3D Investment Partners Pte. Ltd., the asset management company of 3D OPPORTUNITY MASTER FUND (collectively referred to as “3D”), has announced that a second independent proxy advisory firm, Glass, Lewis & Co. Has recommended that shareholders of Sapporo Holdings Limited vote in favor of the appointment of 3D’s director nominee, Mr. Paul Brough, at the Company’s 101st Annual General Meeting of Shareholders (“AGM”). The AGM is scheduled to take place on March 28, 2025.
This endorsement follows a similar recommendation from Institutional Shareholder Services (“ISS”), further strengthening 3D’s position in advocating for changes within Sapporo’s board structure. Glass Lewis, in its detailed report, pointed out significant concerns regarding Sapporo’s historical performance, strategic decision-making, and governance framework. The firm emphasized that these concerns justify shareholder support for 3D’s proposed resolutions.
Key Findings from the Glass Lewis Report
Concerns Over Sapporo’s Performance and Strategic Direction
Glass Lewis highlighted long-standing issues with Sapporo’s performance relative to industry peers. According to its analysis:
- Sapporo has consistently lagged behind competitors across several financial metrics, including Return on Equity (ROE), operating profit margin, EBIT margin, and revenue growth rates.
- The company has repeatedly missed its financial guidance, casting doubt on the credibility of its strategic objectives.
- Since 1985, Sapporo has never achieved its long-term ROE target of 10%, raising concerns about its ability to meet its current targets without further structural changes.
Glass Lewis emphasized that given Sapporo’s historical underperformance, there is little reason for shareholders to believe the current board and management team can independently drive significant improvements in the company’s financial health and strategic execution.
Board Oversight and Governance Deficiencies
Glass Lewis raised significant concerns regarding the effectiveness of Sapporo’s board and its oversight structures. The report noted:
- The company’s audit and supervisory committee is chaired by Mr. Toru Miyaishi, who is not considered independent.
- The remaining members of the committee, Mr. Yamamoto and Ms. Tanouchi, though classified as independent, do not possess skill sets that align with Sapporo’s current challenges and strategic needs.
- The absence of qualified and independent oversight is particularly troubling given Sapporo’s history of suboptimal capital allocation and questionable strategic decisions.
- Sapporo’s continued reliance on legacy cross-shareholding structures calls into question the objectivity of some of its board members, particularly incumbent Outside Director Makio Tanehashi.
- The company’s capital reallocation strategy—which involves divesting its large real estate portfolio and reinvesting in its underperforming alcoholic beverages business—remains vague and slow-moving, raising further concerns about governance and strategic oversight.
These findings align with ISS’s earlier assessment, which also questioned whether Sapporo’s governance framework was adequate to support its long-term growth and strategic objectives.
Endorsement of Paul Brough as an Independent Director
Glass Lewis endorsed Paul Brough as a well-qualified, independent candidate who could bring valuable expertise to Sapporo’s board. The report highlighted:
- Mr. Brough’s extensive experience in corporate governance and restructuring, including his tenure with Toshiba, where he was involved in critical financial and strategic decision-making.
- His proven ability to contribute to high-level corporate deliberations, particularly in times of financial and strategic uncertainty.
- His potential to provide much-needed independent oversight, helping to address Sapporo’s governance shortcomings and ensuring that major strategic decisions are made with shareholder interests in mind.
Given Sapporo’s ongoing challenges, Glass Lewis concluded that adding Mr. Brough to the board would be a “strong and decidedly low-risk” move that could significantly enhance the company’s decision-making capabilities.
Implications for Shareholders
The recommendations from both ISS and Glass Lewis serve as a strong validation of 3D’s concerns regarding Sapporo’s governance and strategic trajectory. With the AGM approaching, shareholders face a critical decision that could shape the future of the company. Key considerations include:
- Whether to support the appointment of Mr. Brough, who is widely regarded as a qualified and independent director capable of bringing fresh perspectives and improving board oversight.
- Whether to oppose the reappointment of Mr. Tanehashi, given concerns about his ties to Sapporo’s legacy cross-shareholding structures and his ability to provide independent oversight.
- Whether the current board and management team have demonstrated a credible ability to execute Sapporo’s long-term strategy effectively.
3D Investment Partners’ Call to Action
In light of the strong endorsements from both ISS and Glass Lewis, 3D Investment Partners is urging Sapporo shareholders to vote in favor of its proposals at the upcoming AGM. Specifically, 3D is recommending:
- A vote FOR the appointment of Paul Brough as an Outside Director and member of the Audit and Supervisory Committee.
- A vote AGAINST the reappointment of Makio Tanehashi as an Outside Director.
3D argues that these changes are necessary to ensure that Sapporo has a board capable of making sound strategic decisions, improving corporate governance, and maximizing long-term shareholder value.
The upcoming AGM presents a pivotal moment for Sapporo and its shareholders. The endorsements from ISS and Glass Lewis underscore the need for independent oversight and more effective governance to address longstanding issues with performance, capital allocation, and strategic execution. By supporting 3D’s proposed changes, shareholders have an opportunity to strengthen the company’s leadership and position it for sustainable long-term success.
