Mon, Apr 23, 2007 - Page 11 News List

Japanese shareholders take control

MORE PRESSURE Today's typical annual shareholder meeting is a far cry from the old days when it was overshadowed by sokaiya -- corporate extortionists


Gone are the days when Japan's annual shareholder meetings were over in less than half an hour and gangsters were sometimes paid to ensure disgruntled investors asked no awkward questions.

As Japan's population ages and tries to build bigger retirement nest eggs, Japanese companies are coming under growing pressure from shareholders, encouraged by increasingly vocal investment funds.

In February, an activist fund led a rare shareholder revolt that blocked a takeover of steelmaker Tokyo Kohtetsu by a subsidiary of Nippon Steel.

Ichigo Asset Management, run by former Morgan Stanley banker Scott Callon, successfully rallied opposition to the proposed deal, arguing that it was not in shareholders' best interests.

"There are around 40 million individual shareholders in Japan. It is very substantial," Callon told reporters recently.

As more and more Japanese invested their savings in the stock market, increasingly assertive shareholders were expected to keep up the pressure on managers to ensure fair dividends and good governance, analysts said.

"Japanese companies are becoming more sensitive to shareholder issues, or thinking of their company from the shareholder perspective," said Sherman Abe, professor of international business at Hitotsubashi University.

"I think Japanese companies realize that it's a different game than it used to be 15 years ago," he said.

"I hope that Japanese shareholders are going to begin putting more pressure on management," Abe said, noting that some firms were already placing more emphasis on shareholder value by setting return on equity targets.

Like hostile takeovers, shareholder revolts are unusual in Japan, where companies have traditionally tended to put the interests of employees and corporate partners before those of small investors.

In the 19th century, the powerful industrial families, busy with their social functions, delegated the running of their businesses to clerks, or banto, who often put the welfare of the employees before those of the owners.

This phenomenon continued into the 20th century -- particularly at the big family-controlled banking and industrial conglomerates, or zaibatsu -- and even after World War II, despite the allied occupiers' efforts to break them up.

Even now rebel shareholders do not always win the day -- US hedge fund Steel Partners last month failed in its attempt to rally opposition among fellow shareholders to Sapporo Holdings' proposed anti-takeover defenses.

But today's typical annual shareholder meeting is a far cry from the old days.

According to a study by US academic Kenneth Szymkowiak, 91.4 percent of annual general shareholder meetings in Japan between 1971 and 1981 lasted for less than 30 minutes, and most of them for no more than 15 minutes.

Sometimes proceedings were overshadowed by sokaiya -- corporate extortionists with links to the local mafia.

These racketeers would threaten to disrupt the shareholder meetings unless they were paid off by management to ensure genuinely disgruntled shareholders refrained from giving management a tough time.

Even now Japanese managers still enjoy more freedom that their US counterparts when it comes to shareholder power, but it is changing, Callon said.

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