Blog 22 March 2023

From Defense and Engagement – Activism in Asia

An interview with Kekst CNC’s Dr. Jochen Legewie, Ruth Pachman and Minako Otani, first published in Insightia’s Corporate Governance in Asia 2023 report.

Where are the hotbeds of shareholder activism in Asia?

Jochen Legewie (JL): Japan is clearly the main hotbed, as data from Insightia’s Activism module demonstrate. South Korea is quickly catching up, with a rapid increase in private and public campaigns. We can also see that activists are taking a closer look at other countries, in particular Singapore, while China will likely remain in decline.

What are the typical characteristics of shareholder activism in Japan?

Minako Otani (MO): Activism in Japan is very different from Western countries and is thriving mainly because of top-down policies introduced by the government that strengthen the country’s Corporate Governance and Stewardship Codes. Companies have to follow suit and move away from the institutionally entrenched boards and management structures of the past to new, outward-looking shareholder engagement. Recognizing the challenging nature of this shift, international activists have adjusted their campaigns from the “hammer method” used in the past to a more constructivist, engaging approach.

Which role does the U.S. play with regard to activism in Asia?

Ruth Pachman (RP): In short, a very important one. In each of our Asian mandates, our local office is working very closely with our colleagues in New York. The reasons are obvious, as regardless of the origin of the activist, it is essential to apply a combined understanding of how American institutional shareholders and activists think and behave with a sophisticated sensitivity to the unique sensibilities and characteristics of Asian cultures and markets.

How do you see ESG activism developing in Asia?

MO: Classic ESG activism has not yet peaked in Asia. In particular, we see more and more references to environmental themes and issues. However, out of the three letters that make up ESG, the most important in Asia so far is governance. Activist shareholders do not shy away from bold business recommendations, but they know the chances for their realization remain slim without corporate governance changes. Hence, activist demands often focus on changes in governance structures and on the actual people in place on the board and in top management.

How has activism changed the communication needs of Asian companies?

JL: We are seeing companies begin to wake up to the need for activism preparedness, making sure a company’s strategic business objectives, capital allocation strategy, metrics, and expectations are properly understood for accurate evaluation. Until recently, investor relations (IR) was often a fairly passive function that followed an annual calendar of legally mandated disclosures and explanations. With a stable shareholder base, there was little need for proactively communicating a compelling equity story.

"We are seeing companies begin to wake up to the need for activism preparedness".

Dr. Jochen Legewie, Partner & Chairman Asia, Kekst CNC

This has radically changed, with foreign institutional investors owning more than 30% of listed Japanese companies on average, often even more than 50%. Asian companies are rapidly professionalizing not only their IR work but also their engagement with business and financial media, at home as well as internationally. The rising need for a more consistent and strategic positioning with investors and business and financial media is our company’s sweet spot as a strategic communications adviser, providing our clients with PR and IR advice from our offices in and outside of Asia.

What is your most important piece of advice for Asian companies facing activism?

RP: It is very simple, but it comes often as a surprise: do not focus on defending against or criticizing the activist, but on engaging with and winning over your other shareholders. Develop your corporate strategy and equity story, and proactively and consistently communicate it to them before the activist appears at your door. Last year’s annual meeting season in Japan, for example, saw a record number of shareholder proposals and buy-ins from institutional shareholders. It is the shareholders at large that own the company and decide its future course, not one single activist.