An investor group representing asset managers including BlackRock and Fidelity International is calling on Japanese companies to abolish cross-shareholdings, saying the long-standing practice has an “adverse impact” on companies’ capital efficiency.
Companies should set reduction targets and improve disclosure of these interests, the Asian Corporate Governance Association (ACGA) said in its open letter on Friday. Companies must also declare that any sale by corporate shareholders will not be offset by a loss of benefit, including the termination of the contract with the seller, the group said.
While there has been some reduction in so-called ‘strategic share ownership’, where companies hold shares of other companies with business ties, progress has been slow, especially those outside the financial sector, ACGA said.
ACGA joins a growing group of the country’s regulator and a growing number of investors demanding an end to the practice criticized for undermining corporate governance discipline and leading to anticompetitive behavior. The government has also urged companies to reduce such shareholdings, requiring companies to assess whether such interests may be justified.
The group consists primarily of asset managers and pension funds in Asia with combined assets under management of more than $40 trillion.
