´´ The Little Post about Shareholder Activism in Japan - (Part two)

Friday, May 16, 2014

The Little Post about Shareholder Activism in Japan - (Part two)

Between 2003 and 2008 many "hostile" activist funds, foreign as well as domestic, concentrated their activities on Japan. From an Anglo-Saxon perspective those activities were moderate in extent and quality.

From a Japanese perspective it was rather like a tsunami hitting its coast, threating to sweep away all the social groundwork that had made the country so proud and economically strong in the postwar period.

Foreign Activism And Corporate Japan: The Great Divide


Following the subsequent battles by activist funds and countermeasures by corporate Japan, many foreign investors became deeply frustrated with their experience of investing in the Japanese equity market. But not only investors did, there are also many strategic foreign companies that would have liked to acquire Japanese companies, but became disenchanted with the process and the difficulties involved.

Subsequently, the already existing perception gap between foreign investors and the Japanese elite was deepened. Many outside investors view Japanese management as a self-protecting, self-governing and inward looking group with no external accountability, and with the concomitant factor of disregard for shareholders’ interests. The Japanese establishment, on the other hand, sees activist-type investors as greedy and short-sighted, which only intent on taking quick profits by making opportunistic demands to the management of targeted companies. (EIU)

Such narrow perspectives are plain wrong and cloud the view on the huge opportunities a cooperation of the two antagonized protagonists could bring by, not only for individual shareholders and their companies but also for the Japanese society as a whole.

The corollary of the above observations are twofold:

The Reality That Corporate Japan  Should Face


Managers in Japan have to understand that very little altruism in the world of finance exist. Activism against corporate managements takes time, energy and money. It is hardly to be expected that individuals expend all these merely to see the right thing done. It is indispensable for the Japanese elite to recognize that there is a role to be played by activist funds, might they be foreign or domestic. And that the activities of those funds could end up mutually beneficial to the shareholders, the company and management and the great country of Japan as a whole.

Japanese businesses are now more than ever being exposed to fierce global competition. The population is declining and with domestic demand and markets shrinking, Japanese companies are being forced to change the way they are managed and they have to engage in M&A activities in this environment.(Yano) Furthermore, with the trade account very likely to be in a structural deficit , the current account surplus under severe pressure and the saving rates of the Japanese population being depressed for the foreseeable future, Japanese corporations will have to attract foreign capital at a certain point of time. Aware of those facts, it should be clear to the Japanese establishment that to lump together all foreign investment funds, to call them vultures and trying to push them out of the country is short-sighted and plain wrong. There is no future to that kind of an approach for Japan.

The Reality That Activist Shareholders Should Face


Activist Investors, on the other hand, need to understand that investment activities in Japan are accompanied by a lot of difficulties, because of the unique Japanese culture and traditions. When venturing into the Japanese market it is indispensable to understand the mindset of managers and the society as a whole, which has developed over a long period of time. Changing the mindset, the customs and practices in this country is a difficult and delicate task. But, provided the right approach is taken, there is no reason to believe that it is impossible. But individuals and/ or institutions trying it have to understand that they need to have a long-term perspective, be extremely patient and tread warily.

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