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Proxy voting rights in investee companies are the most important right granted to shareholders in order to increase investee companies’ medium to long-term corporate value. Nikko AM Group exercises proxy voting rights independently and solely in the interests of our clients and beneficiaries in order to fulfill our fiduciary responsibilities. We believe that the three core factors behind sustainable, responsible investing - environmental, social, and governance (“ESG”) - are inherent to long-term value creation.

Nikko AM Group is an active owner, through its proxy voting process and engagement with its invested companies. As a long term investor, we believe an active dialogue and engagement with the management team, where appropriate, can both improve ESG performance and sustainability, and help an investor to more fully understand these efforts. Where we invest through passive strategies, we strive to incorporate ESG through the voting of proxies and the engagement process, where appropriate.

When conducting appropriate engagement or exercising voting rights, for example, if Nikko AM Group invests in an affiliated company, an supplier or a client (including companies with connections to a client), the possibility of conflicts of interest cannot be ruled out.
Nikko AM Group has established appropriate risk management and compliance frameworks to ensure that the interests of clients and beneficiaries are the top priority and that such conflicts of interest are appropriately managed if they arise. Portfolio managers, research analysts and governance specialists aim to avoid the occurrence of any conflicts of interest in compliance with our internal regulations.
In order to manage conflicts of interest and enable objective decision making in our exercise of voting rights, Nikko AM Group companies have established the control framework by combining means such as the advice of an independent third party, disclosure of proxy voting results to a customer (and obtaining of customer’s consent, as the case may be), segregation of divisions (seclusion of information), and management by installation of monitoring organization etc. to maintain appropriate voting decisions.

Nikko AM Group focuses in particular on the following criteria when exercising voting rights in order to conduct appropriate monitoring of corporate governance at each investee company and to increase shareholder value.

1. Shareholder Return
With regard to the disposition of surplus, Nikko AM Group places emphasis on ways to provide sufficient returns to shareholders over the medium to long-term and to provide adequate accountability to shareholders, taking into consideration not only total return ratio levels, such as shareholder dividends and stock purchase plans, but also the extent of internal reserves and investment plans based on future business plans.

2. Directors’ Execution and Supervisory Functions
The separation of execution and supervisory functions in management is necessary to realize good corporate governance. A company's board of directors must be appropriate in size and composition so as to ensure that thorough, balanced discussions take place and that appropriate decisions are made. Some of the directors should be independent directors.

3. Executive Compensation System
Nikko AM Group positively assesses executive compensation systems that offer incentives and increase shareholder value, such as those linked to company performance. At the same time, appropriate levels of compensation in terms of company performance and profit distribution to shareholders should be required while the system itself should ensure sufficient accountability to shareholders.

4. Company Control and Takeover Defenses
Nikko AM Group is basically opposed to resolutions aimed at maintaining company control or preventing the acquisition of company control. On the other hand, because acquisition proposals that may damage shareholder value cannot be assessed positively, takeover defenses may be assessed positively to the extent that the existence of such acquisition risks are clear and existing shareholder value would not be damaged.

5. Business Restructuring
Nikko AM Group scrutinizes whether or not the restructuring of business through mergers and acquisitions is the best option for a company from the view point of consistency with its management strategy and enhancement of shareholder value in the medium to long-term. In addition, the valuation of a company's acquisition price must be a fair price calculated by a neutral third party.

6. Capital Policy
Whether or not resolutions on the issuing of company stock are appropriate capital policy should be determined cautiously, taking into account the investee company's management strategy, financial standing and market environment. In particular, Nikko AM Group does not evaluate such capital increases positively if there is a possibility that they will significantly dilute the equity of existing shareholders and place them in a disadvantageous position overall.

7. Other Resolutions
Other resolutions shall be examined and considered from the standpoint of maximizing shareholder value.




