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Changes in board composition

Home / EOS Case Studies / Panasonic

Sachi Suzuki
13 February 2017

Panasonic is one of the largest manufacturers of electric and electronic products globally.

At the beginning of our engagement, the company had a large board with 20 directors none of whom was genuinely independent. Eighteen directors were company executives and the other two, while being designated as outsiders, represented financial institutions with which Panasonic has shareholding and business relationships. The board members were also all Japanese men, demonstrating a clear lack of diversity. In addition, the company’s board introduced a takeover defence scheme, a so-called poison pill, and continued to renew it at its discretion without putting it to a shareholder vote. This is despite the fact that most other Japanese companies that have adopted poison pills have sought shareholder approval at their AGMs, although these typically attract a low level of support.

What we did
We held a number of meetings and calls with the company in Tokyo and London, where we raised our concerns, questioning how effectively Panasonic’s board could function given its size and the potential conflict of interests between the affiliated outside directors and the company. We encouraged it to consider appointing genuinely independent directors and increasing the diversity on its board. In parallel, we raised concerns about the poison pill and particularly the company’s practice of renewing it at the discretion of its board. We wrote to the board in 2012 and again in 2016, addressing a director in charge of governance matters. The later letter highlighted our voting at the AGM, where we supported by exception the re-election of the chair despite our significant concerns about the continued renewal of the poison pill at the board’s discretion. We recognised the progress made in other areas of governance by the company and we felt it appropriate to support him in 2016. Nevertheless, we reiterated our serious concerns about the poison pill and strongly encouraged the board to provide a detailed explanation as to why the poison pill is necessary should it seek to renew it this year.

In 2012, Panasonic reduced the size of its board (to 16), in line with our suggestions, and the first independent director was appointed in 2013, which we firmly welcomed, not least because the director is a woman. The company however appeared reluctant to further increase the genuine independence on its board or change its position on the poison pill, which is why we continued our engagement. In 2016, we welcomed the appointment of the second independent director without an increase in the overall board size, as well as the appointment of a female independent statutory auditor, which added to the diversity. Later in the year, the company announced its decision to abolish the poison pill altogether at the end of March 2017. We are pleased with these steady improvements to the company’s governance practices.

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Sachi Suzuki Sachi Suzuki leads company and public policy engagements and voting activities in Japan and South Korea. She is also responsible for the automotives sector. Prior to joining Hermes EOS, she worked as a senior research analyst at EIRIS, where she was responsible for the assessment of the ESG performance of Japanese companies, as well as research on bribery and corruption. Sachi graduated from Keio University in Japan with a degree in Economics and holds an MSc in Development Studies from the School of Oriental and African Studies, University of London. She holds the CFA UK – Investment Management Certificate.
Read all articles by Sachi Suzuki
Previous article:

Engagement objectives

Governance: Board independence,
Geographical diversity on board

Engagement issues

Governance: Board size, Poison pill

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