Governance > Principal Discussions at Board of Directors Meetings Held in Fiscal 2016

Principal Discussions at Board of Directors Meetings Held in Fiscal 2016

Board of Directors

The Capcom Board of Directors ensures management transparency and corporate health, with its six external directors taking the lead in proactively offering opinions and advice. In addition to addressing policies for shareholder returns, including dividend payments and share repurchases, they engage in lively discussion concerning Capcom’s business risks and growth strategies, while promoting those strategies through corporate governance. While there were more than a few heated discussions with external directors, on this page, we will present an overview of several discussions on takeover defense measures.
(Light blue highlights indicate external director comments.)


Proposal for Countermeasures (takeover defense) in response to a large-scale purchase of shares, etc. of the company (April 2017)

While continuation of the takeover defense measures was struck down at the 35th Ordinary General Meeting of Shareholders in June 2014, the same measures were reinstated in 2015. I think linking them to the medium-term strategy, changing the term for directors to one-year, and shifting the decision-making processes to the general assembly were well received, thus leading to a vote to approve. When the measures were reinstated two years ago, we explained to shareholders, including institutional investors, regarding our efforts to monetize our IP, which are off-balance-sheet assets, in light of our growth strategies. We received pro tem approval with the understanding that there would be a time limit for the policy. In leveraging our IP, we strove to strategically grow catalog sales. Since fiscal 2013, we have achieved four consecutive years of increased operating income, and have made steady progress toward increasing corporate value. In order to once again facilitate our growth strategies, we will raise the topic of continuing the takeover defense measures for discussion at the June 2017 Ordinary General Meeting of Shareholders, where we will report to shareholders on the progress of our new Medium-Term Business Goals. Considering the environment surrounding the takeover defense measures, and in conjunction with the above strategic growth measures, we will be called upon to clearly specify time constraints, such as the "one-time only" provision, in order to receive majority approval.
Because there is no precedent in our business for introducing take-over defense measures that include a one-time only stipulation, this would garner considerable attention. Also, a one-time only provision means that the measures must be discontinued once their period of validity ends. While the effect of such measures is limited, the resulting restraints they would place on the acquirer, in practical terms, are worth noting. In Capcom’s case, it would be an unusual choice to place ourselves in a situation where we are forced to decide whether to discontinue the take-over defense after a given amount of time following its adoption.
However, I also understand the necessity of proceeding carefully in bringing the matter up for discussion should we not specify that it is one-time only, and am conscious of the possibility of it being rejected. I would like to hear, in simpler terms, if anyone here has thoughts on how we should proceed and what we should emphasize as a company in proposing take-over defense measures that specify a one-time only stipulation.
This one-time only provision is extremely unusual. The public will not support us if we cannot clearly show what we have done these past two years, and what our plan is for the coming two or three years. Also, considering that we are being told, ultimately, that the only solution for a takeover defense is to raise our stock price through strong performance, the fact is that these measures will reflect negatively on our stock price. It may be a valid choice in this case to discontinue the measures.
I realize that the circumstances surrounding the takeover defense measures of 2015 and those at present are fundamentally different. I have been reviewing matters regarding the contingency plan currently in place, including which departments will take charge, and have found that the plan will take time in some areas. I agree with bringing the matter up for discussion in that it would be favorable to specify, to a degree, a period of time in the takeover defense measures that would help us stave off an acquisition.
I understand very well that the concept is to protect our content; however, given that it has been two years since the previous adoption of the measures, that the founder and his family hold more than 20% of shares, and that some investors are not in favor of the measures, if we do not have an explanation regarding what management is thinking and why the takeover defense measures are necessary, there is no benefit in us reviewing the matter as external directors. I would like to have the executives explain to external directors why the measures are needed from the standpoint of company strategy.
Tsujimoto (Kenzo)
Relying on takeover defense measures is not necessarily a good thing. Furthermore, we must manage and execute with the awareness that emergencies are always possible. It is also necessary to be cognizant that, as a result of having takeover defense measures, there may be a tendency to neglect matters that have been in need of attention. If we are going to expend a large amount of time, effort and money deliberating takeover defense measures, we must be prepared to make decisions and respond during an emergency. Over the past several years, we have steadily increased earnings, which has led to a higher stock price and market capitalization. I believe that these are, in fact, primary takeover defense measures.
I have no objection to takeover defense measures in and of themselves, but I feel that continuing them with the one-time only provision is not preferable. If we do use a one-time only provision, we need to explain in detail to shareholders as to why we are doing so. Regardless of whether we have takeover defense measures or not, there are numerous other measures that we must have. As a company, we must always achieve our target ROE, which is a quantitative goal. However, we must consider if, for example, we were unable to achieve this goal, how we would hold ourselves responsible to shareholders.
Preparing our response in the face of a takeover bid is vitally important, and I think it as an issue that must be addressed regardless of whether we adopt takeover defense measures. From my experience as an attorney involved with takeover cases, I feel that one’s options for preparation and response become limited once faced with an emergency. In hostile takeover cases at other companies, the crisis management team failed to function and did not make preparations in times of tranquility. Therefore, I think we need to establish a crisis management team and develop, among other things, a manual based on simulation results now, while things are calm; further, I feel it’s necessary that we consider the composition of our response structure, including advisors, attorneys, and others.
Tsujimoto (Kenzo)
Our takeover defense measures are a framework stipulating steps that acquirers must adhere to. They allow management to secure some time for discussions if an acquirer makes a bid without following the prescribed steps. That said, it is natural in business for a stronger company to acquire a weaker one. It is a mistake for management to say this or that about being acquired while not understanding whether they are strong or weak. If our policy as a company is to not respond in the face of unreasonable methods, then takeover defense measures are important, but this "one-time only" provision goes against company policy. If a large number of shareholders are opposed, I think it would be good to discontinue the measures in this case. The Company would be best putting its efforts elsewhere.

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