Established: February 15, 2006
Revised: December 25, 2023

Standards for Exercising Voting Rights on Japanese Stocks


The purpose of these Standards for Exercising Voting Rights on Japanese Stocks is to set forth specific standards to enable Nikko Asset Management Co., Ltd. (“Nikko AM”) to exercise voting rights on Japanese stocks in line with its Guidelines on Exercising Voting Rights. These Standards are also intended to ensure that Nikko AM exercises voting rights systematically and consistently, and to contribute to Nikko AM’s faithful fulfillment of its fiduciary duty. The standards indicated below are not necessarily intended to be applied formally and uniformly, but are instead intended to ensure that Nikko AM makes voting decisions that help investee firms to grow sustainably and enhance their medium- and long-term corporate value based on an accurate grasp of the firms’ conditions and initiatives through engagement and other such means.

[1] Shareholder Returns

Investee firms are expected to maximize shareholder value over the medium and long term by generating economic value through the efficient use of cash, investing that value for growth and retaining it as internal reserves, and distributing it appropriately for such purposes as shareholder returns. Voting decisions on resolutions for the appropriation of surpluses shall be based on examinations as to whether the resolutions constitute shareholder return measures that will help to maximize medium- and long-term shareholder value based on considerations such as the firm’s growth stage, its business environment, its financial standing and its investment plans.

Resolutions for the appropriation of surpluses shall be voted against in principle in the below cases:

  1. if the firm’s shareholder distribution ratio is less than 30% and its ROE has been less than 8% for the past three consecutive fiscal years;
  2. if the firm is cash rich, its shareholder distribution ratio is less than 40% and its ROE has been less than 8% for the past three consecutive fiscal years (a firm is cash rich if its net cash to total assets ratio is 30% or more and its equity ratio is 50% or more);
  3. if the firm has paid out dividends in the past three consecutive fiscal years despite posting net losses in those years; or
  4. if the level of the firm’s shareholder returns is otherwise deemed insufficient for the medium- and long-term enhancement of shareholder value.

[2] Appointments of Directors

Decisions shall be based on whether it is appropriate to entrust appointees with the management of the investee firm with the aim of maximizing the firm’s medium- and long-term shareholder value. Decisions shall be made comprehensively in view of the firm’s conditions and initiatives as ascertained through engagement and other such means in view of the below-mentioned criteria.
A firm’s board of directors is expected to make decisions intended to improve medium- and long-term shareholder value and to supervise the firm’s execution of business, and should fulfil those functions effectively. A board of directors should therefore be structured in a way that fully takes into consideration factors such as the abilities, characteristics and diversity of its members as well as its ratio of independent outside directors. It should also be of a size that enables it to make swift decisions on business matters.

Specifically, decisions to vote for or against such resolutions shall be made based on the below criteria. The criteria shall also apply to audit and supervisory committee members at firms that have audit and supervisory committees, and to audit committee members at firms that have nomination committees and other such committees.

