Shareholders Come Out Swinging in Japan

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Calls for Ghosn's Resignation

These days Sony executives aren't alone in getting an earful from vocal shareholders. Not even Nissan Motors (NSANY) President Carlos Ghosn—once revered in Japan for hauling the carmaker from the brink of bankruptcy—has been spared. At Nissan's June 20 shareholder meeting, Ghosn faced calls for his resignation from investors disillusioned by the car maker's declining sales and share price.

Speaking to Japanese public broadcaster NHK, one investor suggested Ghosn should become chairman and leave the day-to-day running of Nissan to Japanese management. Ghosn, a veteran of shareholder meetings, was unruffled. As long as he has the desire to stay, and shareholders overall want him in the job, he's going nowhere, he said.

Sure, some of the criticism of CEOs during the shareholder meeting season is from ranting eccentrics. But recent developments suggest investor activism is on the rise in Japan, particularly from foreigners who are pressuring Japanese managers for reforms and in some cases have been winning concessions. Western funds have been behind a number of high-profile campaigns. In recent months, Steel Partners, the New York fund founded by Warren Lichtenstein, has dogged more than a half-dozen companies with huge cash stockpiles for higher dividend payouts—sometimes demanding double or triple the amount—with mixed results.

Rise of the Mobilized Shareholder

In another case earlier this year, Singapore-based Ichigo Asset Management, run by Scott Callon, successfully mobilized shareholders to block a merger deal in Japan's steel sector between Tokyo Kohtetsu and Osaka Steel after the investment firm judged the merger a raw deal for minority shareholders.

Some local shareholders are getting a piece of the action as well. Japan's Pension Fund Association, which manages $105 billion in assets and a quarter of that in stocks, has pressed Japanese companies to improve corporate governance and boost their annual return on equity to above 8%. That has led hundreds of executives to start making an annual pilgrimage to the fund's offices. "The number doubled last year and it will this year as well," said fund spokesman Taku Yamamoto. "Their visit is not just a formality. Along with the rising importance of investor relations, an increasing number of managers come to explain [their companies' financial situation]."

"While by no means a new market theme, we believe that recent actions by activist shareholders are likely to reignite interest in companies with inefficient balance sheets and low valuations that may be targeted by activists or industrial competitors," Goldman Sachs' (GS) Kathy Matsui wrote in a recent report titled "Shareholder Activists Reactivated."

Show Us Your Pay Stub

The trend appears to have emboldened small investors to take a firmer stand. During Sony's shareholder meeting, a woman, who said her name was Hirata, asked executives to define the "Sony spirit." Stringer replied, "I understand if you look at me as a foreigner and wonder if I understand the Sony spirit." Later, he added: "We have become a more global company than ever and perhaps you are looking at this from a local, Japanese perspective."

To some, those remarks were out of sync with the board's actions on pay disclosure. "Stringer and the rest of the management claim they are remaking Sony into a global company, but when it comes to pay disclosure they're still acting like a typical Japanese company," said a 60-year-old investor and retired Sony engineer, who declined to give his name. "Companies in the U.S. publicly release information on executive salaries. I'm 100% in favor of Sony doing the same."

Hall is BusinessWeek's technology correspondent in Tokyo
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