Pushy investors prime Japan Inc for new phase
25/05/2026 13:59
(The author is a Reuters Breakingviews columnist. The opinions
expressed are his own. )
By Hudson Lockett
HONG KONG, May 28 (Reuters Breakingviews) - In the
summer of 1990, Texas oilman and corporate raider T. Boone
Pickens stormed out of a five-hour shareholder meeting at Koito
Manufacturing in Tokyo after his team was so thoroughly jeered
by sōkaiya, or shareholder hecklers-for-hire, that it struggled
to get a word in edgewise. Still fuming a year later over being
denied a board seat at the Toyota supplier in which he’d built a
26% stake worth nearly $1 billion, the former wildcatter waved
the white flag: “OK, Toyota; OK, Koito; I give up.”
It took more than three decades, but the script has flipped.
Toyota insiders caved to demands from Paul Singer's Elliott
Investment Management earlier this year by agreeing to raise
their egregiously low buyout offer for Toyota Industries
6201.T , in the process setting a new milestone for aggressive
investors in the country's $8 trillion equity market. Big funds
now await the next major phase of cage-rattling, pushing
management to go beyond the stewardship basics. More pressure on
operations and corporate governance is poised to take center
stage, but the holy grail of disassembling sprawling
conglomerates will have to wait.
Japan Inc's fears of a breakup boom are understandable.
There were a record 56 activist campaigns against Tokyo-listed
companies last year, according to Barclays. The tally was more
than all of Europe put together and second only to the United
States. In the first quarter of 2026, overseas investors such as
James Smith's Palliser Capital and ValueAct, co-led by Mason
Morfit and Rob Hale, targeted businesses worth more than $110
billion combined. All the attention on such efforts, including
from other big-in-Japan aggressors like Seth Fischer's Oasis
Management, belies a subtler shift fostering the momentum: the
mobilization of domestic asset managers affiliated with Nomura
8604.T , Daiwa Securities 8601.T , Sumitomo Mitsui Trust Group
8309.T and others that often account for at least a third of
shareholder registers.
These developments follow decades of strenuous chiseling. Long
after Pickens turned tail, homegrown raider Yoshiaki Murakami
left a job in the government bureaucracy to start his own vocal
fund. He scored some significant victories until an insider
trading case stalled momentum. In 2007, the nation's top court
thwarted a resurgent overseas contingency when it ruled against
Steel Partners' attempt to buy Bull-Dog Sauce, validating the
target's poison pill defense. Former Prime Minister Shinzo Abe
subsequently ushered in a new era for Japan Inc, which led to
revised corporate governance and takeover frameworks enabling
landmark investor campaigns at Olympus 7733.T , Toshiba and
beyond.
Proof positive of the progress surfaced at Canon 7751.T .
The camera-to-copier maker’s octogenarian CEO Fujio Mitarai
nearly got the boot in 2023 for refusing to seat a single woman
on the board. His shockingly low 50.6% approval rate at the
ballot signaled a major shakeup in a system where local
investors consistently back management in almost any
circumstance. Activists have seized on the opportunity to forge
stronger relationships with more Japanese asset managers.
Combined with the Tokyo Stock Exchange's push for companies,
especially the many that trade below book value, to boost
returns, a mindset change has helped facilitate initiatives to
monetize undervalued real estate holdings, including at Mitsui
Fudosan 8801.T and Tokyo Tatemono 8804.T . Indeed, no
industry looks safe from assertive investors scanning for
landholding opportunities, evidenced by last year's pushback at
Japan Post and Kansai Electric Power.
Such initiatives are broadening, too. For example, Elliott
is also urging Kansai Electric Power's 9503.T management to
charge large customers more. The strategy aligns with a fresh
focus on the nuts and bolts of holding management accountable
for their power structures and profit margins, since the message
has now been sent, and widely received, on balance sheets and
property deals.
Plenty of relatively easy value remains to be extracted in these
arenas, but there's enough momentum to start mining other seams
the way U.S. and European campaigns do. Case in point: Starboard
Value's recent push for potato processor Lamb Weston LW.N to
think bigger on cost savings. Japan Inc's poor performance
compared to international peers is what motivated investors to
seek improvements at $35 billion monosodium glutamate producer
Ajinomoto and $50 billion Daikin Industries, which manufactures
heating and air conditioning systems.
Although Japanese companies often lead in quality, they tend
to misprice their products and abide bloated expenses.
Entrenched hierarchies of seniority stifle creativity and
prevent middle managers from moving up the ranks. Founders also
have a habit of sticking around in informal roles, preserving
cherished but costly departments or pet projects. Tackling such
issues first should help increase shareholder value while
keeping an empire mostly intact, giving CEOs more time to get
comfortable with the idea of dismantling them.
The lingering red line against comprehensive restructuring,
however, is reflected in the recent crusade at Mitsui OSK Lines
9104.T . Elliott urged the international shipping company to
relist developer Daibiru, a subsidiary it subsumed in 2022.
Doing so would allow the real estate division to raise equity at
a more appropriate cost to its industry, rather than be
subjected to the parent's more volatile cost of capital. The
idea also contradicts the Tokyo bourse's preference for
preventing companies from using such structures because they
often neglect minority shareholders.
Not every such arrangement bilks outsiders, but the
resistance to them is rational and underscores the difficulty in
advancing a breakup agenda. Another major hurdle is that more
than a few head-scratching expansions that activists probably
would have opposed have worked out well for Japanese companies.
Ajinomoto’s decision to make polymer film used in semiconductors
is exactly what helped attract Palliser’s attention last month.
The most persuasive reason to narrow the scope of Japan's
renowned conglomerates comes from $130 billion Hitachi 6501.T .
Even though boss Toshiaki Tokunaga presides over a grab-bag
ranging from power grids to ATMs to automotive chassis, ruthless
streamlining has helped generate a total shareholder return of
nearly 400% over the last five years, triple that of the
benchmark Topix index.
For now, though, hammering away at corporate governance,
efficiency and profitability will have to suffice. It's a long
way from the stonewalling that T. Boone Pickens and other
forerunners encountered, and bodes well for full-blown breakups
becoming acceptable on a quicker timeline.
Follow Hudson Lockett on Bluesky and X.
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Japan has become the world's second-hottest activist market https://www.reuters.com/graphics/BRV-BRV/zdvxgbjerpx/chart.png
Corporate governance is a growing focus in Japan https://www.reuters.com/graphics/BRV-BRV/zdvxgblylpx/chart.png
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(Editing by Jeffrey Goldfarb; Production by Pranav Kiran)
((For previous columns by the author, Reuters customers can
click on LOCKETT/ mailto:hudson.lockett@thomsonreuters.com))