Securities Report and AGM under New Corona Emergency Declaration ——Management Responsibility to Society and Ideal AGM

Please allow my strange English because it is written by google translation. (Please do not laugh ;) actually my Japanese also very strange!! ) The original article is here.

The Financial Services Agency (FSA) has announced the extend the deadline of the securities report on April 14. Not only securities reports, but also quarterly reports, semi-annual reports which deadline of submissions due after 4/20, is postponed by the end of September.

It is a measure in consideration of delays in business due to working from home, as the current fiscal year's financial settlement and audit work, which are most concentrated, are in progress. In response to this announcement, voices are seen such as "Even we can postpone the submission of securities report, but we can not delay the AGM (shareholders meeting), our burden will not change".

The next day, on the website of the FSA, the liaison council of the relevant ministries and agencies also sent a message about flexible consideration about AGM.

According to it, 1. It is possible to postpone the schedule of the AGM at any time. 2. Nevertheless, even if you want to hold your AGM as scheduled due to various circumstances, financial statements and audit reports can be provided at the separated meeting (after a few months). It meant that it is possible to provide them at the "continuation meeting".

This has a feeling that the tone is different from the announcement made the day before. Even if the submission of the securities report is delayed, it seems to be expected that some companies will hold the AGM as scheduled. According to a Q & A announced by the Ministry of Economy, Trade and Industry(METI), it is possible to set up an online site at AGM to encourage electronic exercise in advance and suggest shareholders "not to come to the venue" in consideration of their health. However, it seems still 100 % only online AGM is not possible.

Investors and analysts have understood that the deadline for filing securities reports has been extended in the past due to natural disasters. However, opinions are divided regarding the schedule of the AGM. In this article, I would like to sort out the current issues based on the views of domestic and foreign investors, analysts, and individual discussions with about 15 people such as Auditors and corporate accounting people.

Isn't it possible to delay AGM?

Ms A, a British investor in charge of Japanese equities said when she saw this news first time: “I can understand if audit can not finish by the deadline, but can they make a dividend decision even the audit haven't yet?"

Still trying to hold their AGM at the end of June with endangering employees and shareholders may seem to be "why ?....", seeing from the UK, where the number of infected people is more severe than Japan.

Investors are aware that the "continuation meeting" is the method that is used when audits were not able to be completed due to the discovery of fraudulent accounting. Therefore, in this situation, choosing this method to hold the AGM as original schedule even if the audit hasn't finished, looks too much focused on the audit than all measures that companies should take to prevent the spread of infection now.

As stated on the FSA website, it is possible to delay the shareholders' meeting by changing the base date(dividend and voting rights reference date, Here is the explanation by the Ministry of Justice).

However, in this case, there is a problem that a person who sold shares after the ex-base date at the end of March cannot receive the dividend because a new base date is set. Of course, they lost the right to exercise voting rights. Because stock prices were very volatile around the end of March, some investors may not be satisfied with the fact that they cannot receive dividends, because the base date was changed after. “Seem to be quite a few companies that care about it,” said an expert who specializes in issues of shareholder meetings.

Even investors who made long-term investments and continued to hold stocks even during the turbulence at the end of March, "There might be some troubles if there is no cash-in as expected at the end of June for such as mutual funds which make dividends monthly and pension funds" Mr B, from one of the largest investment companies, said.

But at the same time,“ a lot of companies are switching dividends to a resolution of the board of directors, (only about companies that he holds). If the board of directors will decide the dividend at the end of June, it won't be delayed compared to the usual year. If the company does not delay AGM only because of the dividends to investors, that would be not a good idea”.

The eight investors and analysts who have discussed this time about the postponement of the AGM and submission of the securities report are making sense for this year. However, if the AGM is not postponed and the audit or complement of the closing the accounting are not completed by then, their opinions became different.

"Is it possible to vote for the board nomination even if the audit results have not been obtained?" Mr C, who is in charge of the responsible investment department, wondered. "If in that case, I'd like to get a solid financial statement before AGM, but is it difficult in the first place ..." Multiple people raised similar opinions. I think that everyone wants to put out the earning digest which is normally filed to Tokyo stock exchange before AGM without audit, but the fact that Japan's earning digests are enough quality to use for institutional investor's voting of the AGM means that audits are virtually parallel. This is because the audit has been conducted as a company act level before AGM. So it is necessary to consider this issue from the perspective that if audited won't be done before AGM, the earning digests are no longer the same level of quality as usual.

What is happening on audit and closing accounting?

On the other hand, some investors are questioning "why is audit a problem?" "Originally, there are still more paper-based operations in Japan than in other countries, and it may be that audits are delayed compared to other countries because the accounting department and audit firms have not been digitized enough?" one of them said.

