GungHo Online Entertainment Rejects Shareholder Demands

GungHo Online Entertainment, a Japanese video game developer, has rejected shareholders’ demands for changes in executive pay policy.

Shareholder Concerns

The proposal by investment firm Strategic Capital, which holds a 5.4% stake in GungHo, raised several concerns, including:
– CEO pay
– Financial performance
– Transparency

Strategic Capital noted that GungHo has not launched a game matching the success of Puzzle & Dragons since 2012 and has wasted 100 billion yen ($640 million) on new game development.

A major issue highlighted was the increase in CEO Kazuki Morishita’s salary, which rose from 120 million yen to 340 million yen ($2.2 million) over the past ten years, despite a 69% drop in operating profits. The report also compared Morishita’s pay to that of Nintendo’s CEO, emphasizing the disparity in company sizes.

Strategic Capital proposed seven changes, primarily focused on reviewing executive remuneration.

GungHo’s Response

In response to these proposals, GungHo’s Board of Directors unanimously voted against them. The company defended Morishita’s compensation, citing his lengthy tenure and contributions, including the development of Ragnarok Online and maintaining the popularity of Puzzle & Dragons.

GungHo rejected claims that it cannot create another hit game, attributing challenges to the saturated mobile gaming market. They noted that while the industry has progressed since Puzzle & Dragons, it was not the first gacha game; Dragon Collection launched in 2010 on GREE is seen as the pioneer.

On remuneration issues, GungHo maintained that it follows rules and regulations with a transparent policy and dismissed shareholder demands for additional disclosures as irrelevant.

Despite rejecting the proposals, GungHo has since revised its shareholder return policy, shifting focus on dividends and share repurchases. Additionally, the company improved its remuneration policy by including independent outside directors in the executive pay-setting committee. On the same day, GungHo released its fiscal year 2024 financial statements, showing declines in all key performance indicators.