Putting rights in reverse -- where Japan is heading on Companies Act changes

The battle lines are being drawn in Japan for the next phase of corporate governance and company law reform. Mid-May was the final date for submissions on a newly revised Japan Corporate Governance Code that will likely reduce the quantity, and quality, of disclosure to investors. Then May 22 brought the deadline for comments on proposals from the Ministry of Justice (MOJ) for significant changes to the Companies Act around the issuance of shares, shareholder meetings, and corporate governance.

While some of the proposals are a step forward for investors, the dominant tone is one of constraining shareholder rights in the name of reducing business costs and enhancing corporate competitiveness. This effort emanates from an emerging backlash among powerful vested interests and some politicians to increasing shareholder activism in Japan. Yet there is a risk that ill-conceived changes could undermine the governance gains of the past decade and erode belief in the Japan investment story.

Of the more than a dozen proposals in the wide-ranging consultation, investors should be most worried about ideas to “streamline” shareholder meetings. Top of this list is a proposal that could effectively exclude retail investors, civil society groups and institutional investors with holdings of less than 1% from putting forward shareholder resolutions. This would stop a majority of new proposals in their tracks.

Close behind is a surprising suggestion that companies be allowed to suspend the voting rights of large owners who do not disclose their holdings—an idea that undermines an otherwise useful set of reforms to improve the transparency of beneficial ownership.

Shareholders who choose to attend annual meetings could lose their right to vote in meetings thanks to a proposal allowing the pre-adoption of resolutions already approved in advance.

A material change is also envisaged to the typical two-step privatisation process whereby an EGM needs to be held to approve a squeeze-out following a tender offer.

And fully virtual AGMs could become institutionalised, taking away the ability of shareholders to interact with directors and management in person.

These proposals are still in draft form and will be further discussed in the MOJ’s Legislative Council Subcommittee on Company Law. The subcommittee comprises 20 selected representatives from the MOJ, Tokyo Stock Exchange, academia, investment management, banks, and the corporate world. It held 12 meetings between April 2025 and March 2026 before producing an “Interim Proposal on the Review of the Companies Act” in mid-March. This was followed by a detailed supplementary consultation document in April. It heard further submissions in April from business associations representing fintech, securities dealers, and auditors. Then met again at the end of May to start reviewing the consultation responses.

Political logic

Before analysing the specifics of the amendments, it is worth trying to answer why this is happening.

From a public-equity investor perspective, many of these ideas seem misguided and poorly timed. Hasn’t the governance reform of the past decade laid the basis for the recovery in corporate and stock market vitality? Aren’t Japanese companies better governed today, with more independent boards and improved disclosure, than in the past? Isn’t the Tokyo Stock Exchange (TSE) immensely proud of what it has achieved since March 2023 with its program to push issuers to take capital management and profitability more seriously? In fact, in late April 2026 it issued an update to this plan.

This viewpoint is reinforced by a presentation from the TSE in February 2026 that began with a “wall of fame” outlining Japan’s key CG and corporate successes. Over the past one to two years, for example, the country has achieved record highs in share indices, sales of cross-shareholdings, and shareholder returns. A key metric that is the focus of the TSE capital management reforms—the price-to-book ratio (PBR)—has risen from an average of 1.2 times for all Prime Market companies in May 2023 to 1.6 today. True, the TSE’s efforts to slim down the Prime Market will have helped improve average PBRs. But there is also evidence that many issuers have made tangible efforts to improve corporate value.

Other metrics hitting record highs include the number of shareholder proposals, M&A deals, stock-compensation programs, and foreign ownership. According to the latest data available from the TSE (July 2025), the public-equity shareholding ratio of foreigners reached 32.4% in 2024, the highest level since the survey began in the 1960s. With all this positive momentum, surely this is the wrong time to be changing policy direction?

Not so, say powerful interests who think the system has become unbalanced and needs correcting. They believe that the regulatory policies of the past decade have emboldened ‘too much shareholder activism’ and that ‘rights are being abused’. A report in January 2025 from a corporate governance study group formed by the Ministry of Economy, Trade and Industry (METI) paved the way for many of the MOJ’s subsequent proposals and took strong aim at the allegedly high costs of shareholder meetings and “abusive” shareholder proposals. Resolving these problems would ‘strengthen the earning power’ of companies, the group argued, though it presented no actual evidence to back up these claims.