In response, one accountant, Mr D, clearly said, "No, I don't think so. There may be a lot of paper-works still in our job, but it doesn't mean that we haven't been able to catch up with it. Currently, we can not visit the client to check inventories in person, etc. It must be same in other countries. Besides, in the case of companies that are fiscal year-end is December were OK, even in Japan. March-end companies are problems". Mr D continually said “The auditors gave warnings early on. To be honest, I feel that Japanese are less responsive to the spread of the new coronavirus infection than in other countries. The accounting department continues to work with no telework(work from home) at all. it's very scary. If one person is infected, it will be completely spread”.

Mr E of the accounting department at some listed companies also feels the same. "Our company, the accounting department completely shifted to telework. But when I look at the business partner, seems not. If one of the staffs got infected ...I do not want to imagine..." His company has nearly 100 subsidiaries globally, it was very difficult because there were places where overseas subsidiaries had stopped business activities in early, but they plan to deliver the financial results as planned. However, there are cases that the accounting department cannot do telework, he felt.

Ms F, a CPA, said, “My client can't do telework for the accounting department, so staffs are waiting home in order. So even if I ask for related documents, it will take about a week when the person in charge comes office next time. However, even under such circumstances, all of them are trying to issue the financial statements as scheduled ”. Ms G, from another audit firm, said,“ The teleworking facilities are not enough and they use it in sequence. In the office, They are seated separately, avoiding to go to lunch together. They are so much careful, conducting somehow... ". Sell-side analyst H said, "If you think that auditing can be done in this situation and only Japanese audit firms are a delay in time, you may not know to audit so much."

Since Mr H in charge of the trading company sector, often sees large global companies. “I think auditing is difficult now. I want the company to make the audit well, as an analyst. It would be good to hold AGM after the audit has done. It's an emergency time. In overseas, there is a discussion that the company should not pay dividends this year. The AGM should be postponed. ”Regarding the explanation on the FSA site, to postpone submission he financial statements and audit reports, to have the “continuation meeting” and to have AGM for the only nomination, Mr B said, "I want the company to provide information about the candidate of directors, at least". On the other hand "(even if the audit procedure could not be completed) auditor notes how much they have been able to check, how do you think about this idea?" said one of the active investors. There are also investors' desire to know the financial situation as soon as possible. Another foreign-funded active investment manager required "We need financial results or numbers. Rather, it becomes more important now. I hope the company can disclose as much as possible ... ".

Do companies want to hold AGM on schedule? -- Looking future and making decisions!

As of April 17, many companies are planning to hold AGM in June as planned, related people are guessing. The Nikkei reported on April 15 that there are quite a few companies that intend to announce their financial results as scheduled. Mr E mentioned above also thinks, "I also want to have AGM as scheduled ...". “Many of the executives of Japanese companies are promoted internally, and so they want to be approved as executives in June as scheduled, and treat other HR matters as planned. It is a very sensitive matter” he said. Also, some companies seem to concern that stock prices will be adversely affected if they do not have AGM as scheduled. They are also worried that there will be adverse effects when they need (maybe soon) additional funding becomes necessary after this.

However, in such a situation, is it really realistic to approve new executive personnel at AGM? Originally, it is an emergency time, and it would be better for the management to continue to serve as the same members for a few months. If new executives come, clerical work will occur accordingly.

"I think now companies concern which is good for investors. More than whether they could make it or not.." said one researcher at an IR support company. Now investors will say different things depending on the situation in which they are placed. Under such circumstances, if no one stops it, the accounting department will never stop trying to issue financial statements, Mr J , who is engaged in the information service for the accounting department, said.

Mr E said, "I think that FSA gave us a clear message about the submission of securities report. Compared to that, the message about AGM was weak, maybe people can not find out what they should do"

Already, the base date at the end of March is passed for companies which have AGM in June, and it is not easy to change it. In the middle of April, will companies be able to make internal and external adjustments and make such decisions? Nothing will change unless legislation takes explicit action, such as allowing companies to delay AGM without any difficult procedure , or sending a stronger message.

One of the hurdles to delaying the AGM is base date has already been past, but this problem does not occur in the UK, where the base date is two days before AGM. Not so many countries have such a long interval, three months between the base date and AGM. This is one of the points that should have been discussed more when the debate about the corporate governance code has started, in which investors who are not shareholders for a quarter of a year have voting rights. There are various unresolved issues, such as lack of telework facilities, not enough digitising accounting work, AGM schedule, two types of audits even though the period from the end of the fiscal year to the AGM is the shortest (?) in the world, and the base date is three months before from AGM. All of those issues are now exacerbating the problem.

"As an investor, Of course, I want to get the financial results faster. Everyone will answer same, however now it's the management's responsibility to decide what they should do for employees and society. I want them to think about what they do best as management, not to care how investors say" Mr B concluded. This is a message from all the investors discussed this time.