The winds of change are blowing through corporate governance, and about time. News that the government intends to ease regulations on online-only shareholder meetings is a welcome sign of progress, a move that promises to modernize shareholder engagement and bring Japan's corporate landscape in line with global best practices.

The COVID-19 pandemic, while devastating, inadvertently accelerated the adoption of digital solutions across various sectors, including shareholder meetings. Initially permitted as a temporary measure, online-only meetings have proven their worth, demonstrating increased accessibility and cost-effectiveness. Now, the government's plan to revise the Companies Law to formally encourage these digital gatherings marks a crucial step forward.

Currently, Japanese law mandates the designation of a physical location for shareholder meetings, effectively precluding purely online events. While a 2021 amendment offered a special exemption, the process is cumbersome, requiring companies to amend their articles of incorporation, undergo government screening, and secure ministerial confirmation. This bureaucratic hurdle has resulted in a paltry 1.7% of listed companies opting for online-only meetings, a clear indication of the regulatory bottleneck.

The benefits of embracing online shareholder meetings are undeniable. They democratize participation, enabling shareholders in remote locations, both domestically and internationally, to engage with company leadership. This inclusivity fosters greater transparency and strengthens shareholder rights. Furthermore, companies stand to gain from significant cost savings on venue rentals and logistical arrangements. The experience in other countries, particularly the United States, where online shareholder meetings are commonplace, underscores these advantages.

However, the current system presents significant challenges. The lengthy application process, which can take up to three months, discourages adoption. Moreover, concerns about connectivity issues and potential disruptions to shareholder participation, particularly for elderly individuals or those without reliable internet access, remain valid. The risk of resolutions being challenged due to technical difficulties also looms large.

The upcoming deliberations of the Legislative Council are therefore critical. Removing the requirement to designate a physical venue and eliminating the need for ministerial confirmation are essential steps towards streamlining the process. Equally important are the council's efforts to address potential connectivity issues and develop measures to ensure the participation of all shareholders, including the elderly and those with limited access to technology. Clear guidelines and robust technical support will be crucial for smooth and equitable online meetings.

This move towards online shareholder meetings is not merely a technological upgrade; it represents a fundamental shift in corporate governance. It signifies a commitment to greater transparency, increased shareholder engagement, and a more efficient and inclusive corporate ecosystem. By embracing digital solutions, Japan can unlock the full potential of its capital markets and create a more dynamic and globally competitive business environment. The government's initiative is a step in the right direction, and its successful implementation will be a win-win for both companies and their shareholders.