It is not just elements of the corporate world that are upset, politicians are too. As one independent governance observer said: “My overall impression is that the current amendment proposal reflects a growing sense that recent corporate governance reforms in Japan have, in some respects and contrary to their original intent, contributed to a widening divide between companies and investors, particularly as certain activist campaigns have become increasingly aggressive. In many ways, this is precisely the development that I had long been concerned about.” Shareholder activism, he added, has “increasingly come to be seen as a political issue”.

Throw in the new Sanae Takaichi government buffeted by worsening geopolitics and national security concerns, worried about rising prices and low economic growth, and more focussed on national industrial policy than shareholder value, and you have fertile ground for a regulatory reset. It’s not that shareholders do not matter. It’s that they matter less than they used to. Nowhere is this dynamic more apparent than the discussion on shareholder proposals.

Cutting proposal rights in half

Japan has relatively liberal rules for the ownership thresholds that must be reached before a shareholder can put forward a proposal at a meeting. One trigger level is only 1%, well below the 2.5% to 5% seen in many other developed markets, and the second is 300 “voting rights”. This equates to 30,000 shares because a “voting right” is the same as a trading lot, which in Japan is 100 shares. Shares must he held for a minimum of six months.

Influential elements in the business community strongly dislike the flexibility these rules allow and often complain about gadfly retail shareholders putting forward numerous so-called nuisance proposals. Since they have no hope of being passed, they are allegedly a waste of everyone’s time. Eiji Hashimoto, chairman and CEO of Nippon Steel, told the Japan Growth Strategy Council in March 2026 that “the requirement of 300 voting rights for shareholder proposals is unreasonable, as it forces companies to take unnecessary action on proposals that are almost never passed, and should be abolished immediately”.

Nippon Steel has direct experience of dissident proposals. In 2025, the activist fund Strategic Capital filed three against the firm, one of which received a respectable 12.8% support. The year before, Legal & General Investment Management, a large UK institution, did even better when a climate-disclosure proposal it co-filed against Nippon Steel with the Australasian Centre for Corporate Responsibility (ACCR) won 28% backing. In the same year, ACCR filed two other climate proposals with Corporate Action Japan at the company.

To simplify, the MOJ proposes two options: eliminating the 300 voting-right standard entirely and leaving only the 1% threshold in place; or raising the absolute numerical threshold to a higher number, such as 500, 1,000 or 1,500 voting rights, and giving companies the autonomy to make this decision. Making these changes would not only help to reduce abuse, it argues, but aligns Japan more closely with other major markets.

Interestingly, the evidence the MOJ marshals in support of the first proposal is notably ambivalent. First it quotes a 2025 academic study of 2,101 shareholder proposals showing that those from shareholders owning less than 1% of total voting rights received significantly less support than proposals from shareholders holding more than 1% (Jiro Saeki and Akira Tokitsu, Shukan Shoji Homu No. 2396).

Then it reports that the same paper found that 60% of all proposals were put forward by shareholders owning less than 1% of voting rights.  It further notes that some members of the Legislative Council Subcommittee have serious doubts about eliminating the absolute 300 voting-right threshold because doing so would “significantly alter the purpose of the system”. Other committee members, in contrast, can’t see what all the fuss is about and believe neither proposal would make much difference. They believe the interests of the collective should be paramount.

Yet the reason this proposal is so potentially damaging to Japan is that eliminating the absolute voting-right threshold would affect not merely retail shareholders, but a wide range of civil society groups and even institutional investors, many of which own less than 1% of companies. A briefing note from ClientEarth, an international legal advocacy group focussing on climate, makes the salient point that since many of the largest listed firms in Japan have market capitalisations of more than ¥1 trillion, minority shareholders would need to hold stakes of at least ¥10 billion (US$62.8m) to qualify as 1% owners, a level that many institutional investors would not reach. As ClientEarth recounts:

“The reason why the threshold of 300 voting rights was established when shareholders’ right to propose was introduced in 1981 was that limiting eligibility solely to shareholders holding 1% or more of voting rights would make it practically impossible to submit shareholder proposals at large companies.” 

