The Crisis Awakens Shareholder Activism in Japan

Most people have the impression that shareholder activism is very un-Japanese. Many think it just can't work with the culture, despite massive inefficiences which activists could correct and profit from. While the government generally talks up reform, just back in April The Children's Investment (TCI, A British firm) was prevented from increasing its stake in J-Power, which dealt a blow to activist hopes.

Nevertheless, a recent Economist article points out that actually Japanese laws are more shareholder friendly than US or British ones.

Corporate law is actually more shareholder-friendly in Japan than in America or Britain. In theory, Japanese shareholders can vote directly on dividends and executive pay. They can even oust the entire board without cause.

And more recently, due to the crisis collapsing stock prices and forcing companies to cut dividends, japanese retail investors have begun teaming up with foreign institutional investors to change up their companies, and have been increasingly determined to have a say in how companies are run.

Seventy-eight percent of retail investors who intend to cast ballots say they are prepared to vote against management proposals as more than 1,500 Japanese companies hold annual shareholder meetings this week, according to a Nomura Securities Co. survey. In 2008, 68 percent said they would consider voting against management, while 48 percent said so in 2007.

This is a rapidly growing trend... 48% to 78% in two years... and it is already having tangible effects.

Individual shareholders last month helped Warren Lichtenstein’s Steel Partners investment fund install a new board at Japan’s largest wigmaker Aderans Holdings Co.

Foreign investors alone are a pretty big force, as per Nov 2007 data, owning 28% of Japanese equities. Combined with vocal retail investors, real change can happen. While the government has been talking the corporate governance talk for some time now, cultural issues have gotten in the way of it actually well walking the walk. That's why the shift in retail investor sentiment is important. It's one thing to have a government talking governance, but when 78% of retail investors feel they deserve a right to have an influence over the companies they own, it means we have proof of a real cultural shift, very important since culture, not government rules (see the Economist quote above), has been the largest roadblock. Thus while we've had talk of increased activism in Japane for some time, the latest retail investor data indicated a clear, broad-based cultural shift. In a very short period of time. Sometimes it takes the pressure of hard times to make good things happen.