Nomura shareholders urged to reject CEO reappointment after information leak

A pedestrian walks past a Nomura Securities Co. branch, a unit of Nomura Holdings Inc., in Tokyo, Japan, on Thursday, Oct. 27, 2016. Nomura's second-quarter profit jumped 31 percent as trading income made up for a slump in its retail brokerage business. Photographer: Kiyoshi Ota/Bloomberg

Nomura Holdings Inc. shareholders should vote against the reappointment of its long-standing chief executive officer after Japan’s biggest brokerage was penalized for leaking market-sensitive information, according to Institutional Shareholder Services Inc.

CEO Koji Nagai “should be held responsible for the information leakage incident” and so his re-election to the board isn’t warranted, the influential proxy adviser wrote in a report on its recommendations for voting at Nomura’s annual shareholder meeting scheduled for June 24.

Japan’s financial regulator ordered Nomura to improve internal controls last month following revelations that its employees leaked non-public information on potential changes to listing criteria on the Tokyo Stock Exchange. The firm was dropped from bond deals and missed out on a key role managing a $12 billion equity offering in the wake of the incident. Nagai, 60, took a 30 per cent pay cut for three months, but vowed to stay on as CEO.

The leak has complicated Nagai’s efforts to turn around the company after it posted its first annual loss in a decade last fiscal year. Shares of Nomura have tumbled 14 per cent this year as investors question whether his plans to cut $1 billion in costs from its global wholesale business and modernize its retail franchise will bear fruit.

ISS is also advising shareholders to vote against the re-election of Chairman Nobuyuki Koga, citing the information leak and lax governance, along with board member Mari Sono, who it says isn’t sufficiently independent because she used to work for Nomura’s auditor.

Proxy firm Glass Lewis is recommending a vote in favor of Nagai and Sono, but against Koga because of his role as chairman of Nomura’s compensation and nominating committee. Oversight of executive performance and pay “is likely more complicated and less rigorous when an inside director chairs the committee,” Glass Lewis said.

A spokesman for Tokyo-based Nomura wasn’t immediately able to comment.

FSA Order

Shareholders voted overwhelmingly in favor of Nagai at last year’s meeting, when he received about 96% of ballots, a company filing shows.

An employee at Nomura’s research affiliate, who was on a Tokyo Stock Exchange panel considering an overhaul of listing sections, leaked information on the potential threshold for the changes to a strategist at the firm’s main securities unit. Nomura employees then shared the information with institutional clients.

The firm’s systems for managing information were inadequate and staff lacked awareness of compliance, the Financial Services Agency said when it imposed the business improvement order last month. Nagai pledged to strengthen compliance and prevent a recurrence.

The FSA likened the leak to an insider-trading scandal that engulfed the firm in 2012 and led Nagai’s predecessor to resign. Nagai’s almost seven-year reign makes him Nomura’s longest-serving CEO in more than 30 years.

Bloomberg