It is also likely that the Tokyo Stock Exchange (TSE) will be less than delighted with the direction this discussion is taking. Its February 2026 presentation, which we quoted earlier, reported that shareholder proposals have been rising steadily since FY2014, when 148 proposals were submitted to 25 issuers. There was a big increase in the number proposals in FY2022, which brought 294 proposals at 77 firms—and most from institutional investors for the first time. By FY2025 proposal numbers jumped again to 399 at 114 companies. TSE further emphasises that support for proposals has been increasing, with seven passed in 2025. If either of the MOJ’s proposed amendments go ahead, the negative impact on shareholder proposals would be big.

Owner reveal thyself: the good

In a quest to improve dialogue between companies and their shareholders, the MOJ proposes giving companies the right to inquire who their “beneficial owners” are. Issuers already know the identities of any “large shareholders”, those holding stakes of more than 5%, but currently cannot legally inquire about those owning 5% or less, a right enjoyed by companies in Europe and the UK.

This issue has been on the reform agenda in Japan since April 2023, when it was raised in the first “Action Program for Accelerating Corporate Governance Reform” from the Financial Services Agency (FSA). It next appeared in a December 2023 report from a working group of the FSA’s Financial System Council on the tender offer and large shareholder reporting rule. And finally it was included as a “comply or explain” recommendation in the revised Stewardship Code of June 2025.

The MOJ proposes to amend the Companies Act to allow listed companies to ask registered shareholders who are intermediaries, such as trust companies, banks, and financial institutions which hold shares on behalf of third parties, who their beneficial owners are. These entities are defined as “instruction-giving shareholders”, since they have the authority to issue instructions on voting or the disposal of shares to intermediaries. For practical purposes, this will often mean an asset management company. Intermediaries must provide the names, addresses, and number of shares held by each beneficial owner within a certain period of time (to be decided) or face a penalty. Issuers are to bear the cost of this exercise.

This principle is sound and there is a good argument that transparency needs to go both ways. Indeed, the MOJ is largely drawing upon the EU Second Shareholder Rights Directive (2018) as the basis for its reporting framework.

We also like the fact that the MOJ plans to remove a clause from the Act that allows company articles to prohibit registered shareholders (ie, nominee companies under intermediaries) from appointing beneficial owners as their agent or proxy at shareholder meetings. This is a major change from the status quo and means active asset managers who want to attend meetings, typically foreign funds, will more easily be able to do so. It has been a bottleneck in Japan for at least two decades.

Owner reveal thyself: the bad

The main risks in the proposal relates to the issuance of penalties, which the ministry says may be necessary to “ensure the effectiveness of the system”. It is considering whether violators should be subject to administrative fines and/or have their voting rights suspended. Fines would be imposed by the MOJ and relate only to situations where the purpose of a company’s request was “promoting constructive dialogue between companies and shareholders”. They would not apply to simple clerical errors, only intentional acts or gross negligence.

The suspension of voting rights, meanwhile, is recognised as a severe sanction.  A primary scenario in which it could come into play relates to a proposal that would see the large shareholder reporting rules in the Financial Instruments and Exchange Act (FIEA) incorporated into the Companies Act. The policy purpose for doing so is to identify and disclose “important information regarding control of the corporation”. Furthermore:

“Specifically, it mandates that substantial shareholders who exercise a certain level of influence over a listed company to notify the listed company of their identity, grant other shareholders the right to access that information, and establish a system whereby those who fail to provide the information are subject to suspension of voting rights.” (italics added)

It is envisaged that boards or management would have the right to issue the suspension order. Although the MOJ's consultation document says this could be up to five years, in reality it is understood that the Legislative Council Subcommittee is not considering such a long suspension. Instead, the suspension would likely last until the conclusion of the first shareholder meeting after a subsequent disclosure is made or for about a year after such disclosure.

Given that the obligation to disclose stakes of more than 5% is already covered in the FIEA—and following amendments to the Act that took effect on 1 May 2026, there is an expectation that the FSA will enforce the rules more stringently—the ministry’s proposal to set up a parallel system seems redundant and risks creating confusion as to which government entity is in charge.

