Dalton Investments Issues Follow-Up Letter to Management and Directors of its Portfolio Companies Reiterating Core Corporate Governance Initiatives

SANTA MONICA, CALIFORNIA AND TOKYO, JAPAN – Dalton Investments issued the following letter publicly to the management and directors of its portfolio companies to continue to engage them in the following three corporate governance expectations: (1) effective capital allocation, (2) strong alignment of interest between the board of directors/management and shareholders, and (3) board of directors with high independence and diversity.  This letter is a follow-up to one sent last December, when Dalton reached out to portfolio companies as part of their engagement campaign on improved corporate governance: https://www.daltoninvestments.com/dalton-issues-letter-to-management-and-directors-of-our-portfolio-companies/

The Japanese version of the letter follows the English version.

Dear Portfolio Company Managers, Directors, and IR Managers,

Last December, we sent a letter to all of our portfolio companies outlining three proposals: “Effective Capital Allocation,” “Strong Alignment of Interest,” and “Board with High Independence and Diversity”(https://www.daltoninvestments.com/dalton-issues-letter-to-management-and-directors-of-our-portfolio-companies/). The letter was followed up with multiple instances of engagement with management teams  to exchange ideas and thoughts prior to the annual general shareholders’ meeting. In total, over ninety meetings were held with portfolio companies, led by members of the Dalton Tokyo Office. We thank you once again for the generous time you have provided for constructive dialogue.

Admittedly, some of these meetings were tense, as discussions included the possibility of a shareholder proposal in the AGM. However, almost all our counterparts understood and agreed with our intentions, and we are proud of the open and productive dialogue . With management teams that agreed with our proposal criteria, we had more detailed discussions where we shared best practices, providing strong examples that helped companies to respond with concrete actions, such as:

  • Capital Allocation: Establishment of capital policy (e.g., 100% return ratio), setting KPIs and corresponding targets, including ROIC, share buybacks, and dividend increases
  • Alignment of Interest: New stock ownership guidelines and disclosure, increased implementation of equity compensation plans
  • Board Composition: Increased diversity and independence, the appointment of female directors and highly experienced and skilled investors and analysts

From these collaborative dialogues, many management teams adopted one or more of the measures outlined in our initial letter. As a result, we withdrew the majority of our original shareholder proposals prior to the AGMs.  We are proud of this result.

We acknowledge that some of these initiatives would have occurred regardless of our proposals. We understand that all management level decisions are subject to a voluntary decision by the Board of Directors, rather than a simple shareholder proposal. We view shareholder proposals as a catalyst for the boards’ consideration and action. The resulting improvements in governance and capital allocation, and thus corporate value, are ultimately the result of actions taken by management.

As the shareholder meeting season ends, we hope you will promptly resume your efforts to further improve corporate governance and capital allocation under the new board structure. During our dialogue, we noticed that while we agreed on many issues and goals, there were some cases where structural or time constraints disallowed companies from addressing their problems at this year’s general shareholders’ meeting. We further recognize that there are a few issues that remain unresolved.

Below is a summary of our expectations for your consideration over the next year.

Effective Capital Allocation:

As part of the company’s capital policies, we expect our portfolio companies to quantitatively disclose and commit to an “Appropriate level of financial assets (or capital structure),” a “Specific capital allocation plan for the next three to five years,” “KPIs including ROIC and ROE and their target values,” and “Target for reduction of cross-shareholdings.” Many companies hesitated to quantify and disclose their capital allocation policies due to uncertainty surrounding the economic and business environment and future investment opportunities. However, uncertainty should not be a reason to abandon capital policy because all business decisions are made under a great deal of uncertainty. We believe it is the management’s responsibility as a publicly listed company to review its capital allocation policy, asking the important question of what the appropriate amount of cash might be given its business risks. If a major event occurs after the plan is formulated, it is perfectly acceptable for the plan to be revised accordingly.

In addition, as a prerequisite for the above capital allocation expectations, we believe that it is essential for the board of directors to have an opinion on the fair valuation of the company’s shares. The Tokyo Stock Exchange’s request to listed companies states that “the board of directors should analyze and evaluate the current situation with regard to market valuations,” and we believe that statement inherently implies that capital allocation should be judged against alternative opportunities, such as share buybacks.

