6/17/2026
Foreign Activists Take Aim at Bigger Targets in Corporate Japan
Nikkei Asia (06/17/26) Obe, Mitsuru
As corporate Japan's annual general meeting season reaches its peak in the coming week, activist investors are descending on their second-largest market after the United States with bigger companies in their sights. There is a sense of anticipation, with activist pressure widely credited with instilling discipline in Japan's boardrooms and helping catalyze a market rally that has lifted the Nikkei Stock Average 38% this year and doubled it over the past three years. "Engagement by shareholders, including activists, in discussions with companies and proposing ideas is in itself positive and helps improve corporate value," said Hiroyuki Sameshima, a director responsible for corporate governance at the Ministry of Economy, Trade and Industry. But within the business community, there is palpable unease over the rise of activist investors, with some viewed as corporate raiders seeking quick gains by stripping companies of unused assets. Activists are aware of the tension. As fund managers, they are judged on returns, but their success increasingly depends on public acceptance as they take on larger targets. "The nature of activism has changed in recent years toward aiming to leave companies in better condition than they found them, rather than simply demanding big one-off buybacks, which was always likely to get their people's backs up," said Nicholas Smith, Japan strategist at CLSA, a Hong Kong-based brokerage house. Last year, Elliott Investment Management made headlines by taking on Toyota Industries -- the de facto holding company of Toyota Motor Group (TYO: 7203) companies -- after revelations of years of engine data falsification at the world's largest forklift truck maker. The campaign nearly derailed plans to take the company private and reorganize the group around it, before the two sides reached a compromise on the buyout price. "An activist challenging a company as large as Toyota is something that will likely be remembered in Japan's corporate history," said Hidetaka Kawakita, a professor emeritus at Kyoto University and a corporate governance expert. "It was remarkable that the activist pushed Toyota to concede that shareholders' interests should carry as much weight as those of the founding family." A person familiar with the matter said Elliott still sees a significant number of undervalued companies in Japan, despite strong market performance over the past three years, and that the New York-based investor is likely to deploy more capital, driving further activity in the coming months and years. Its growing focus on larger-cap names also reflects an influx of smaller players into the market, the person added. "The story of corporate governance has barely begun in Japan," said CLSA's Smith, citing slow improvement in Japan Inc.'s return on equity, almost entirely due to rising profit margins without having addressed vast cash, equity and real estate holdings on balance sheets. The shift in Japan mirrors developments in the United States and elsewhere, where activism has moved beyond capital allocation to deeper structural interventions, such as board overhauls and breakups, including Elliott's call to split up BP, over the past decade. "What happened in the United States will happen in Japan, though with a lag in shareholder activism," said Atsuko Furuta, president of Deloitte Tohmatsu Equity Advisory. "The pace of catch-up is accelerating, however." U.S.-style public campaigns are also beginning to take hold in Japan. Singapore-based 3D Investment, led by former Goldman Sachs (NASDAQ: GS) banker Kanya Hasegawa, launched a manga-driven campaign this month against a "poison pill" planned by its target, the medical wholesaler Toho (TYO: 9602). The tactic echoed Disney's (NYSE: DIS) use of its cartoon character Pinocchio on social media to rally retail investors behind its board slate in 2024, rather than the nominees put forward by investor Trian. "It's very hard to label activism as good or bad," said Eric Liu, portfolio manager at Harris Associates, a Chicago-based investment manager. While many activist proposals make sense, aggressive and antagonistic tactics can be counterproductive, he argued. He also warned against placing too much emphasis on short-term returns at the expense of businesses with longer-term potential. "Overall, the presence of activist investors in Japan is positive," he said. They provided a market mechanism that forced management teams to scrutinize their performance and balance sheet efficiency. "I think there's more good than bad in the mechanism they provide." Activism is a form of value investing, aimed at unlocking the true worth of assets through interventions such as divestitures, capital allocation changes and governance reforms. It can also help balance out riskier investment strategies. "AI is a powerful technology, but the key question is price," Liu said. "If the future doesn't play out as expected, valuations will come down. We seek to protect our clients' capital by investing in areas with low valuations and downside protection." In the latest round of AGMs, 133 shareholder proposals compares with 141 last year, according to Daiwa Institute of Research. "Shareholder proposals have already reached a significant level. Rather than increasing further in number, the focus is likely to shift to their content," pointed out Hajime Nakajima, managing director at Deloitte Tohmatsu Equity Advisory, predicting a move towards ones that addressed core management issues rather than quick, easily implemented measures such as dividend increases. The number of activist campaigns continues to rise, reaching 72 between January and May, up from 70 in the comparable period last year, according to Deloitte Tohmatsu. For activists, filing a shareholder proposal and fighting for proxy votes are often the last resort. Instead, there is a strong preference to work collaboratively and behind the scenes with management teams, people familiar with the matter said. Oasis Management, another prominent investor, has mounted high-profile campaigns against household products maker Kao (TYO: 4452) and electric motors giant Nidec (TYO: 6594). For Thursday's AGM at Nidec, Oasis has no proposals. At Kao, it is calling for more independent directors with international expertise to boost overseas sales. At Nidec, it is pushing for governance reform, including appointing truly independent directors and reducing reliance on any single individual. For many, the annual meeting is a gauge of shareholder sentiment towards management and the board. Executives and directors in Japan are highly sensitive to voting support, with anything below 90% widely seen as a warning sign, giving activists ammunition to press their case in post-meeting negotiations. In June last year, support for Sumitomo Realty's (TYO: 8830) chairman and its CEO was only in the 70% range. By the end of the year, the company had announced a share buyback and a plan to reduce cross-shareholdings to less than 10% of equity capital, as well as saying it would establish a nomination committee as part of a broader governance reform effort. Japan introduced its first corporate governance code in 2015, but reforms gained real traction in 2022 after the Tokyo Stock Exchange added teeth to the rules, tying listing and Topix inclusion to numerical targets such as market capitalization. In April, the Financial Services Agency and the Tokyo Stock Exchange released a draft revision to the governance code, the first in five years. The code's proposed update sets out key governance principles such as a majority-independent board, board member qualifications and cross-shareholding reduction. While not mandatory, it has given activists a basis for demanding dialogue with management and holding companies' feet to the fire. Investors such as Elliott are seen as strong backers of regulatory reforms to improve capital market quality, viewing them as critical to their own campaigns. The revised code refers to the "effective use of cash" on balance sheets in an explanatory note and calls for its productive use, but stops short of making it a bold-lettered principle. CLSA's Smith argued the government needed to add more bite to the code to make it effective. "It's all soft law. There is nothing in the changes to the governance code that really has the teeth of hard law and says, 'Put that money to work,'" he said. He suggested making businesses ineligible for tax breaks if they had net cash of more than 20% of equity. "It's very important that corporate Japan not take its foot off the gas pedal," added Harris Associates' Liu. "Otherwise, capital, which is competitive, will find another home."
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