Turning activist countermeasures into an opportunity for transformation

Activist¹ activity in the Japanese equity market is on the rise, and the scale of shareholder proposals and investments is also expanding. Against this backdrop, companies are being compelled to respond and transform at an unprecedented pace.

The Japanese equity market can be described as an environment where activists can readily generate returns. In addition to the establishment of the Corporate Governance Code and the Stewardship Code, the market reforms of the Tokyo Stock Exchange (hereinafter ‘TSE’), the strength of minority shareholder rights, an accommodative monetary environment and the number and size of listed companies are all driving increased activist activity.

Activists can be broadly classified into ‘aggressive’ or ‘moderate’ types. Aggressive activists take a strong interventionist stance through ‘demands’ and the ‘power of numbers’, while moderate activists aim to build collaborative relationships through ‘dialogue’ and ‘proposals’.

Many domestic investors desire medium- to long-term enhancement of the corporate value of Japanese companies. Unlike in the past, activist demands increasingly focus on content that enhances corporate value—content that is more readily accepted by institutional and retail investors. The Japanese equity market is transitioning from a ‘battleground’ between companies and activists to a ‘forum for dialogue’.

Activist activity progresses in stages—from private communication to public communication, shareholder proposals and proxy fights, and in some cases may even lead to shareholder derivative lawsuits. Companies forced to respond face a tremendous burden of effort.

Responding to activists requires a transformation of management mindset and the establishment of internal organisational structures. In addition, it is important to advance activist response efforts while enriching dialogue with the equity market. In doing so, a framework is needed in which the IR department takes the lead and senior management is proactively involved.

As activist demands shift from securing short-term gains to enhancing medium- to long-term corporate value, this paper positions activist response as an opportunity for transformation. It presents approaches for establishing organisational structures and developing talent, while incorporating activist perspectives into the company’s own transformation approach and leveraging external resources.

Additionally, this paper introduces PwC’s multifaceted support, including corporate diagnostics from a capital markets perspective, management strategy formulation, governance strengthening and communication strategy.  

¹ A style of investment in which the investor acquires several percent to several tens of percent of the shares of a listed company whose stock price is significantly lower than its asset value, demands earnings growth or shareholder returns from surplus capital and then sells the shares after the stock price rises to generate short-term profits. Also known as ‘activist shareholders’.