ANALYSIS: Activists Target Japanese Firms After Governance Shift

July 15, 2021, 9:01 AM

It is not surprising that ExxonMobil Corp., valued at nearly a quarter of a trillion dollars, tops the list of the largest companies targeted by activist investors in the year’s second quarter. In June, following a campaign by Engine No. 1, a small activist hedge fund focused on climate and environmental issues, ExxonMobil shareholders elected three dissident directors to the company board. What is surprising is the presence of two Japanese firms, Seven & i Holdings Co. (the Japanese parent of the 7-Eleven store chain), and electronics giant Toshiba Corp. on that same list.

In previous years, activist campaigns were not a major concern for Japanese issuers because the country’s corporate governance structures insulated boards and management from outside challenges. In 2018, however, the Japanese authorities published a revised Corporate Governance Code. The revised code calls for more board accountability and oversight of management, and states that “companies should take appropriate measures to fully secure shareholder rights and develop an environment in which shareholders can exercise their rights appropriately and effectively.”

U.S.-based ValueAct Capital Management took a significant stake in Seven & i Holdings Co. in May. ValueAct may seek a restructuring to focus on the company’s core convenience store business.

Toshiba, long one of Japan’s leading brands, has been beset by financial losses and management scandals. Singapore-based hedge fund Effissimo Capital Management Pte. called for a probe into alleged irregularities connected to the company’s 2020 annual general meeting, including alleged collusion by the company with government officials to influence board elections. Shareholders ousted Board Chairman Osamu Nagayama in June.

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