The Impact of the Coronavirus Pandemic on Annual Shareholders Meetings and Dividend Determination in Japanese Companies

Abstract

Looking back on the trends of the 2020 annual shareholders’ meetings in Japan, due to the effects of the new coronavirus, many companies have been slow in closing their accounts, which has led to difficulties in responding to the shareholders’ meeting. According to the Japanese Companies Act, if the record date for exercising the rights of shareholders is set in the articles of incorporation, the rights must be exercised within three months from the standard date (Article 124 of the Companies Act). Many companies in Japan have set the record date at the end of March, so they have held an annual shareholders’ meeting by the end of June. As a result, many companies managed to meet the scheduled date for shareholders’ meeting. In any case, in the current situation, a company that makes a resolution on dividends at the shareholders’ meeting will be faced with a difficult response or decision. In Japan, in principle, resolutions regarding the determination on dividends of surplus are to be made at the shareholders’ meeting (Article 454, Paragraph 1 of the Companies Act). However, under the current Companies Act, the authority to determine dividends does not always exist only at the shareholders’ meeting. Under the current Companies Act, 1) a company with accounting auditors, 2) the term of office of directors does not exceed one year, 3) a company with a board of company auditors, with an audit etc. committee, or with a nominating committee, etc. In a company that meets all of the three requirements, the articles of incorporation may stipulate that matters concerning dividends of surplus can be decided by a resolution of the board of directors (Article 459, paragraph 1 of the Companies Act). It has been generally believed that the determination on dividends would basically be made at the shareholders’ meeting in Japan. However, with the experience of the Corona crisis, we should look at the implications of determining dividends at the board of directors. By the way, in the United States, it is common for the board of directors to determine dividends, while at the same time, governance is carried out in such a manner that the proposals for the appointment and dismissal of directors are scrutinized at the shareholders’ meeting. In the UK, according to the provisions of the articles of incorporation, the structure for selecting whether to place the authority to determine dividends at the shareholders’ meeting or the board of directors is adopted. Even in Germany, which has the authority to determine dividends at the shareholders’ meeting, the board of directors and the supervisory board also allow their own authority to reserve up to one-half of the annual surplus as a voluntary reserve fund. It should be well recognized that, even internationally, the determination of dividends does not naturally fall under the authority of the shareholders’ meeting. The number of companies that have transferred the authority to determine dividends to the board of directors has been on the rise for the past several years, but this trend has accelerated this year under the Corona crisis. On the other hand, there is some movement in the opposite direction. There is a high hurdle to change the authority regarding dividends in any case because the articles of incorporation must be changed (needs a special resolution at the shareholders’ meeting) but what should be recognized as a premise of the discussion is that, also internationally, it is not natural that the determination on dividends should be made at the shareholders’ meeting. For example, in the United States, it is common for the board of directors to determine dividends. What is more important under the current situation is that about 60% of the listed companies in Japan can still determine dividends by resolution of the board of directors and the number of such companies continues to grow. In considering future issues regarding the company's distribution of dividends, we should hold discussions based on these points.