Moreover, allowing companies to suspend the voting rights of violators is, in our view, excessive. Although the consultation says companies would need to give violators time to contest the charge, the period envisaged by the subcommittee is only three weeks to one month. The potential for abuse surely exists. Not to mention the fact that the consultation paper itself reports no similar rule in other major markets. The US has none. The UK has a court-ordered system. Germany automatically suspends the voting rights of large shareholders who have violated disclosure obligations, but only until the breach has been remedied. And in France there is an automatic removal of voting rights above the reportable threshold for all shareholder meetings for the next two years. Voting rights can be suspended for up to five years, but this must follow judicial procedure. Japan alone would be giving companies this powerful right.

Why has the MOJ made these proposals? Tatsuya Taniguchi, Attorney-at-Law, TMI Associates in Tokyo told Firefly that, “it is often said that some activists intentionally keep their disclosed holdings below the 5% threshold under the Large Shareholder Reporting Rule while simultaneously maintaining positions that would allow them to exceed 5% at any time”. Such positions are often believed to be achieved through the use of cash-settled equity derivatives. While such derivatives are now subject to the FIEA amendments from 1 May this year, there is still criticism that the Large Shareholder Reporting Rule is “insufficient” and some activist investors “will attempt to circumvent the system” in future, he said, adding: “I do not necessarily agree with all such criticism, but I can understand the sentiment behind it.”

If the MOJ moves forward with these amendments, it will need to think through them carefully to avoid unintended consequences. Japan has a history of enacting strict legislative changes in response to specific examples of shareholder activism. Probably the most famous case was the introduction of the “act of making material proposals” in the mid-2000s following the earthquake created by the arrival of activist shareholder Yoshiaki Murakami, a former government official. This went on to reverberate around the market and chilled investor engagement with companies for years. For background, see Unshackling investors in Japan (1).

It would be a shame if reform of the beneficial owner system was interpreted by the market as a general anti-activist measure. Some activists have been aggressive, others less so. But such diversity comes with the territory in a modern capital market. It is also important to keep in mind the critical role activists play in bringing to light corporate issues that mainstream investors can’t or won’t make public. Not to mention achieving significantly higher prices for minority shareholders in low-ball privatisation attempts. On balance, activists have been good for Japan’s capital market.

Pre-adopting resolutions

The proposal here derives from the view that since most meeting resolutions have effectively been decided in advance through proxy voting, and votes cast in person on the day of the AGM are tiny in percentage terms and will not change the outcome, why not dispense with voting in the meeting?

The MOJ offers two suggestions. The first is that resolutions could be deemed pre-approved if votes in favour submitted in advance represented a majority of the voting rights of all shareholders entitled to vote. In other words, even if all remaining shareholders who did not vote by proxy before the meeting subsequently decided to attend and vote against, the resolution would still pass.

This proposal envisages that shareholders in the meeting would still be allowed to ask questions of management about any pre-adopted resolutions, but could not put forward motions related to them. Nor could these resolutions later be annulled.

To do this issuers would need to amend their articles through a special resolution vote (66% in favour) at a shareholder meeting. The scope would apply to any resolution that could be put to a shareholder meeting, including director elections.

In case of any doubt or confusion, the MOJ states that similar rules would not apply to matters that are the purpose of the meeting (ie, the agenda) or matters that need to be reported (ie, the financial statements and business reports). In other words, these would still need to be presented and reported on the day.

The MOJ seeks to bolster its rationale for change by using the cost argument: companies invest significant resources in organising meetings, including holding rehearsal sessions and preparing lists of expected questions, hence reducing these expenses is inherently a good thing.

It also contends that shareholder meetings are “not being utilised as a forum for meaningful discussion”. Attendance is claimed to be low, as is the number of questions asked, and shareholders rarely put forward motions.

While many of these points may be true of Japan, they are equally true of other major developed markets and financial centres. Given the nature of dispersed ownership of listed companies, investment diversification theory, and the international nature of equity ownership, most shareholders in most places do not and cannot attend the AGMs of most of the companies in which they invest. Throw in the massive rise of passive investment and you have a recipe for ever higher levels of advance voting at annual meetings.

