NOMURA ASSET MANAGEMENT

NOMURA

Engagement

i) Basic Policy for Engagement

We consider that engagement with investee companies is an effective way to fulfill our stewardship responsibility, and we intend to do so proactively.
We believe that engagement should be held based on the deep understanding of investee companies and their business environment. In this way, we will strive to understand companies’ specific circumstances. We then support companies in the management of business to help them enhance corporate value and achieve sustainable growth through engagement. At the same time, we do not believe that asking for improvements in companies with management issues is the only method of engagement. We believe it is also very important to reassure well-managed companies of our support as investors.
As our operation underlies medium-to-long term investment based on thorough fundamental research and analysis, we believe that medium-to-long term fundamentals are the key to engagement. However, we expect the contents of the dialogue with each investee company to vary depending on the business environment and each company’s specific business circumstances.
Based on the principles stated above, we set forth our basic policy on corporate engagement as shown below, with the intention of fulfilling our stewardship responsibilities by deepening mutual understanding through our day-to-day dialogue with investee companies:

  1. (1)Maintain an amicable and constructive stance when communicating with investee companies.
  2. (2)Deepen understanding not only on financial information, but also on non-financial information of the investee companies, which includes ESG issues, the background to certain strategies and management philosophy.
  3. (3)Exchange ideas and opinions with investee companies regarding capital efficiency.
  4. (4)Exchange ideas and opinions regarding the cause and recurrence countermeasures in the event of incidents that breach accepted standards and promote effective corporate management.

We will continue to encourage investee companies to create value and achieve sustainable growth through such engagement activities.

There may be some cases where we receive material facts that have not been disclosed under the insider trading regulations, or information that carries some risk of being considered "insider information" in the course of performing such engagement activities. Such information must, if received, be treated properly in accordance with laws and regulations, and applicable industry and internal rules.

ii) Status of Engagement

Upon making an investment decision, we hold direct interviews with the investee companies. Through this long-established policy, we held direct contacts on around 5,300 occasions during fiscal year 2015 (Japanese companies, including company briefing sessions, but excluding telephone interviews).
We make contact with companies in several ways, such as company information sessions, Investor Relations (IR) interviews, conducting on-site visits, and direct high-level interviews with senior management. The total figure includes meetings held at our Tokyo headquarters office (around 2,000 in FY2015). These meetings provide opportunities to exchange frank opinions regarding details of corporate management and managerial issues. Around 40% of these meetings held in our headquarters office are attended by directors in charge of corporate management, with discussions covering a wide range of management issues.
As many aspects of the business environment of these companies are closely related and have a broad impact on issues such as business strategies, financial strategies, business results, and capital management (e.g. policies relating to shareholder value), we believe that corporate engagement should be incorporated into such regular dialogue.
We also strive to fulfill our responsibility as an institutional investor by discussing their adherence to ESG related issues, especially corporate governance.

iii) Examples of Engagement

We believe we should hold constructive dialogue with each investee company based on mutual understanding. It is also necessary for investors to deepen their level of understanding beyond the investor relations efforts of each company.
We make efforts to communicate regularly with as many investee and target companies as possible. Day to day communication with these companies enables us to hold "purposeful dialogue" to improve the prospect of constructive engagement activities.
Major themes of engagement include 1) business strategy to improve corporate value, 2) safety management and compliance, and 3) corporate governance structures for proxy voting.
The following examples are abstracts from dialogues held between Nomura Asset Management Tokyo and Japanese investee companies:

Dialogue Examples Related to Business Strategy to Improve Corporate Value

  • During a visit from the CEO of an electrical appliance manufacturer, we discussed their future management strategy over the medium-term management plan, and which business operations for them to focus on.
  • During a visit from the CEO of a wholesale company, we discussed its adherence to the Corporate Governance Code, such things as increasing its profit level in order to achieve an ROE of 8-10% and increasing its financial leverage to a more appropriate level.

Dialogue Examples Related to Safety Management and Compliance

  • We visited an automobile company and an auto component manufacturer to confirm the circumstances of a scandal in which each was involved and discussed how to deal with the situation in the future.
  • During a visit from the IR of a Chemical company that was reported to be involved in a scandal, we had discussed the impact of the scandal upon its reputation, and discussed they should continue work to raise its corporate value, by also strengthening its non-financial aspects, such as corporate governance and investor relations, including increasing improvement in its transparency.

Dialogue Examples Related to Corporate Governance

  • During a visit from a telecommunications company, we discussed the reasons why the rate of board meeting attendance by the outside director was low, and how to better manage this in the future.
  • We discussed with a chemical company about measures to improve the company’s medium-to long-term performance by making it the focal topic of discussion at board meetings, and to enhance the cultivation of personnel in charge of management.

Dialogue Examples Related to Efforts Directed at ESG Issues

  • We advised investor relations of a financial institution to focus on not only CSR activities but also focus on improving its corporate structure such as enhancement of its corporate value, and to achieve sustainable growth, and stakeholder management. We also proposed some ESG issues that should be addressed in a way linked to such efforts.
  • Managers in charge of investor relations at a transportation company consulted with us and we proposed to them that, since their ROE results were lower than acceptable by the high quality of the services provided by the company, the company should try to increase its profitability by such means as improving its efficiency and raising its sales prices, and that an explanation should be provided from the standpoint of how CSR-related efforts are linked to the increasing of corporate value.