Hibiki Path Advisors (“we”, “us”, “our”, “Hibiki”) has submitted shareholder proposals to Tomoe Corporation (“the Company”, “Tomoe”), one of our portfolio companies, in order to protect the common interests of Tomoe’s shareholders.
While the Board of Directors of Tomoe has expressed its opposition to both of our proposals(Japanese Only), Institutional Shareholder Services (“ISS”), a leading global proxy advisory firm, has publicly recommended voting for Item 5, as outlined below. Concerning Item 4, which ISS recommends voting against, their decision is based on a dilution risk that was calculated by the most pessimistically assumed formula, and we believe that ISS’s opposition is technical and does not constitute a fundamental objection to our intent to align the interests between management and the shareholders.
Please refer to the AGM notice(Japanese Only)issued by the Company for details of the proposals.
Figure 1: ISS Recommendations on Our Shareholder Proposals
※Prepared by Hibiki based on ISS’s stated rationale. The ratio of cross-shareholdings to net assets is as of FY3/24
（Source: Created by Hibiki）
Key takeaways from ISS’s recommendations are as follows, in our view:
①ISS explicitly pointed to the Company’s “Unusually High” level of cash holdings, as well as the fact that 58.2%¹ of its net assets are allocated to cross-shareholdings, significantly exceeding ISS’s 20% criteria—as part of its rationale for supporting our proposals.
②ISS assessed that DOE 10%, corresponding to approximately 18.3 %² of its net cash and long-term investments, is reasonable, citing the Company’s chronically low capital efficiency and poor market valuation.
Figure 2: The Company’s Excess Assets
※Investment Securities, Net assets, Total assets on Revised Summary for FY3/25
（Source: Created by Hibiki）
Regarding Item 4, which ISS recommends opposition to restricted stock grants, the stated reason behind the opposition is “excessive dilution”. However, we understand that it does not undermine the fundamental merit of our proposal. It is clear that the issue lies not with the intent of the proposal but rather reflects a routine, formulaic judgment based on a most pessimistic assumption for shareholders (i.e., the board keeps issuing maximum shares possible to themselves).
The dilution, in our view, is limited to approximately 0.7% on an annual basis (as of FY3/25). Therefore, we consider it conservative to rely on ISS’s assumption of a maximum 6.4% dilution over a 10-year period as the basis for judgment.
Separately from our shareholder proposal, ISS has recommended opposing Item 2 candidate 1, the reappointment of Mr. Takashi Fukasawa, the current Representative Director and President. We agree with ISS’s assessment and likewise oppose his reappointment. ISS cites the Company’s failure in capital allocation as the primary reason for its recommendation—an issue we have repeatedly highlighted. We believe there is a serious lack of commitment and clear targets for improving the Company’s ROE, stemming directly from suboptimal capital allocation practices.
As shown in Figure 2, the Company holds excessive cash and investment securities (primarily cross-shareholdings), which have resulted in its P/B Ratio remaining below 1. Despite this, on May 30, 2025, the Company announced a revision to its “3rd Medium-Term Management Plan: TOMOE BUILD up 5(Japanese Only)” in which it lowered its ROE target from 10% to 5%. The reason cited—explained on Our Website—is that the consolidation of an affiliated company, primarily engaged in rental real estate, led to an increase in net assets exceeding profit growth. We find it highly regrettable that the Company used consolidation as a rationale to lower its ROE target, rather than taking necessary steps to address its chronically excessive net assets. This raises serious concerns about management’s commitment to improving ROE and ultimately the alignment with shareholder interests.
Following the submission of our shareholder proposal, we have consistently sought to engage in constructive dialogue with the Company in order to make informed and appropriate voting decisions. On June 6, 2025, we formally requested a meeting with President Fukazawa and Director Miki, whom we understand have played central roles in formulating the Company’s capital policy and mid-term plan. However, the Company rejected the meeting, stating that “all meetings must be handled by the administrative office.” We find this outcome extremely disappointing.
As our firm’s Representative stated in the June 6 publication, “Legal Consciousness in Japan – Viewing Shareholder Rights Through Two Lenses (only in Japanese)”, it is a hard cold fact that a public company fundamentally cannot choose its shareholders. In most cases, when shareholder proposals arise, the root cause lies with the actions or inactions of management itself, prior to when the shareholder proposals are being raised. We believe this is precisely the situation in which JPC is finding itself today.
If management cannot provide a convincing response to constructive, and well-founded shareholder proposals aimed at improving corporate value, then it should seriously consider taking the company private, where it can focus on its business under the ownership of a close-knit group of like-minded shareholders—rather than remain a listed company while disregarding the voices of those seeking meaningful reform.
We would like to once again respectfully ask all shareholders to exercise prudent and thoughtful judgment in determining what is appropriate for maximizing corporate value of Tomoe. We firmly believe that the future development of Japanese corporate activities and the capital markets fundamentally relies on the exercise of your voting rights.
¹As of FY3/24
²Revised Summary of Financial Results for FY3/25
(Reference)
5/June/2025 ー Comments on the Revision of the Medium-Term Management Plan
29/May/2025 ー Shareholder proposal for Tomoe Corporation
(note) This post does not constitute a solicitation for an offer to acquire or recommend the purchase or sale of specific securities, or advice on investment, legal, tax, accounting, or any other matters. In the event of any discrepancy or conflict between the English and Japanese versions, unless otherwise noted, the meaning of the Japanese language version shall prevail unless otherwise expressly indicated.