A historic swell of shareholder activism in Japan looms. Brunswick experts explain how companies can prepare—and the critical importance of having a digital strategy.
A number of trends—some local to Japan, others global—are converging to make a historic surge of shareholder activism in Japan more likely, and the resulting pressure on companies more intense. This activist spike is set to take place while Japanese businesses are already facing mounting demands from an increasingly complex and fluid group of shareholders and stakeholders—and while activists already investing in Japan operate with greater sophistication.
Against this backdrop, the challenges facing Japanese companies are clear. So too is the opportunity for those that are proactive in engaging and telling their story to the audiences whom activists will try to win over.
Attractive to Activists
Under the administration of former Prime Minister Shinzō Abe, the Japanese corporate governance model saw a series of far-reaching changes. Audit and supervisory committees were created, the definition of independent directors enhanced, and greater disclosure around cross-shareholdings and conflicts was mandated. These changes emphasized shareholder engagement and heightened transparency on the ownership of institutional investors and related proxy voting.
Japan’s Corporate Governance Code was further updated in 2021, incorporating stronger governance requirements as well as measures that mandate more disclosure around diversity and sustainability. The Tokyo Stock Exchange now requires companies listed at the top end of the bourse to “comply or explain” on a requirement to have one-third of the board comprised of independent directors. Taken together, these regulatory changes have set new expectations for corporate transparency and opened new doors for shareholders to exert greater pressure.
Activists regard Japan as an attractive target by virtue of the scale and depth of its capital market. In many sectors, even the second- or third-largest company represents a meaningful prize. In pursuit of these, activists have employed increasingly sophisticated campaigns. ValueAct, Elliott, Oasis and Third Point have all waged successful campaigns in Japan by positioning themselves as long-term, solution-oriented investors aligned with the company as well as shareholders.