Activist investors have been making their – not always welcome – presence felt in Japan for some years. Taking on some of the biggest names in Japanese business, from Toshiba to Olympus, has yielded results and changed the structure of some companies’ internal operations.
With a goal of increasing the revenues of these companies, as well as using their sizeable balance sheets to offset risk-taking, activist investors have proved unpopular among businesses that have been operating in the same way for decades.
These overseas investment funds, although frequently staffed by Japanese professionals, were often viewed as unwelcome houseguests. However, the directive from the top of the Tokyo Stock Exchange to accept these new entrants has rattled some cages, given that letting in activist investors would mean having to reassess company operations and, in many cases, remove members of the board to make room for new people and fresh ideas. For a culture that respects tradition, having to oust veteran employees in favour of free-thinking newcomers has been a bitter pill to swallow.
From the outside, changing the business mentality was long overdue. There is the perception of Japanese company CEOs holding down a comfortable job for life, with little need to take on risk. If a company is running well, they don’t think that it matters if profits have stagnated for years and dividend payments, while consistent, have shown little to no signs of increasing. It is this mindset that the activist investors are trying to change.
For an economy that has been sluggish for decades, and which remains closed off due to Covid-19 long after its Western counterparts have begun to welcome back tourists and business, taking on some risk with the potential reward has been recognised as necessary by the top levels of government.
This is not a phenomenon restricted to Japan. While activist investors remain positive that there are still plenty of opportunities to shake up Japanese companies, some are exploring the options available elsewhere in the region. South Korea’s large, family-run companies are often left exposed when there is a generational change in ownership. An access point for activist investors, perhaps?
