What This Activist Investor Who Was Feared Throughout Japan Can Teach About Positive Change

What This Activist Investor Who Was Feared Throughout Japan Can Teach About Positive Change

In a previous blog post, we saw a report from Activist Insight that outlined how shareholder activism is a growing trend in Asia as well. The research found that Japan has seen some of the most instances of shareholder activism in the region from 2013 onwards. 

It’s perhaps fitting, then, that one of the most notorious Asian activist investors of the past two decades is Japanese.

Yoshiaki Murakami’s name used to strike fear in boardrooms throughout Japan – at least until a fall from grace in 2007. His reappearance and renaissance in recent years signifies a shift in how corporates are dealing with shareholder activists.

Pioneer Activist

A former government employee, Murakami decided to set up his own fund in 1999. He claimed that his time in Japan’s trade ministry drilled into him the importance of good corporate governance. 

As a shareholder, he became one of the most vocal supporters of activism and change in companies, which he felt were underperforming. His style was highly unusual in the country, where the general tendency of shareholders was to not get directly involved in management affairs.

As a result, he made a name for himself in tussles with companies like transportation and property conglomerate Seibu Railway and the Osaka Securities Exchange.

He became famous for demanding greater returns for shareholders and “showing how capital markets, including management-shareholder relations, should be,” according to his own statement. 

Part of his credo, which should be illuminating for any corporate dealing with shareholders, was that cash flow is for a company akin to blood flow for a human body. “The flow of money is essential for the growth of corporations, and there are negative side effects to the health of a corporation if this flow is blocked,” he said.

Responding to concerns that his investments caused market speculation, Japanese regulatory authorities changed reporting rules so that investors had to report shareholding acquisitions larger than 5 percent. 

His fund came to be worth JPY 444 billion – then it all came crashing down in 2007, when Murakami was indicted on allegations of insider trading.

A Return to Activism

Murakami reappeared in recent years to once again take an active role in corporate governance. An attempt to appoint outside directors in Kuroda Electric in 2015 was a return to form for the activist, even though it did not succeed.

He was more successful last year, when he stepped in to solve a merger block between oil refinery firms Idemitsu Kosan and Showa Shell Sekiyu. The companies had been locked in a dispute between the founding family of Idemitsu and Showa Shell management. 

Murakami acquired a stake in Idemitsu so that he could take part in the deal as a shareholder, instead of just being an outside advisor. He managed to convince the founders to let the integration go forward, while also getting some concessions for shareholders.

The merger was successful, going into effect just this week, with the combined entity now counting Saudi Aramco as its second largest shareholder.

More recently, Murakami was involved in the management buyout attempt of Kosaido, a group that includes, among others, a printing business and a funeral parlour business.

The group faced a takeover by Bain Capital, but Murakami and his group of companies launched a tender offer to grab a majority stake.

Although the tender offer failed, Kosaido moved quickly to overhaul its corporate governance structure, according to Murakami’s proposals and recommendations, and cleaned up the board while removing CEO Tsuneyoshi Doi.

Having written extensively about the deal for months, Insight Provider Travis Lundy hailed the latest development as “good news” in his latest note, although he remained skeptical of a stock price hike.

Read Travis Lundy’s full Insight: Kosaido Moves Quickly Post Failed Tenders

Making the Most of All Stakeholders

The changing face of shareholder activism in Japan reflects a broader trend in Asia. As the region attracts ever more international investment, corporates must be aware of the implications.

Activist incidents like the ones spearheaded by Murakami ingrained in Japan the need for companies to be more transparent and open about their corporate governance. Efforts by Shinzo Abe’s government, as well as an acknowledgment that shareholders reward companies that take the necessary steps to improve, came as a result of such activities.

This doesn’t just mean a solid corporate governance structure that brings value to the company and to shareholders.

It also requires an awareness of the overall ecosystem around the company; the investors, analysts, competitors, and yes, activists who tug and pull at the company from all sides. 

If company management is to successfully navigate the market waters, it needs to pay attention to all these stakeholders – and, as Murakami has shown on many occasions, to make the most of their influence.

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