This is a comprehensive survey report published by the Financial Services Agency (FSA) on the "Survey on the Current State of Stewardship Activities." Through interviews with 26 institutional investors and 18 companies, the report provides a detailed analysis of the current state and challenges of stewardship activities in Japan, revealing best practices and areas for improvement in constructive dialogue (engagement).
Key Points
1. Survey Overview
- Issuing Organization: Financial Services Agency
- Publication Date: June 30, 2025
- Survey Period: September 2024 - January 2025
- Survey Subjects:
- 26 institutional investors (asset owners and asset managers)
- 18 listed companies
- Background: Corporate Governance Reform Action Program 2024
- Objective: Promote substantive stewardship activities
2. Asset Owner Initiatives (Related to Principle 1)
Monitoring Methods
- Utilization of Standardized Formats:
- Setting common evaluation items
- Adding unique requirements
- Combining quantitative and qualitative evaluations
- Feedback Implementation:
- Sharing monitoring results
- Clarifying improvement requests
- Continuous dialogue
Challenges and New Initiatives
- Insufficient Incentive Design:
- Compensation linked to engagement activities remains underdeveloped
- Difficulty in measuring short-term results
- Innovative Cases:
- GPIF's "Engagement-Enhanced Passive Investment"
- Compensation design for long-term value creation
- Incorporation of non-financial indicators
3. Asset Manager Practices (Related to Principles 3, 4, 5)
Engagement Management Structure
- Unified Progress Management:
- Database of dialogue history
- Milestone setting
- Development of performance measurement indicators
- Establishment of Specialized Teams:
- Deployment of ESG analysts
- Utilization of sector specialists
- Global collaboration structure
Characteristics of Success Cases
- Provision of Detailed Analysis:
- Global benchmarking
- Competitor comparisons
- Introduction of best practices
- Approach Based on Corporate Growth Stage:
- Startups: Governance foundation building
- Growth companies: Capital efficiency improvement
- Mature companies: Business portfolio review
- Building Trust Relationships:
- Long-term commitment
- Bidirectional learning
- Co-creative approach
4. Problematic Engagement Cases
Issues from Investor Perspective
- Superficial Improvement Requests:
- Pursuing only surface-level disclosure improvements
- Lack of interest in substantive management improvements
- Excessive Focus on Voting Guidelines:
- Checkbox-style responses
- Uniform requirements
- Disregard for company-specific circumstances
Issues from Corporate Perspective
- Overemphasis on Short-term Indicators:
- Excessive focus on quarterly performance
- Insufficient understanding of long-term strategies
- Evaluation based solely on financial indicators
- Inappropriate Dialogue Settings:
- Detailed questions to CEOs
- Strategic questions to operational staff
- Mechanical application of ESG checklists
5. Best Practice Engagement Cases
Global Benchmarking Case
- Providing international comparative analysis to major Japanese companies
- Specific improvement proposals and implementation support
- Realization of corporate value enhancement
Business Portfolio Reform Case
- Detailed business analysis and strategic recommendations
- Continuous dialogue with management
- Transition from disclosure improvement to execution phase
Long-term Value Creation Case
- Relationship building over 10-year span
- Contribution to corporate culture transformation
- Establishment of sustainable growth foundation
6. Dialogue with Outside Directors (Related to Principle 4)
- Significance of Dialogue:
- Confirming effectiveness of management oversight function
- Direct involvement in governance improvement
- Utilization of independent perspectives
- Implementation Challenges:
- Difficulty in agenda setting
- Information disclosure constraints
- Time constraints
- Best Practices:
- Sufficient advance preparation
- Focus on strategic themes
- Regular dialogue opportunities
7. Engagement with Small and Mid-cap Stocks
- Unique Challenges:
- Resource constraints
- Access difficulties
- Insufficient information disclosure
- Effective Approaches:
- Collective engagement
- Dialogue through industry associations
- Gradual relationship building
8. Collaborative Engagement (Related to Principle 7)
- Benefits:
- Enhanced voice
- Cost efficiency
- Knowledge sharing
- Challenges:
- Difficulty in opinion coordination
- Complexity of information management
- Unclear distribution of outcomes
- Success Factors:
- Clear goal setting
- Clear role division
- Flexible operation
9. Proxy Advisory Firms (Related to Principle 8)
- Communication Gap:
- Perception differences between companies and advisory firms
- Dissatisfaction with uniform standards
- Lack of dialogue opportunities
- Improvement Trends:
- Expansion of customized services
- Increased direct dialogue with companies
- Efforts to improve transparency
10. Future Outlook and Recommendations
This survey demonstrates that while Japan's stewardship activities are steadily evolving, there is still significant room for improvement. Particularly important are:
- Emphasis on Substance: Transitioning from formal responses to dialogue that truly contributes to corporate value enhancement
- Respect for Diversity: Flexible approaches that consider individual company circumstances
- Long-term Perspective: Building sustainable relationships not bound by short-term results
- Mutual Understanding: Co-creation through bidirectional learning between investors and companies
The FSA plans to continuously update this survey as a "living document" to support further deepening of Japan's stewardship activities. This is expected to lead to sustainable corporate value enhancement through constructive dialogue between companies and investors, and healthy development of Japan's capital markets.