Japan firms face record activist shareholder proposals, raising reform pressure

Reuters

19-06-2025

TOKYO, June 20 (Reuters) - Activist investors submitted shareholder proposals to a record number of Japanese companies holding annual general meetings in June, adding to pressure on firms not used to friction to improve shareholder returns and profitability.
Since former prime minister Shinzo Abe, who stepped down in 2020, called for improved governance to attract foreign capital, activists have ramped up efforts, arguing Japanese stocks are undervalued and that companies allocate capital inefficiently.
Over 2,000 firms hold shareholder meetings in June, of which 52 have received activist proposals, surpassing last year's record of 46, showed data from Mitsubishi UFJ Trust and Banking.
That is more than four times the 12 companies that received proposals in 2018 and 2019 toward the end of Abe's tenure.
Typically most proposals by activists and engagement funds are rejected. Still, some firms have subsequently introduced plans to increase returns even after unsuccessful votes.
"There's no need to despair. Even if a proposal is rejected management may continue to consider it," said strategist Nozomi Moriya at UBS Securities. "I think it's important to look at corporate action over the long run."
There is also an increasing number of cases in which firms adopt activist suggestions - in part or in full - in advance, to avoid a public proposal and any embarrassment to management that might bring.
"It's not that we expect to win our AGM proposals, a lot of them now get withdrawn before the meetings take place" said Paul ffolkes Davis, chairman of Rising Sun Management, an activist investment advisor to the Nippon Active Value Fund.
"The fact that we've never won one publicly doesn't mean to say we've never won one privately. Portfolio companies are engaging with us and acting on our suggestions more and more," Davis said.
The Tokyo Stock Exchange in January last year began publishing a list of firms that have disclosed plans to improve capital allocation and corporate value, a move widely seen as naming and shaming those that fail to disclose such plans.
Starting this year, the bourse under CEO Hiromi Yamaji plans to highlight companies who have sought dialogue with investors.
"The greatest of all the Japanese activists is Mr. Yamaji," said Davis.
Companies used to only seek help after activists publicised their proposals. Now they commonly reach out after the first or second private approach, said Hiroo Shimoda, senior manager at Mitsubishi UFJ Trust Bank's corporate consulting division.
"Before it was as though we were putting out fires after they had started. Now it's more like we're doing preventative fire-proofing work," Shimoda said.
Since last year, the trust bank has expanded its advisory business for private activist engagement, including how to respond to approaches and whether disclosure is necessary.
Investors more broadly point to greater openness by Japanese management to discussing strategy.
"In the past we wouldn't really get access to management. Now, we're meeting entire boards in the majority of our portfolio names," said Joe Bauernfreund, chief executive of London-based Asset Value Investors.
"There are still so many undervalued companies in Japan, which means we've got our work cut out for us over the next few years."