Tokyo booms for shareholder-relations advisers as activists raise pressure

Sumitomo Mitsui Trust

31/01/2023 23:00

By Makiko Yamazaki
       TOKYO, Feb 1 (Reuters) - A rising wave of shareholder
activism has turned Tokyo into a growth market for businesses
that offer advice on shareholder relations, as corporate Japan
scrambles for help to deal with investors who are no longer
silent.
    The growing presence of such advisers, including new
entrants, shows how Japanese companies are more actively
addressing concerns about weak governance, poor allocation of
capital and chronic stock underperformance - even those that
have not yet been targeted by activists.
        With about half of its companies trading below their
book value, Japan has become one of the world's most popular
destinations for activists looking for targets with big
potential for change. A government push for governance reform is
adding to the momentum.
    The experience of conglomerate Toshiba Corp  6502.T  is on
the minds of many Japanese bosses. At that company, activist
shareholders have forced board changes, rejected the
management's turnaround plan and prompted the company to
consider going private to remove them.  
    Law firms and investment banks such as Nomura Holdings
 8604.T  have typically advised companies on how to defend
themselves from activist campaigns as part of their
mergers-and-acquisitions advisory businesses. Shareholder
relations advisers do that, too, and they say they are generally
more focused on longer-term strategies.
    Typical work for them includes identifying shareholders so
the company can gauge support at general meetings, soliciting
proxies and advising on strategic reviews including how to
allocate capital.
    "It's hard to ignore demands from activists nowadays, as
their focus has shifted from quick returns to more fundamental
issues, such as business strategy and governance," said Manabu
Shinohara, partner at EY's strategy consulting unit in Japan.
    EY announced a foray into shareholder relations in Japan in
December, with a full-service line-up from identification of
shareholders to proxy solicitation. EY aims to boost its
20-member team to 100 in a few years.
    The number of activist funds operating in Japan has jumped
more than fivefold since 2014 to about 50, now including such
global names as ValueAct Capital and Elliott Management,
according to data from Mizuho Trust & Banking Co.
    Shoya Okuma, chief executive of shareholder-relations firm
QuestHub, said more companies that wanted to avoid war with
activists were calling his firm for help in compiling strategies
to boost shareholder value.
    "Widely reported proxy fights like the one at Toshiba have
turned many companies serious about shareholder value," he said.
His five-year-old company now has nearly 20 staff members, with
a plan to double that number in about three years.
    BANKS EXPANDING
    Top Japanese trust banks also have been aggressively
expanding into this field of business by leveraging their client
base for traditional shareholder record-keeping services as
share transfer agents.
    Sumitomo Mitsui Trust Bank Ltd planned to increase the
number of its shareholder-relations experts from the current 20
to around 30 in the long term, while Mizuho Trust hoped to
eventually double the size of its 15-member team, the banks
said.
    Mitsubishi UFJ Trust and Banking Corp said it would continue
to expand its shareholder-relations support unit, Japan
Shareholder Services Ltd (JSS), which now has about 80 staff
members.
    Big global firms are also looking to ramp up in the Japanese
market.
    One, Morrow Sodali, launched its own Tokyo office in 2021
after years of working with local partners. Christian Sealey,
the company's international CEO, said Morrow Sodali could be
poised to grow "very quickly" in Japan, which he said had "all
the hallmarks" of the most interesting markets.
    Another, Georgeson, believes "there is more to do in Japan,"
Cas Sydorowitz, its global CEO, said.
    Some of the companies interviewed for this story said their
latest expansions had been helped by shareholder relations
experts joining from the local industry's dominant operator, IR
Japan, and by some clients switching from it.
    IR Japan, which had grown quickly on a rise in proxy fights,
suffered from scandals last year, including alleged insider
trading by a former executive.
    IR Japan declined to comment on competitors, but executive
vice president Akinosuke Ishigaki said: "It's our responsibility
as an industry leader to continuously update our advisory
capabilities and provide innovative services to our clients."
    There are no public estimates of the size of the market, but
Eiji Yamada, executive principal at The Japan Research
Institute, said the boom could be transitory.
    "Once companies master the language of capital markets and
can convince shareholders of their strategies, they won't need
to fully rely on outside support," he said.
    Tsuyoshi Maruki, who heads Japanese activist fund Strategic
Capital, urged advisory firms to focus on increasing their
clients' shareholder value instead of protecting management.
"Their advisory fees are paid from shareholders' assets," Maruki
said.
 (Reporting by Makiko Yamazaki; Editing by David Dolan and
Bradley Perrett)
 ((Makiko.Yamazaki@thomsonreuters.com; +81-3-4563-2805;))