3D Investment Partners Pte. Ltd., the asset management company overseeing the 3D OPPORTUNITY MASTER FUND (collectively referred to as “3D”), Investment Partners has announced that Glass, Lewis & Co. (“Glass Lewis”), a leading independent proxy advisory firm, has recommended that shareholders of Sapporo Holdings Limited (“Sapporo” or “the Company”) (2501.T) vote in favor of appointing 3D’s nominated director, Mr. Paul Brough, at the Company’s 101st Annual General Meeting of Shareholders (“AGM”), which is scheduled to take place on March 28, 2025.
This recommendation from Glass Lewis follows an earlier endorsement by Institutional Shareholder Services (“ISS”), making it Investment Partners the second major independent proxy advisory firm to advocate for Mr. Brough’s election. The alignment of these two influential firms underscores the growing concerns among investors regarding Sapporo’s governance structure, strategic direction, and overall financial performance.
Glass Lewis’ Rationale for Its Recommendation
In its report, Glass Lewis identified several key areas of concern regarding Sapporo’s governance and performance, which, in its view, justify shareholder support for 3D’s resolution. Investment Partners The advisory firm pointed to “credible concerns regarding [Sapporo]’s historical performance and strategic execution – including with respect to critical M&A and capital allocation efforts – as well as a raft of continuing governance concerns.” These issues, according to Glass Lewis, provide “compelling cause for investors to support [3D]’s resolutions.”
Concerns Over Sapporo’s Performance and Strategic Execution
One of the main reasons Glass Lewis is recommending shareholders vote for Mr. Brough is Sapporo’s prolonged underperformance compared to its industry peers. The advisory firm outlined several troubling trends:
- “[T]he Company has consistently trailed its peers across a wide range of fundamental metrics (e.g. ROE, operating profit margin, EBIT margin, revenue and EBIT growth rates), during which, as [3D] highlights, Sapporo has also routinely missed its own guidance to investors and the market more broadly.”
- “[B]ased on data going back to FY1985,Investment Partners the Company has never achieved its current long-term ROE target of 10%, offering a rather shaky basis on which to conclude Sapporo is, without further change, likely to transcend a lengthy history of missed guidance.”
- “[T]here appears to be very little cause for investors to conclude Sapporo’s trailing performance, [without 3D]’s influence, represents a compelling bulwark for management and the board, and further do not consider there exists compelling reason for shareholders to be confident in the achievement of Sapporo’s mid- to long-term objectives or in the board’s ability to effectively oversee major, capital-intensive initiatives.”
These observations highlight the broader concern that Sapporo’s management has failed to create long-term shareholder value and that significant changes are necessary to address these deficiencies.
Investment Partners Glass Lewis Joins ISS in Endorsing 3D Investment Partners’ Nominee Paul Brough for Sapporo’s Board
Board Oversight and Governance Issues
In addition to performance concerns, Glass Lewis also raised significant questions about Sapporo’s board structure and oversight capabilities. Specifically, the firm noted the lack of independence within the Company’s Audit and Supervisory Committee, which is responsible for overseeing financial reporting and corporate governance.
- “[W]e share [3D’s] concern that the audit and supervisory committee is chaired by Toru Miyaishi, who is not independent.”
- “The remaining members of the audit and supervisory committee other than Mr. Miyaishi (i.e. Mr. Yamamoto and Ms. Tanouchi), though independent, do not appear to offer skill sets and expertise well suited to Sapporo’s current state and intended strategic trajectory. Investment Partners Given the fundamentally critical nature of the audit and supervisory committee’s role at this juncture, we consider this apparent skill gap — which we do not believe Sapporo directly disputes in persuasive fashion — should be disconcerting to investors, particularly given the Company’s legacy misadventures in capital allocation.”
- “[A] raft of continuing governance concerns… raise meaningful doubts around Sapporo’s somewhat nebulous and to-date plodding effort to reallocate capital from its large, low synergy real estate business to its underperforming alcoholic beverages business.”
These concerns suggest that Sapporo’s board and governance structure are not adequately equipped to make the necessary strategic decisions required to unlock shareholder value.
Why Paul Brough Is the Right Candidate
Glass Lewis strongly endorsed Mr. Paul Brough’s appointment, citing his extensive experience in corporate governance, restructuring, and strategic decision-making as key qualifications that would benefit Sapporo’s board.
- “[Mr. Brough’s] prior history, including his time with Toshiba, establishes regional bona fides and direct familiarity with critical, time-sensitive review and engagement architecture.”
- “We… believe [Mr. Brough] would represent a strong and decidedly low-risk addition to a board which has very evidently and consistently struggled to timely appraise the most attractive alternatives available to the Company.”
By appointing Mr. Brough, shareholders would be introducing a highly experienced, independent director who could help steer Sapporo in the right direction, particularly at a time when the Company is facing crucial decisions regarding its future.
Next Steps for Shareholders
3D Investment Partners welcomes the endorsement from both ISS and Glass Lewis and urges Sapporo shareholders to take their recommendations into account when voting at the upcoming AGM. Specifically, 3D encourages shareholders to:
- Vote FOR the appointment of Mr. Paul Brough as an outside director and member of the Audit and Supervisory Committee.
- Vote AGAINST the reappointment of Mr. Makio Tanehashi as an outside director, given the concerns over his independence and effectiveness in providing unbiased oversight.