Strong Alignment of Interest:

We expect our portfolio companies to disclose, implement and commit to a stronger alignment of interest through the Stock Ownership Guidelines. We encourage directors to accumulate ownership worth 3-5 times their fixed compensation over a reasonable time frame without being bound by Japanese practice. Some companies have voiced concerns that the level of stock ownership we expect is too high compared to existing compensation plans, causing conflicts with employees. However, by combining several programs, such as restricted stock compensation, stock options, stock ownership plans, and stock delivery trusts, we have seen an increase in ownership among executives and employees at some companies to a level comparable to Western companies. When that has occurred, we have seen a real change in the mindset of executives and employees. We are always eager to help with these initiatives.

Board with High Independence and Diversity:

We expect at least half of the board of directors to consist of independent outside directors while increasing diversity (including women, experienced investors and equity analysts). In response to our proposal, we have received comments that “we do not want to sacrifice the Board’s effectiveness for formality” and “our Board of Directors is already highly effective.” However, we know of many examples of highly effective boards with a majority of independent outside directors – effectiveness and independence (including diversity) are not trade-offs. While there may be some friction in the process of increasing independence, we believe that for public companies in developed countries, these are issues that must be overcome, and we firmly believe that a truly resilient board of directors is both independent and effective. We understand that finding and considering appropriate candidates is difficult, and we ask that you make sustained efforts towards that long-term goal.

Reflecting on the progress we have observed from our portfolio companies over the past six months, we are confident that our proposals are no longer unreasonable challenges. It is possible for all of our portfolio companies to meet our proposals by this time next year. We will continue to play our role as a shareholder by supporting your efforts. We trust that our dialogue with you over the next year will be fruitful and that we may not even need to make public shareholder proposals for the 2024 AGM season.

Sincerely yours,

James B. Rosenwald III

Co-Founder and Chief Investment Officer

Dalton Investments

Please note that the below is a Japanese translation of the above letter that Dalton Investments sent in English, provided as a courtesy. In the event of any inconsistency between the English language version and the Japanese language version, the meaning of the English language version shall prevail.


平素よりお世話になっております。昨年12月に私共は全ての投資先の皆様に「適切な資本配分」「利益共有の強化」「取締役会の独立性と多様性」という3つのご提案についてのレターをお送りいたしました(https://www.daltoninvestments.com/dalton-issues-letter-to-management-and-directors-of-our-portfolio-companies/ )。 以降、本年の株主総会シーズンに至るまでの約半年間にわたり、多くの皆様と度重なる対話の機会を頂きました。東京オフィスのメンバーを中心に、投資先の皆様より頂いた対話の回数はのべ90回を超えました。皆様から惜しみない対話のお時間を頂きましたこと、改めて御礼申し上げます。


  • 資本配分=資本政策方針の策定(例:100%還元性向)、ROICを含むKPI及びその目標値設定、自社株買い・増配の実施
  • 利益共有=株式保有ガイドラインの新規導入と開示、株式報酬制度の実施額増加
  • 取締役会=多様性・独立性の向上、女性や投資家・アナリストとして高い経験とスキルを持つ人材の登用













James B. Rosenwald III

Co-Founder and Co-Managing Member

Dalton Investments LLC


This letter has been prepared by Dalton Investments and its affiliates (collectively, “Dalton”) for the benefit and use of the original recipients. It does not constitute, and should not be construed as, an offer or solicitation to enter into any transaction regarding any financial instrument, nor should it form the basis of or be relied on in connection with any such transaction.  This letter does not constitute, and should not be construed as, tax, legal, regulatory, accountancy or other specialist or technical advice, or investment advice or personal recommendations, any trading strategy or advice (from an investment perspective) to any person on the suitability of any transaction.

The information in this letter is based on information that Dalton considers reliable, but which Dalton did not verify any of the information.  No representation or warranty is made as to, nor should reliance be placed on, any of that information contained herein being accurate or complete. Neither Dalton nor any of Dalton’s directors, officers or employees accepts any responsibility or liability for any losses or damages that may result from the lack of accuracy or incompleteness of this information. Such persons also do not accept any responsibility or liability for assumptions on which any statements, views, valuations or opinions expressed by Dalton in this letter may be based.

This letter speaks of its date and opinions and views expressed are Dalton’s opinions and views as of such date only. Dalton assumes no obligation to notify or inform any party of any developments or changes occurring after the date of this document that might render its contents untrue or inaccurate in whole or in part.

Any possible transaction or investment referred to herein may involve significant risk. This document has been prepared without regard to the individual circumstances and objectives of persons other than the original recipients who receive it. Other recipients should, without relying on this document, make their own independent decisions regarding to any possible transaction or investment and, if necessary, seek professional advice.

Dalton accepts no liability whatsoever for any reproduction or redistribution, in whole or in part, of this document, by any person other than Dalton.

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