Institution Theme Category Discussion Questions
  • Neuberger Berman
  • Governance
  • Strategy & Risk
Company Year Market Source Link
Daiwa Industries Ltd. 2021 Japan Website https://www.nb.com/en/global/esg/nb-votes

On behalf of our clients, our firm has been invested in Japanese commercial refrigerator and showcase manufacturer Daiwa Industries. The company generates strong cash flows from its relatively stable business of supplying commercial refrigerators to restaurants and stores and incurs stable recurring revenues through maintenance and repair. Over many years, the company has built up a significant cash pile that is equivalent to more than 1.5 years of revenues and bigger than its market capitalization (as of March 11th, 2021). Return on equity has been weighed down as a result of its inefficient asset turnover and more recently by the downturn of the business in the wake of COVID19. Our concern is that the cash pile has continued to grow while the company has made minimal improvement to the transparency of its capital management policy. Over the years that we have held this stock, we have engaged the company on numerous occasions of the need to improve its disclosure on how it intends to use the cash in the form of growth investments and to address the surplus capital in the form of share buybacks and/or higher dividends.

Related Details

  • Category'
  • Management
  • Resolution
  • Election of Directors: Shigeru Ozaki (Honorary Advisor) and Atsushi Ozaki (President)
  • Vote
  • AGAINST
  • Rationale
  • Unaddressed concerns raised about opaque capital management policy
  • Details
  • Neuberger Berman expects company management to allocate capital to maximize long-term risk adjusted shareholder value. Companies should maintain an efficient capital structure that minimizes the risk-adjust cost of capital, avoids excessive leverage or cash buildup, and that allows for the return of surplus capital to shareholders…Over many years, the company has built up a significant cash pile that is equivalent to more than 1.5 years of revenues and bigger than its market capitalization (as of March 11th, 2021). Return on equity has been weighed down as a result of its inefficient asset turnover and more recently by the downturn of the business in the wake of COVID19. Our concern is that the cash pile has continued to grow while the company has made minimal improvement to the transparency of its capital management policy. Over the years that we have held this stock, we have engaged the company on numerous occasions of the need to improve its disclosure on how it intends to use the cash in the form of growth investments and to address the surplus capital in the form of share buybacks and/or higher dividends. In this case, since our concerns are not being addressed, we will be voting AGAINST Honorary Advisor Shigeru Ozaki and President Atsushi Ozaki as we believe top management should be held accountable for continuing to maintain an opaque capital management policy that is detrimental to corporate value creation.