Yet as frustrating as this situation may be for company management in Japan, such arguments do not justify the type of reform the MOJ is proposing. It is hard to see engaged investors in markets that Japan uses as a benchmark, namely the UK, Europe and the US, accepting the idea that henceforth they should lose the right to vote in meetings. Having the opportunity to hear what management has to say, and then voting, remains a valuable right even if not used by the vast majority of shareholders at any given AGM. Essentially the MOJ runs the risk of disenfranchising the minority.

MOJ undermines its own case

Interestingly, the MOJ’s own data goes some way to undermining this proposal. According to the “2025 AGM White Paper”, a survey with around 2,000 issuers responding, just over 53% of companies receive between 50-80% of all possible votes in advance. Figures are not given for the number receiving more than 80% of votes, but the implication is that a material portion get less than 50%. This suggests that many companies would have difficulty pre-approving resolutions even if they were able to amend their articles allowing them to do so.

Another question in the survey indicates that the portion of votes cast in the meeting can sometimes be significant. In response to an item titled the ‘percentage of total voting rights held by shareholders present on the day’, the top answer was more than 30% from 436 companies. Another 242 companies said 20-30%. These are not small numbers, indicating that this proposed amendment is likely to upset a lot of shareholders.

It is instructive that some members of the Legislative Council Subcommittee also have their doubts. As the consultation explanatory document states, there were comments in the committee that even if shareholders were allowed to ask questions of management on resolutions already adopted pre-meeting, it “remains unclear whether sincere and substantive answers would actually be provided”.

Moreover, the contention that AGMs are not meaningful in Japan is contradicted by the experience of an increasing number of institutional, retail, and activist shareholders who have been seeking to use AGMs as a platform for governance improvements in companies over the past five to 10 years. Shareholder proposal numbers have risen sharply over the past decade, as outlined earlier, and AGMs have become more active forums for discussion at a range of firms. There is also a marked contradiction here between the spirit of these proposals and the FSA’s strong policy support for shareholder meetings.

As for the point about meeting expenses, our view is that these are a basic cost of doing business for a listed company, along with such things as widening disclosure and reporting requirements, the need for a more diverse and experienced board of directors, and so on. No evidence is provided by the MOJ that issuers cannot afford the incremental cost of counting votes in a meeting or these costs are large in proportion to total administration expenses.

Revoking resolutions

The one area where we do have sympathy for companies is on a related issue: the “duty to explain” in shareholder meetings. As Wataru Tanaka, Professor of Commercial Law at The University of Tokyo, told Firefly: “Under the Japanese Companies Act, a material breach of the duty to explain can lead to the revocation of a resolution, even if the breach did not actually affect the outcome of the vote.” He went on to note that although “very rare”, there were some cases in the 1980s where resolutions were later revoked, such as the Chisso Corp and Bridgestone Corp cases in 1983 and 1988, respectively. In Chisso, the chairman and management improperly ignored a lawful motion (proposal) submitted by a shareholder and proceeded with a vote. In Bridgestone, the company failed to fulfil its duty to explain in response to questions raised by a shareholder during the general meeting.

While these may seem minor points and a long time ago, the two judgements have had a continuing impact on how companies approach AGMs. Professor Tanaka added: “Because of this, the operation of shareholder meetings in Japan has become extremely nervous and defensive. Companies prepare Q&A manuals spanning hundreds of pages and spend countless hours in rehearsals. In reality, these Q&A manuals are created not to provide new information to shareholders, but rather to avoid being tripped up by shareholders or lawyers looking for grounds to file a lawsuit to revoke a resolution.”

Our view is that if shareholders have voted in favour of a resolution, it should stand. If other developed markets allowed a similar revoking of resolutions then a potentially large number of them could be annulled due to poor explanations given by directors and management. Obfuscation, filibustering, and the deliberate ignoring of questions is common in the annual meetings we have observed in different markets. It is up to shareholders to demand better quality answers from the board.

Finally, the second proposal from the MOJ under this topic is more sensible: it seeks to remove the revocation clauses from the Companies Act while leaving in place the right to vote in meetings.

