February 4, 2023

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Fuji soft proxy fight against Japan Inc board’s latest test of independence from Reuters

¬©Reuters. FILE PHOTO: Japanese national flags flutter in front of buildings in Tokyo’s central business district, Japan February 22, 2016. Growth in Japan’s manufacturing activity slowed sharply in February as new export orders fell at a sharpest rate in three years

By Makiko Yamazaki

TOKYO (Reuters) – Singapore-based hedge fund 3D Investment Partners on Sunday brought two of its nominees to the board of software developer Fuji Soft Inc. in the latest proxy fight by activist investors seeking more independent oversight of Japanese companies.

Three rows in recent months have called into question just how independent Japan’s outside board members really are after nearly a decade of governance reform has greatly increased the number of independent directors.

Governance experts say outside directors are only nominally independent if they have close ties to management or do not exercise adequate oversight.

3D, which owns more than 20% of Fuji Soft, nominated four more members to the company’s nine-member board at Sunday’s extraordinary shareholders’ meeting, saying existing outside directors have failed to address years of inefficient capital allocation.

Fuji Soft has endorsed two fund candidates.

The Yokohama-based company defended its current board, telling Reuters in a statement that the independence of its outside directors “has been ensured without any conflict of interest with shareholders. They provided objective opinions and helped foster an active debate.”

3D sought an extraordinary shareholders’ meeting at Toshiba (OTC:) Corp this year to resume a strategic review of the conglomerate to consider options, including privatization.

Hong Kong-based Oasis Management asked Fujitec Co Ltd on Thursday to hold an extraordinary general meeting to dismiss all six incumbent external directors and appoint seven new directors nominated by the fund.

The elevator maker withdrew a proposal to re-elect its chief executive just an hour before its June shareholders meeting following revelations about real estate transactions involving his family. The board then appointed him unelected chairman.

Oasis, which owns 16.5% of Fujitec, said its board “decided to egregiously violate the most fundamental right of shareholders — the right to vote and hold directors accountable,” demonstrating a complete lack of independent counterbalancing power .

Fujitec declined to comment, saying the company has not yet confirmed the content of Oasis’ EGM request.


The Tokyo Stock Exchange says 92% of the roughly 1,800 companies in its prime segment define at least a third of their directors as independent. But it’s hard to judge their independence from management beyond a set of written criteria.

Governance experts say establishing a committee to nominate directors would help ensure such independence, but only 3.9% of top-tier companies have a statutory nominating committee where the majority of its members are outside directors have to.

Even such a committee may not ensure actual independence.

Tokyo-based firm Strategic Capital has requested an extraordinary general meeting at Japan Securities Finance Co (JSF) to conduct an independent investigation into the securities finance provider’s longstanding practice, calling on former officials of the Bank of Japan, the Ministry of Finance and the Tokyo Stock Exchange for positions to be nominated for top management and directorships.

The practice of senior government officials getting private sector jobs after retirement has long been criticized as a source of corruption in the Japanese bureaucracy.

JSF has a statutory nominating committee, but Strategic Capital said its inaction on the problematic practice shows the committee is dysfunctional.

The company said the appointments were made on the basis of the individuals’ qualifications.