FSA works to encourage conversations between investors and companies

The Financial Services Agency recently released a document titled “Laws, regulations, and Q&As with regard to the ‘act of material proposal’ and ‘joint holders’ under the Large Shareholding Reporting Rule” with the aim of fostering constructive dialogue between institutional investors and investee companies. This initiative is part of a larger effort to promote sustainable growth in investee companies and enhance long-term investment returns for clients and beneficiaries. The document is based on the “Principles for Responsible Institutional Investors 《Japan’s Stewardship Code》,” which was first published in February 2014 and has undergone several revisions since then.

One of the key aspects highlighted in the document is the importance of institutional investors engaging in meaningful dialogues with investee companies. By fostering constructive dialogue, institutional investors can contribute to the sustainable growth of companies and ultimately improve the investment returns for their clients and beneficiaries. The aim is to encourage institutional investors to proactively change their mindsets and deepen their engagement with companies for more effective outcomes.

In response to changing market dynamics, such as the rise of passive investment and the increasing importance of collaborative engagement, the scope of the “act of material proposal” has been clarified to allow institutional investors to have more in-depth discussions. Additionally, the concept of “joint holders” has been refined to promote collaborative engagement that enhances corporate value over the medium to long-term. These changes were implemented through amendments to the Financial Instruments and Exchange Act in 2024, as well as related Cabinet orders and Q&As.

To facilitate smoother communication between institutional investors and investee companies, the document addresses key issues related to the “act of material proposal” and “joint holders” under the Large Shareholding Reporting Rule. It emphasizes the relationship between these concepts and dialogue with investee companies, as well as the importance of collaborative engagement for improving corporate value in the long run. The document is based on amendments made to the Financial Instruments and Exchange Act and related Cabinet Orders, which are set to be enforced from May 1, 2026.

Overall, the document serves as a guide for institutional investors and investee companies to navigate the regulatory landscape and engage in constructive dialogues that promote sustainable growth and long-term value creation. By clarifying key concepts and relationships within the Large Shareholding Reporting Rule, the document aims to enhance collaboration and communication between stakeholders for the benefit of all parties involved.