Key facts
- Japan plans to raise the ownership threshold for shareholders to request extraordinary meetings from 3% to 5%.
- The requirement for submitting shareholder proposals will be unified to 1% or more of total voting rights.
- The proposed changes aim to curb the influence of activist investors.
- The revised Companies Act is expected to be submitted to the Diet in early 2027.
- Japan has seen a significant increase in activist investor campaigns in recent years.
Japan's government and the ruling Liberal Democratic Party are planning to revise the Companies Act to increase the ownership stake required for shareholders to request extraordinary general meetings (EGMs). The current threshold of 3% of total voting rights held for six months or longer is proposed to be raised to 5% or higher. This move is aimed at stabilizing the corporate management environment by curbing the influence of activist investors who have been increasingly active in Japan.
In addition to the EGM threshold, requirements for submitting shareholder proposals will also be tightened. The current system, which allows proposals if shareholders hold 1% or more of total voting rights or 300 or more voting rights for a certain period, will be unified under a single standard of 1% or more. This is in response to cases where shareholders with small stakes have allegedly tabled unrelated agenda items or pressured executives.
The surge in activist investors in Japan is partly a result of corporate governance reforms and strengthened shareholder rights introduced following Abenomics in the mid-2010s, which also attracted foreign capital. JPMorgan data indicates that public activist campaigns in Japan reached 85 last year, a 30% increase from the previous year. Notable instances include U.S. activist fund ValueAct Capital's pressure on optical equipment maker Topcon, leading to its delisting plans, and Yahoo Japan's dismissal of its subsidiary Askul's CEO and directors through a shareholder meeting.
Global private equity firms have been increasing their investments in Japan, targeting undervalued companies with low price-to-book ratios and return on equity, or complex governance structures. Firms like Bain Capital, Blackstone, and Kohlberg Kravis Roberts are expanding their presence. However, market observers express concern that tightening shareholder rights could reduce the investment appeal of the Japanese market, potentially impacting capital efficiency improvements.