7/86 SHAREHOLDERS MEETINGS-----SOKAIYA ET AL - Commercial Code - Shareholders’ Rights

It appears that the police have been quite successful in their policy of controlling the activities of professional shareholders. Although, during the January-April 1986 period about 200 companies had general shareholder meetings in the Tokyo metropolis, compared to the same period a year earlier, the amount of time required for general shareholder meetings decreased by an average of 20 minutes per company. Only four companies had shareholder meetings that took more than three hours, 14 fewer companies than a year before.

The average length of the shareholder meetings was in fact 48 minutes. In what other capitalist country would the police be praised for assuring that less than 2% of all shareholder meetings lasted more than three hours or that they had succeeded in reducing the average time for shareholder meetings by 20 minutes?

Indeed, in what other country is it necessary for the police to attend the shareholder meetings of almost all publicly listed companies to assure that there are no disruptions? Three years ago there was a revision to the Commercial Code. The objective of the amendment was to restrict the activities of the professional shareholders while enhancing the participation of legitimate shareholders. These professional shareholders, known as Sokaiya are semi-gangsters who specialize in digging up dirt on major corporations. They have long blackmailed the corporations to either pay them off or be embarrassed at their shareholder’s meeting. They also served the ancillary purpose of, upon suitable payment from corporate management, physically silencing legitimate shareholders who had the audacity to question management at shareholder meetings. The most famous case was the beating of lawyer shareholders at a shareholder meeting of Marubeni Corp., which was involved in the bribery of Prime Minister Tanaka.

According to survey by SHOJI HOMU, a legal studies institute affiliated with the Ministry of Justice, the activities of these sokaiya had been greatly reduced immediately following the amendment, but have since started to rise again. The survey was made of 1818 companies listed on stock exchanges in Japan. Of those, 1341 replied to the survey. Only 3.9% replied that they had not been contacted in some way or other by sokaiya. Those feeling that the activities of the sokaiya were significantly increasing amounted to 37.9% According to the National Police Agency however, the number of such sokaiya in the Tokyo area have decreased to 970-980 from around 3500 operating in 1982. The police also claim that only 120-130 actively attend shareholders meetings and only 70-80 are very aggressive. The general strategy of the sokaiya is to ask the target company to subscribe to extremely expensive publications published by the sokaiya, buy back the shares of the company held by sokaiya at a very high premium, have the company pick up the sokaiya's bills at high priced night clubs and restaurants, or present the sokaiya with gift certificates. All of these activities were made illegal by the amendment to the Commercial Code.

In 1984, in order to emphasize to the companies that it was not only illegal for the sokaiya to receive such payments, but also illegal for the companies to pay them, the police arrested some minor officials from Isetan, a prestigious Tokyo Department Store for making illegal payoffs. This year some officials from Sogo, another major department store was selected. In both cases, the arrests were made only weeks before the late June peak in annual shareholder meetings. The likely reason for the selection of department stores is probably more related to accounting customs than corruption in a particular industry. Although the overwhelming majority of Japanese business corporations have business years ending in February. By finding something wrong at the shareholder meetings of firms having their meetings just before the major peak of shareholding meetings they can serve a warning on the bulk of management to tread with care. In the case of Sogo an official from the company's secretariat visited the Sokaiya, who had served notice that they would be asking a lot of questions, three days before the shareholders meeting. The secretariat official asked the sokaiya if they were really going to go to the shareholders meeting and ask the questions. He just happened to leave a significant amount of department store gift certificates. The sokaiya did not bother the meeting. Then, on June 26, the day before the peak in shareholder meetings the police arrested another sokaiya. In this case the sokaiya warned an electric utility construction firm that he had obtained contaminated gloves and shoes from workers at a nuclear power plant and threatened to reveal the firm's incompetency. He demanded payments of 48 million yen. He was arrested when he picked up 3 million yen. On June 27 1986 about 87.3% or 750 of the 859 companies listed on the Tokyo Stock Exchange with business years endings in March, 1986 held their shareholding meetings. This was slightly higher than the 83% of the previous year. The reason behind having so many companies have their shareholders meetings on the same day is to make it difficult for the sokaiya to cover all the shareholder meetings. On a nationwide basis, 1,213 companies held their shareholding meeting on that day. Over 90% of the meetings ended in under an hour. Although the National Police Agency had stationed 5,618 policemen to attend shareholding meetings around the nation to prevent the sokaiya from causing trouble, the actual number of sokaiya attending shareholder meetings during the day reached 586, up from 508 a year earlier. Because of this the number of shareholder meetings lasting more than two hours increased to seven compared to six in the previous year. Due to revisions in the Commercial Code meant to restrain the activities of sokaiya at the same time as enhancing the rights of legitimate shareholders, out of the thousand plus shareholder meeting held on the day, discussions of proposals filed by shareholders were achieved in only three cases. In all three cases the proposals by the shareholders were voted down without any ensuing problems. In two of the cases the shareholders making the proposals did not even attend the meeting. (In accord with the revision to the Commercial Code three years ago, shareholders with 1% of the shares or 300 shares of par value 50,000 yen or more may present proposals to be voted upon at the general shareholder meeting.) Marubeni had a rather long shareholder meeting, with the company's president having to defend his firm against allegations about the company's relations with deposed Philippine president Marcos. In the last shareholder meeting for Heiwa Sogo Bank, which is to merged with Sumitomo Bank, the company president apologized to the shareholders for the recent scandals and losses the bank had incurred.

Concern is rising that the requirements of the 1977 revision to the Antimonopoly Law that banks and securities firms reduce their shareholdings in any company to a maximum of 5% from the previous 10% may cause a collapse in stock prices and the demise of the support system banks have long provided for corporations. According to a survey at the end of 1985 made by the Fair Trade Commission, banks still had not disposed 56.8% of the shares they would be required to drop and the securities firms 43%.

THE JAPAN LAWLETTER. July 1986. By Roderick Seeman