  1. If any of the below apply to the composition of a firm’s board of directors, resolutions for appointments of directors shall be voted against in principle given the status of directors as top managers:
    1. if the directors to be appointed do not include at least two outside directors who fulfill Nikko AM’s standards for independence and the number of outside directors who fulfill Nikko AM’s standards for independence does not come to at least one-third of the total (or the majority in the case of companies with parent companies);
    2. if no female directors are included (gradually increasing the number of female directors required, for example by requiring multiple female directors, will be considered in the future); or
    3. if the number of statutory auditors or audit and supervisory committee members is set to decrease significantly without a reasonable explanation from the firm.
  2. Resolutions for reappointments of directors shall be voted against in principle if any of the below apply:
    1. if the firm’s shareholder distribution ratio is less than 30% and its ROE has been less than 8% for the past three consecutive fiscal years;
    2. if the firm is cash rich, its shareholder distribution ratio is less than 40% and its ROE has been less than 8% for the past three consecutive fiscal years (a firm is cash rich if its net cash to total assets ratio is at least 30% and its equity ratio is at least 50%);
    3. if the firm has paid out dividends in the past three consecutive fiscal years despite posting net losses in those years;
    4. if the firm’s ROE has been less than 5% for the past three consecutive fiscal years and the firm has been in the bottom 50% of its sector (based on the Tokyo Stock Exchange’s 17 sector classifications) for ROE in the past three consecutive fiscal years (reappointment of directors in position during the relevant period is to be opposed);
    5. if misconduct or antisocial conduct has occurred at the firm and the firm is deemed to be involved in or liable for the occurrence (the definition of misconduct and antisocial conduct shall include serious violations of laws and regulations, fraudulent accounting, quality falsification, conduct that causes environmental or social problems, and other conduct that damages social trust in the firm, and judgments shall take into account mitigating factors including recurrence prevention measures and other such responses); or
    6. if the firm’s management initiatives are deemed insufficient for the medium- and long-term enhancement of shareholder value.
  3. Resolutions for appointments of outside directors shall be voted against in principle if any of the following apply (however, an individual decision on application of the independence requirement shall be made if a company is undergoing a management reorganization or other such conditions apply to it):
    1. if their board of directors meeting attendance ratio is less than 80% (the same shall apply to audit and supervisory committee members if their audit and supervisory committee meeting attendance ratio is less than 80%, and to audit committee members if their audit committee meeting attendance ratio is less than 80%); or
    2. if any of the below apply to them and they are deemed to lack sufficient independence as a result:
      1. notification regarding them as an independent officer has not been submitted to a financial instruments exchange or there are no plans to do so;
      2. they are a major shareholder with a share exceeding 5%, or they currently work or have worked in the past five years at an organization that is a major shareholder; or
      3. they have been in their current position for more than 12 years.
  4. If any of the below apply, resolutions for appointments of directors shall be voted against in principle given the status of directors as top managers:
    1. If the firm is a relatively high emitter of greenhouse gases and its initiatives regarding the climate change-related actions listed below are deemed insufficient:
      1. the establishment of medium- and long-term emissions reduction targets in line with the Paris Agreement;
      2. the formulation and execution of a roadmap for realizing the above targets; and
      3. information disclosure in line with the Recommendations of the Task Force on Climate-related Financial Disclosures;
    2. if the firm has serious sustainability issues, its initiatives to address them are deemed insufficient and the situation is not deemed to be improving; or
    3. if the firm has cross-shareholdings totaling 20% or more of its net assets (however, consideration shall be given to quantitative reduction targets and the status of its initiatives).

[3] Appointments of Statutory Auditors

Given the importance of ensuring that statutory auditors monitor and supervise directors from an independent standpoint, resolutions for appointments of statutory auditors shall be voted against in principle if any of the below apply to them:

  1. if they are deemed to be unsuitable for the position; or
  2. if misconduct has occurred at the firm and they are deemed to be involved in or liable for the occurrence.

Resolutions for appointments of outside directors shall be voted against in principle if any of the below apply to them:

  1. if their board of directors and board of statutory auditors meeting attendance ratio is less than 80%; or
  2. if they are deemed to lack sufficient independence (criteria on the independence of outside directors shall apply mutatis mutandis to judgments on the independence of statutory auditors).

[4] Appointments of Accounting Auditors

Resolutions for appointments of accounting auditors shall be voted in favor of in principle. However, resolutions shall be voted against if they involve matters that cast doubt as to whether they will conduct audits fairly, or if there are doubts over their independence.

[5] Compensation for Officers

Compensation for officers and other such people shall be examined to determine whether it is linked appropriately to the interests of shareholders and thereby functions as an incentive to enhance shareholder value, and whether it is at an appropriate level in terms of the firm’s performance and its distribution of profits to shareholders. When compensation is determined, it is important for the basis for the calculation to be made clear and for the process to be made transparent by such means as using bodies whose important members are outside directors.

Resolutions related to compensation for officers shall be voted against in principle if any of the below items apply to them:

  1. the payment of bonuses and raising of compensation caps despite the recipients’ management being at serious fault;
  2. the payment of retirement bonuses (excluding allowances for termination); or
  3. if any of the follow apply to a resolution related to stock compensation (including stock options):
    1. granting of them to statutory auditors and Audit and Supervisory Committee Members (decisions on voting for or against granting of them to employees or third parties are to be determined based on examinations);
    2. if the transfer restriction period or the period when it is possible to exercise them is less than two years; or
    3. if the compensation (the sum of the potential dilution amount and the past amount) is 5% or more of the firm’s total issued shares.

[6] Takeover Defenses

Takeover defenses involve the risk of damaging shareholder value because they can be used to entrench management teams and can prevent normal shareholder value from being reflected in a firm’s stock price.

