Japan’s AGM 2025: Reform in motion

1.    Cross-shareholdings: A shift towards better capital management 

Strategic or cross-shareholding, where companies own significant stakes in others, often raise corporate governance and capital efficiency issues. We expect management to clearly communicate the rationale of such holdings and inform shareholders about any reduction plans.

We have for many years considered a company’s cross-shareholdings when assessing director independence. Since 2022, we have also applied a voting policy whereby companies holding 20% or more of their net assets to cross shareholdings may face a vote against management.[1] Since this policy took effect, the number of our votes against management on this issue has steadily decreased from 154 during Q2 2022 to 75 during Q2 2025.[2]

According to Nikkei, the sale of strategic or cross-shareholdings reached a record JPY9.2 trillion (approximately £46 billion) in the fiscal year ending March 2025 — a 50% increase from the previous year.[3]

While we welcome the significant unwinding of these structures in the market, the process of selling, unwinding, and restructuring of cross shareholdings will likely face increased scrutiny and will be the first big test of whether the improved governance is generating increased value for all investors.

2.    Board independence: From compliance to culture

Board independence remained a central focus this season, with companies continuing to align with the Japan Corporate Governance Code’s expectations. As of July 2025, 98.8% of Prime-listed companies had boards composed of at least one-third outside directors, and 26.2% had boards where outside directors made up the majority.[4] However, not all outside directors meet our independence standards.

This year, we strengthened our criteria for determining director independence in Japan by introducing a 12-year tenure rule. Despite this change, our votes against directors on independence grounds fell from 215 in Q2 2024 to 147 in Q2 2025 — a 31% year-on-year decrease.[5]

3.    Gender diversity: Progress with purpose

We have long advocated for diversity and inclusion globally and in Japan, believing that varied perspectives enhance decision-making. Gender diversity on boards in Japan continued its upward trajectory, albeit gradually. As of July 2025, 20.5% of Nikkei 500 companies with June AGMs had 30% or more women on their boards, up from 12.4% before the AGM.[6]

While Japan still trails global peers, the progress is meaningful. This year, we expanded our voting policy to expect TOPIX 500 companies to have at least 15% female board representation, and we now vote against boards of all listed companies lacking even one female director.[7] Reflecting our strengthened voting policy on diversity, we voted against 102 directors in Q2 2025 due to a lack of gender diversity  — up from 28 in the same period last year.[8]

Unlike the anti-DEI backlash seen in some markets, Japan remains largely unaffected. The focus is shifting from token representation to meaningful participation  — ensuring both male and female directors contribute effectively to board discussions. We believe companies that treat diversity as a strategic imperative, rather than a compliance exercise, are better positioned to deliver long-term success.

4.    Shareholder proposals: Driving engagement and accountability

This AGM season saw a record number of shareholder proposals (on director nominations and other governance topics) that were approved[9], underscoring the need for companies to remain engaged with capital markets year-round.

Meanwhile, the number of shareholder proposals focusing on environmental issues (excluding proposals related to nuclear power) and the number of companies that received those proposals in Japan rose slightly, from 13 proposals at seven companies in Q2 2021 to 14 proposals at 12 companies in Q2 2025. Over the past five years, the level of shareholder support for these environmental proposals in Japan on average has slightly increased from 9.1% in Q2 2021 to 9.8% in Q2 2025.[10]

While the average shareholder support for environmental proposals remains below 10%, this contrasts with the global trend, where backing for ESG-related shareholder resolutions declined by about one-third, and average support dropped from 35.8% in 2021 to 26% in 2025.[11] 

Transparency remains central to our stewardship approach, and in addition to our regular practice of disclosing all votes within 24 hours of the shareholder meeting, we announced our voting intentions in advance of the AGMs at several major Japanese companies this year. This included climate-related shareholder proposals at Japan’s mega banks, concentrating on two types of resolutions: One that closely mirrors a 2024 proposal, reflecting ongoing concerns about limited progress despite strong prior shareholder support.[12]

Looking ahead: Stewardship in a shifting landscape

Japan’s 2025 proxy season underscores a market in motion and one that is gradually but steadily embracing higher standards of governance, diversity, and environmental accountability. While challenges remain, the direction is clear and the momentum is building.

Japan’s progress is not accidental; it’s the result of sustained pressure from domestic and international investors, regulatory nudges, and a growing recognition among corporate leaders that good governance and addressing sustainability issues are strategic advantages.

In a global context where ESG is increasingly politicised, Japan’s pragmatic and steady approach offers a compelling model. We believe that these efforts are not only enhancing long-term value creation but also strengthening business resilience and positioning Japan as a reliable and forward-looking market for global investors.

For Professional Clients only. Capital at risk.

Assumptions, opinions, and estimates are provided for illustrative purposes only. There is no guarantee that any forecasts made will come to pass.

Key Risks

The value of an investment and any income taken from it is not guaranteed and can go down as well as up, and the investor may get back less than the original amount invested.

Important Information:

The views expressed in this document are those of Legal & General Investment Management Limited and/or its affiliates ('L&G', ‘we’ or ‘us’) as at the date of publication. This document is for information purposes only and we are not soliciting any action based on it. The information above discusses general economic, market or political issues and/or industry or sector trends. It does not constitute research or investment, legal or tax advice. It is not an offer or recommendation or advertisement to buy or sell securities or pursue a particular investment strategy. Past performance should not be taken as an indication or guarantee of future performance and no representation, express or implied, is made regarding future performance.
 
[1] Japan Corporate Governance and Responsible Investment policy
[2] L&G voting records
[3] Policy stock sales increased by 50%, a record high of 9 trillion yen as an opportunity for governance reforms such as Toyota and finance, Nikkei Business Daily, 27 July, 2025
[4] Appointment of Independent Directors/Auditors | Japan Exchange Group
[5] L&G voting records
[6] 2025 SMTB Japan proxy review p.32 (based on SuMi Trust survey based on proxy statements of the 380 Nikkei 500 companies that held an AGM in June 2025)
[7] Japan Corporate Governance and Responsible Investment policy
[8] L&G voting records
[9] IR Japan, Market Insights 2025 ; 2025 SMTB Japan proxy review p.26
[10] L&G voting records
[11] The 2025 Proxy Season in 7 Charts | Morningstar (Data as at 21 July 2025; 2025 figure excluding anti-ESG proposals)
[12] 2025 L&G voting intentions - blog