Special shareholder incentives that damages shareholder value

There are many companies that have introduced a special shareholder incentive program. If the intent, through the free distribution of its own products or services, is to increase brand loyalty of company and to contribute to business results, this may not be an issue.
However, it is an issue if the company distributes cash vouchers such as the Quo Card as a special incentive for shareholders. This is because distribution of such cards causes (1) decline of management discipline due to an increase in the number of obedient and undemanding shareholders, and (2) violation of the principle of shareholder equality because such vouchers are essentially a cash dividend.

The Company’s president, Mr. Minami, clearly stated that the purpose of the shareholder incentive program is to attract retail investors and create long-term stable relationships with shareholders. However, as shown in the figure below, the special shareholder incentives program of Keihanshin Building has not achieved its purpose of creating stable shareholders as the shareholding ratio of retail investors has fallen significantly. It can be said such program has only increased the outflow of company assets through distribution of cash vouchers. We believe that such waste of company assets should be stopped as soon as possible.

（Source：YUHO etc.）

Topic (i):Changes in Keihanshin Building’s special shareholder incentive

29th Sep 2011：Press release – Establishment of special shareholder incentive program (distribution of Rice Coupons)
In gratitude for the support from shareholders, also to make the Company’s shares more attractive to investors and increase the number of shareholders who will hold the Company’s shares over the medium to long term, we established a special shareholder incentive program.

26th Feb 2015：Press release – Expansion of special incentives to give preferential treatment for continued shareholding of 2 years or more
The Company had implemented a special shareholder incentive since March 2012 with the aim of expressing gratitude for shareholders’ daily support and increasing the attractiveness of investing in the Company’s share. This time, to respond to support from our long-term shareholders, we are expanding the incentive program so that more people can deepen their understanding of the Company and will provide long-term support.

30th Jan 2019：Press Release – Change in shareholder incentive from Rice Coupons to Quo Card
These changes will be made to improve shareholder convenience, while at the same time, increasing the attractiveness of investing in the Company’s shares in the hope of encouraging more people to hold our shares. We ask for your continued support as we aim to achieve further growth to meet the expectation of our shareholders.

Topic (ii)：Excerpts from our recent presentation on shareholder incentives

Our opinion on shareholder incentives

Although we ask for the abolishment of the special shareholder incentive program in the letter on 2/1/2019, a certified mail on 5/22/2019 and statements made at the AGM 6/18/2019, the Company has regrettably continued the program.

We can’t understand why the Company has to distribute Quo Cards “in gratitude for the daily support of shareholders” and cause the outflow of company asset. We want you to comprehend your responsibility as directors is to improve shareholder value.

President Minami commented on 05/13/2019 that he wanted to “increase the number of retail investors and the number of medium- and long-term shareholders”. This means the Company is trying to create stable shareholders. There is no causal relationship between increase in the number of stable shareholders and improvement of shareholder value. We are concerned that increasing stable shareholders will instead lead to decline of management discipline and damage shareholder value.

As mentioned above, the shareholding ratio of retail investors has decreased since the introduction of the program, and even the purpose of creating stable shareholders, an inappropriate goad for a listed company, has not been achieved. Furthermore, President Minami has held information sessions for retail investors more than 10 times a year, which is a waste of time and money.

As we see it, the real purpose of the program is to increase the number of stable shareholders to help protect the position of managements. We would like you to immediately stop using company assets and damaging shareholder value for such an inappropriate reason.

（Supplement：Although the Company actively holds information sessions for retail investors, it has not led to the intended increase in the shareholding ratio of retail investors. Strategic Capital finds that it is a waste of time and money to hold sessions more than 10 times a year that have not proven to be effective.）