Resolutions for the introduction or continuation of takeover defenses shall be voted against in principle. If a firm decides on the introduction or continuation of its takeover defense only through a resolution of its board of directors without seeking the approval of its general meeting of shareholders, resolutions on the reappointment of its directors shall be voted against.

[7] Restructuring

Business restructuring such as mergers, acquisitions, business transfers, business assumptions, share exchanges or share transfers shall be examined to determine whether they are consistent with the firm’s management strategy and whether they are the best option for helping to enhance its stock price in the medium and long term.

Resolutions for business restructuring shall be voted against if either of the below apply to them:

  1. if a merger or exchange ratio, a price or other such matter is deemed to be inappropriate in terms of the interests of existing shareholders; or
  2. if it is deemed clear that another aspect of the restructuring will damage shareholder value.

[8] Capital Policies

Resolutions related to capital policies shall be examined to ascertain whether they will help to enhance shareholder value in the medium and long term, and to determine that they will not damage the interests of existing shareholders.

  1. Decisions on voting for or against resolutions for the issuance of stock (including class shares and preferred/subordinated shares) shall be based on examinations of matters including the purpose of the stock issuance and its impact on the interests of existing shareholders in light of the relevant firm’s financial position and business performance. Issuances that risk damaging shareholder value by diluting the holdings of existing shareholders significantly, serving the interests of recipients of the new shares, strengthening the control of the firm’s management or for other such reasons shall be voted against.
  2. Decisions on voting for or against resolutions for issuances of new stock for third parties or dispositions of treasury shares shall be based on examinations of matters including the allottees, the degree of stock dilution, and comparisons of the allotment price with fair market value. Treasury share contributions to foundations shall be voted in favor of if 1) activities at the foundation are deemed to increase medium-to-long term corporate value, 2) voting rights of the contributed equities will not be exercised by the corporation or the foundation and 3) dilution is less than 3%.
  3. Resolutions for acquisitions of treasury stock that are expected to significantly damage market liquidity shall be voted against.

[9] Changes to Articles of Incorporation

Resolutions for changes to a firm’s Articles of Incorporation shall be examined to ascertain whether they will help to enhance shareholder value, or to prevent damage to it, in the medium and long term, and to determine that they will not unnecessarily limit the rights of shareholders.

Resolutions for changes to a firm’s Articles of Incorporation shall be voted against in principle if any of the below items apply to them:

  1. if they specify that appropriations of surpluses are to be conducted based on board of directors resolutions;
  2. if the purpose of a resolution for raising an authorization limit has not been comprehensively and clearly explained in terms of how it will raise the firm’s corporate value;
  3. if the purpose of a resolution for changing a firm’s fiscal year is deemed to be to postpone the holding of the firm’s regular general meeting of shareholders;
  4. if a resolution for strengthening or easing resolution requirements is not fully explained in terms of its necessity and whether it will not damage shareholder value; or
  5. if a resolution to increase the number of regular members of a firm’s board of directors is set to significantly increase the number without a reasonable explanation.

[10] Shareholder Resolutions

Decisions on voting for or against shareholder resolutions shall be based on individual examinations into their effect on shareholder value in the medium and long term. Shareholder resolutions with the potential to serve the interests of particular shareholders shall be voted against. Resolutions demanding disclosure on climate change responses shall be voted in favor of in principle except in the below cases:

  1. if the firm’s efforts are in line with what is requested in the proposal; or
  2. if realizing what is requested in the proposal would be disadvantageous for the firm or restrict its business activities.

[11] Revision and Abolition

Revision and abolition of these Standards shall be decided on by resolutions of the Stewardship and Proxy Voting Committee.

[12] Supplementary Provisions

These Standards shall take effect on April 1, 2024.

Established:

  • February 15, 2006

Revised:

  • April 13, 2006
  • June 8, 2006
  • September 29, 2006
  • April 25, 2007
  • June 6, 2007
  • May 1, 2008
  • May 2, 2008
  • August 11, 2008
  • July 5, 2010
  • March 31, 2011
  • March 31, 2015
  • July 25, 2016
  • January 24, 2017
  • July, 28, 2017
  • April 27, 2018
  • February 19, 2019
  • April 14, 2020
  • February 25, 2021
  • December 20, 2021
  • March 7, 2023
  • December 25, 2023