Goodbye squeeze-out EGMs

While there is a degree of nuance in many of the MOJ’s suggested changes to the Companies Act, the same cannot be said for its thinking around squeeze-outs. To fully privatise a company, company law in Japan typically requires a tender offer for all shares not owned by the offeror followed by a share consolidation approved in an extraordinary general meeting (EGM). The share consolidation is extreme: it reduces all remaining shares to less than one and, since fractional shares are not permitted, the offeror can undertake a compulsory purchase of the minorities. The vote in the EGM has to be by special resolution, which requires a 66.67% majority, and is often a foregone conclusion because the acquirer has exceeded this level through the tender offer. However, EGMs are not necessary if an offeror has achieved more than 90% ownership and become a “special controlling shareholder”. This allows it to automatically force the sale of all remaining shares.

The MOJ proposes either to maintain the existing law or to allow the EGM stage to be bypassed, empowering any acquirer achieving a two-thirds majority to become a “special controlling shareholder” and demand all remaining shareholders sell out. The rationale is that EGMs take time and incur procedural costs, hence removing them would increase efficiency, promote growth, and spur more M&A.

The proposed safeguard for shareholders is that acquirers could only utilise this route if their tender offer had followed “fair procedures” and applied the “majority of minority” (MoM) condition. That is, a majority of general shareholders unrelated to the offeror agreed to sell their shares during the tender offer process.

There are at least three things wrong with this idea. First, it would make 66.67% the default trigger for a compulsory privatisation, entrenching Japan’s already low threshold for squeeze-outs. Most developed markets other than the US set 90% as the threshold because this is considered a sufficiently high level of ownership to justify the forceable removal of remaining minorities.

Second, while the EGM outcome may be foregone conclusion, this proposal would take away the right of dissenting shareholders to vote in the meeting and potentially pose questions to management.

Third, there is no agreed definition yet in law or practice in Japan on the MoM concept. As we showed in our article Toyota tests the system, falls short, it has been subject to highly idiosyncratic interpretations. Part of the problem is that it was not defined clearly in the 2019 “Fair M&A Guidelines" from the Ministry of Economy, Trade and Industry, nor has there been any court judgement to delineate its boundaries.

Once again, the MOJ notes that views in the Legislative Council Subcommittee varied considerably, from those who believe this proposal is risky and should be “considered with caution” to others who disagreed that MoM should become a criteria as it may deter M&A. The ministry also recognises that further consideration is needed on what constitutes “fair procedures”, including a firmer definition of MoM.

We also question whether removing the EGM stage in a squeeze-out would make a material difference to the number of companies wishing to undertake privatisations. As the TSE highlights in its February 2026 presentation, M&A cases reached a record high of 5,115 in 2025. As a sub-component of this, full privatisations have also been on the rise in recent years. Surely the cost of an EGM is relatively minor compared to the larger rewards that acquirers seek from privatisations?

Rather than entrenching 66.67% as the compulsory squeeze-out threshold, Japan should be raising the level closer to other markets, including giving independent shareholders approval rights for privatisations from the outset. Or it should institute much stricter judicial review as in the US.

Elevating virtual meetings

Since the Covid pandemic, the “virtual shareholder meeting” concept has become accepted practice around the world. It comes in two flavours: a “hybrid” meeting that allows in-person attendance at a physical location with an accompanying online webcast; or a “fully virtual” meeting without a physical location and where all participants join online. The latter became common in many countries during the pandemic and was a sensible solution to the legal requirement for an AGM while preserving public health.

What governance advocates do not like is the push to normalise such meetings at other times in the name of cost, efficiency, and so-called common sense. Active shareholders and investor groups almost universally dislike the idea because it gives the board and management more control over how meetings are run, which questions to answer and how, and eliminates the ability to hold the board accountable in public. Such criticisms were common during the high tide of virtual meetings following Covid.

Our objection to the MOJ’s proposal is also based on the evidence provided. The ministry argues that because 79 listed companies have taken advantage of Covid-era laws and held virtual AGMs as of December 2025, and because 479 had amended their articles to allow them to do so should they wish, there is now a practical need to allow virtual meetings as a standing option.

