Global shareholder activism targeting listed companies reached an all-time high in the first half of this year, with demands aimed at Japanese firms surging on the back of overseas investors.
Nikkei Asia reported on the 25th, citing data from U.S. investment bank Lazard, that new global shareholder activism campaigns targeting companies with market capitalizations of more than $500 million totaled 184 in the first half of this year. The figure marks a 20% increase from the same period a year earlier.
The United States saw the largest number of campaigns, with 89, up 24% from a year earlier. Japan recorded 52 over the same period, a 53% increase that approaches its full-year total of 56 last year. Japan's rate of increase outpaced that of the U.S.
In Japan, many shareholder proposals targeted capital efficiency and corporate governance. According to Nikkei Asia, the return on equity (ROE) at large Japanese listed companies stands below 10%, lower than the roughly 15% at U.S. and European firms. This stems from an insular tendency to hoard cash within the company rather than return earnings to shareholders or invest in new businesses.
Because of this tendency, demands related to capital allocation, such as share buybacks, accounted for 56% of all campaigns, more than half of shareholder activism activity. Corporate governance issues such as executive compensation made up 50%, while proposals calling for the removal of directors accounted for 31%. Many campaigns raised multiple demands against a single listed company.
The most prominent among these is U.S. activist fund Elliott Management. Elliott is reported to have demanded that Japanese air conditioner maker Daikin Industries review its business divisions and carry out a share buyback worth 1 trillion yen (about $6.8 billion). Earlier, when Toyota Motor sought to take its founding company, Toyota Industries, private, Elliott objected, arguing that the deal undervalued the company. Toyota ultimately reached a final agreement with Elliott after dramatically raising its offer to as much as 5.9 trillion yen.
Elsewhere, Japanese activist fund Strategic Capital demanded that ceramics maker Noritake withdraw from low-margin segments such as its tableware business and expand shareholder returns, while Hong Kong-based activist fund Oasis Management opposed the selection of chief executives at media group Kadokawa and measuring-instrument maker Horiba.
Some investors also pressed companies to adopt artificial intelligence. According to Nikkei Asia, Elliott is reported to have called on the London Stock Exchange Group (LSEG) to accelerate the adoption of AI in its data-related businesses.
In response to the spread of shareholder activism, however, some countries are moving to rein it in. Last month, the U.S. Securities and Exchange Commission (SEC) required special-purpose vehicles (SPVs) set up by activist investors to conduct aggressive shareholder campaigns to disclose the sources of their funding. The move is intended to block attempts to threaten corporate control by using shell companies to conceal the underlying investors.
In Japan, the ruling Liberal Democratic Party has drawn up government recommendations to curb excessive shareholder intervention. The measures include tightening the requirements for shareholder proposals and for calling extraordinary general meetings. Kenta Akayama, head of Lazard's Japan unit, said, "Among overseas market participants, there is a perception that activist investors have contributed to reforming Japan's capital markets," adding, "Some are also raising concerns that these changes could be reversed."
