Board of Directors and Audit & Supervisory Board, with a majority of former Sumitomo Bank associates | Increase Keihanshin's shareholder value
What we hope Keihanshin to increase the shareholder
value as a shareholder are:
I. Improve Corporate Governance
II. Realize the potential value of real estate owned by the Company (e.g. by creating a REIT)

Board of Directors and Audit & Supervisory Board, with a majority of former Sumitomo Bank associates

Although Sumitomo Mitsui Banking Corporation owns only 4%, the majority of the Board of Directors and the Audit & Supervisory Board of Keihanshin Building are occupied by former Sumitomo Bank associates. Such composition of the boards can be considered the proof that they have made Keihanshin Building their own.  Below is the organization of Keihanshin Building. It is conspicuous that former Sumitomo Bank associates are appointed as board members. In particular, four of the five full-time directors are from former Sumitomo Bank. Update (May 18, 2020): A vote in favor of Keihanshin’s proposal at the upcoming AGM will positively increase the number of outside directors from three to four, but two out of three full-time directors (including the Chairman and the President), and three out of five executive officers will still be former Sumitomo Bank, which is still too many.

The Company disclosed the following in the corporate governance report (hereinafter referred to as the “CG Report”) as the process for selecting directors and corporate auditors.

The Company determines candidates for directors and corporate auditors by comprehensively judging the personality, insight, ability, experience, and expectation for contribution of each candidate. The candidates for directors are drafted by the representative director and discussed and decided by the Board of Directors after consultation with the optional Nomination and Renumeration Committee, which is the advisory body of the Board of Directors.

(Source:CG Report (Japanese)

 trategic Capital believes that such a statement is inaccurate and that in principle, full-time directors are appointed from the candidates of former Sumitomo Bank associates is a more appropriate description.
However, following the AGM in June 2019, 3 out of 5 members of the optional nomination committee have become independent outside directors so we expect this situation to change.

TOPIC: Keihanshin Building continues to use a staggered term system for directors
This type of term system works as a takeover defense measure that prevents the replacement of the total management team over one year by staggering the period of their election. Keihanshin Building is continuing to use such term system to protect its management that is becoming increasingly rare amongst listed companies. However, as shown below, the proxy advisory firms recommend voting against such term system and it should be abolished to improve corporate governance.

Glass Lewis
Glass Lewis favors the elimination of staggered boards in favor of the annual election of directors. We believe staggered boards are less accountable to shareholders than boards that are elected annually. Furthermore, we feel the annual election of directors encourages board members to focus on shareholder interests. Moreover, empirical studies have shown: (i) companies with staggered boards reduce a firm’s value; and (ii) in the context of hostile takeovers, staggered boards operate as a takeover defense, which entrenches management, discourages potential acquirers and delivers a lower return to target shareholders. Given the empirical evidence suggesting staggered boards reduce a company’s value and the increasing shareholder opposition to such a structure, Glass Lewis supports the declassification of boards and the annual election of directors.

(Source:GUIDELINES p.10)

Generally vote against proposals seeking to remove language preventing classified boards.

(Source:Proxy Voting Guidelines p.9)

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