The Yomiuri Shimbun June 29, 2013
Firms, shareholders must pursue dialogue to raise corporate value
Activist shareholders, including foreign funds that apply pressure on corporate management, have made their presence felt at recent shareholders meetings for the first time in a long time.
Through their resurgence, Japanese firms face a heavy challenge regarding how to improve corporate value through management reform.
The annual wave of general shareholders meetings of companies with business terms that ended in March has passed its peak. Activist shareholders were at center stage.
At a meeting of Seibu Holdings Inc., its largest shareholder, Cerberus Capital Management LP, argued against management policy and proposed eight director candidates of its own. But the U.S. fund failed to gain majority approval for its proposal as all the candidates recommended by Seibu were elected to the board of directors.
Before the shareholders meeting, Cerberus had pressed for reform of Seibu’s management through such moves as a takeover bid. Seibu argued against the Cerberus reform plan, leading to deepened confrontation with the U.S. fund. But Seibu appears to have managed to block the Cerberus offensive for the moment.
Nevertheless, Seibu’s reform is still pending as it seeks to be relisted. The company must tackle that difficult challenge while relations with its largest shareholder go unrepaired.
Questions to answer
Sony Corp. had been asked by a U.S. fund, one of its major shareholders, to spin off its movie and music business and list the new entity on the stock market. But Sony took a wary stance toward dividing up its businesses, arguing that synergistic effects can be expected with the manufacturing of TV sets and other businesses.
At its shareholders meeting, however, Sony was pressed on the separation issue by other shareholders. As a result, Sony announced a plan to study the demand. Improving earning capacity through reconstruction of its main line of business, including production of TV sets, has now become an important task for the Sony management.
Stable shareholders, including banks and business customers, account for a majority of shareholders in Japanese firms, so management often lacks a perspective of paying attention to shareholders. Japanese companies tend to put a low priority on earnings power and returning profits to shareholders.
More parties heard from
Abenomics, the economic policy pursued by the administration of Prime Minister Shinzo Abe, has drawn fresh global attention to the Japanese economy. As a result, the ratio of foreign holders of Japanese equities reached a record high of about 30 percent as of the end of March.
In addition to foreigners, the number of Japanese shareholders who strongly press demands, such as expansion of profits to improve corporate value, is certain to increase. Management must be prepared to listen sincerely to shareholders’ voices.
It is laudable that Toyota Motor Corp. and many other Japanese firms decided at this year’s shareholders meetings to adopt outside board directors, thereby meeting the requests of shareholders.
Nonetheless, shareholders’ demands for short-term stock price increases and higher dividends are not always right. Investment in personnel training and research and development is also vital from the viewpoint of enhancing corporate competitiveness in the medium and long term.
Management has a responsibility to present reasonable policy and continue dialogue with shareholders even if it turns down their specific demands.
Improving corporate value is a common goal for firms and shareholders. They will be required to accelerate management reform amid their tense relationship.
(From The Yomiuri Shimbun, June 28, 2013)