
(Reporting by Ritsuko Ando; Editing by Stephen Coates)