Putting aside the likelihood that most of the virtual meetings referenced were held around the time of Covid (the MOJ’s consultation paper does not say), the numbers imply that around 80% of the issuers which amended their articles have elected not to hold one. Moreover, these 479 companies represent only about 30% of the 1,500+ companies listed on the Prime Market at the end of 2025. The ratio would be even lower if the denominator included Standard and Growth Market companies. The numbers simply do not make a compelling case for change.

A second issue is the clear contradiction between this proposal and the policy direction from the FSA. In its latest CG Code revision it reinforces the notion that shareholder meetings matter. One of the Code’s main principles emphasises their importance and related guidance says that they “provide one of the few opportunities for shareholders to directly express their opinions to companies through the exercise of their voting rights and opportunities for constructive dialogue with shareholders”. It is hard to see how an online-only meeting comprising numerous unrelated shareholders, both individual and institutional, allows for meaningful Q&A with management. And the fact that the vast majority of shareholders are never present in person is not in itself a good enough reason to dispense with physical meetings. Shareholders who do attend often ask useful questions of directors and management.

As the MOJ paper makes abundantly clear, there are also organisational challenges with virtual-only meetings. Issuers will need to safeguard the interests of shareholders who have difficulty using the Internet (companies may need to lend them equipment or allow the use of telephones); provide alternative means of communication in case of a transmission failure; and keep full documentation of participation in the meeting, including questions shareholders asked and any not addressed. There will be a need as well for special provisions or “safe harbour rules” governing the conditions under which resolutions passed at a virtual meeting can be revoked in cases of a communications failure. It all looks like a case of simplification through complication.

Final comments

As indicated in different parts of this essay, there are certainly some positive proposals in the Companies Act consultation. Allowing beneficial owners to attend shareholder meetings, vote and ask questions would be a welcome change. So too is another long overdue reform: removing the duplication between the publication of the “business report” prior to AGMs (required by company law) and the annual securities report or “Yuho” (mandated by securities law), usually released just after the AGM. Apart from overlapping content, the two reports make extra work both for companies and their auditors, who must do a second audit of the Yuho to check if any figures have changed in the time elapsed. This should also help to push publication of the Yuho much earlier, which investors have been asking for since the mid-2010s.

To give credit where it is due, we also appreciate the way in which the MOJ has constructed this consultation: it presents alternative proposals, is transparent about the different opinions within the subcommittee, recognises that some proposals will be contentious, and admits many areas require more work and thought. This is not your usual pre-cooked consultation.

Unfortunately, these positives are overshadowed by the certainty that key rights attached to shareholder meetings will be lost if many of the MOJ proposals are accepted. Drastically reducing proposals rights would be a counterproductive mistake, and will be viewed as a major setback for Japan’s hard-won reputation in corporate governance reform. Allowing companies to suspend the voting rights of shareholders stands on weak legal grounds and creates the potential for abuse. Adopting resolutions in advance is disrespectful to shareholders who want to vote in meetings; it may also make related Q&A less meaningful, especially if resolutions can no longer be revoked because of management’s failure to explain. Moving the goalposts on squeeze-out EGMs is remarkably cynical and lowers the incentive for acquirers to achieve the 90% threshold. And elevating virtual meetings to standard practice substantially weakens the ability of small shareholders to interact with management.

To those who say these reforms are acceptable because Japan is only trying to align with “international practice”, it is worth emphasising that company law rules and norms vary markedly across Europe, the UK and the US, as the MOJ’s consultation itself shows.

Taking away rights already enjoyed, even if more generous than other countries, is usually a bad idea. Numerous investors, civil society groups and other market participants have invested time and effort trying to improve corporate governance in Japan. These entities add momentum and legitimacy to the reform process and have won some tangible improvements in individual company governance. If you were a policymaker, would you really want to see such organic market strengths disappear?

Finally, there remains the policy contradictions between many of the MOJ’s proposed amendments and the ongoing corporate governance reform efforts of the FSA and TSE. In this sense, Japan may be returning to a time when competing parts of government held very different ideological views on the right way forward. The success of governance reforms over the past decade owes much to greater policy alignment and consistency. And the fastest way to undermine the confidence created is to allow regulatory inconsistency to fester.

jallen@fireflyreads.com

Copyright: Ninepin Ltd, 2026