AYA MURAKAMI hardly looks like a corporate raider. Dressed in black, the slight 31-year-old is, if anything, more like a kunoichi, or female ninja. In her office above a 7-Eleven store in Tokyo, she is disarmingly frank. She tells how, as a youngster, her father Yoshiaki Murakami, a well-known bureaucrat turned activist investor, taught her the value of money by making her bet on the cost of dinner. As a teenager, she once caught a glimpse of him on television on a flight home from boarding school in Switzerland. Shortly afterwards, in 2007, he was convicted of insider trading. At university in Japan, her fellow students pointed fingers at her.
Though her father was spared jail, the experience would have scared most offspring away from a career in finance. Not Ms Murakami. She now runs C&I Holdings, a family fund that enables her to influence how Japanese executives—“99% men”—run their companies. Her approach is uncompromising. “Whether I am female or young, I still hold the same number of shares and I can exercise them.” Last week the Murakamis launched a hostile bid for Kosaido, whose activities range from printing to funeral homes. They are in a race against Bain Capital, a $105bn buy-out firm.
For anyone familiar with Japan, the story of a young woman taking on the business establishment is remarkable—even with her father behind her. But as remarkable is what it says about Japan’s efforts to shake up its corporate culture. As Ms Murakami points out, the country considers money dirty; cash is handed over in envelopes and on trays, rarely from hand to hand. It is squeamish about profit. Business in Japan has long been an old boys’ club defended by yes-men (or “patient shareholders”, as they style themselves). Up to half of listed firms’ shares are in the hands of friendly shareholders—mostly other companies with cross shareholdings and banks and insurance firms who tend to support managers. This stymies attempts to hold them to account. As a result firms hoard earnings, and do not put them to more productive use.
Yet under the prime minister, Shinzo Abe, new laws enacted as part of the “third arrow” of his economic-growth strategy have challenged hoary boardroom practices, with the aim of promoting American-style shareholder capitalism. Ironically, as Steven Vogel of the University of California, Berkeley, points out, this is occurring just as Western politicians such as Elizabeth Warren, a Democratic presidential contender in America, argue for a model of stakeholder capitalism that looks decidedly Japanese.
Mr Abe’s government seems undeterred. From the outset it cast corporate-governance reform as industrial policy—a way of boosting economic growth without further inflating Japan’s public debt. That went down well. The impact is tangible. The corporate-governance code, introduced in 2015 and strengthened three years later, has raised the share of big listed firms with two or more outside directors to 92% in 2018 from 30.5% in 2014. A stewardship code pressing institutional investors to engage with the firms in which they hold stakes has been backed by the huge government pension fund (though corporate pension funds have dragged their feet). The share of Japanese investors voting against directors has jumped. It is now higher than among foreigners.
Bad governance has become a hot topic. On March 27th a special committee issued a damning report on Carlos Ghosn’s “deified” role as boss of Nissan, alleging that he set his own pay, kept board meetings, on average, to no longer than 20 minutes, and discouraged debate. It recommended changing Nissan’s board structure and introducing a majority of outside directors. Mr Ghosn is on bail, facing charges of financial misconduct that he denies.
Even institutional shareholders, once models of patience, are flashing the knives. On March 25th Lixil, a conglomerate best-known for its toilets, bowed to a demand from some long-standing investors to hold an extraordinary general meeting to flush the chief executive, who has lost their confidence, down the pan. That used to be almost unheard of in Japan. In January Olympus, a medical-device maker rocked by scandal in 2011, named a member of ValueAct, an activist American hedge fund, to its board.
It is too early fully to gauge the impact on performance. Aggregate returns on equity and assets have risen sharply, though they still lag behind those in America. Corporate scandals persist, even among firms with good governance, such as Toshiba. Nicholas Benes, a corporate-governance crusader in Japan, says directors lack training to do their jobs effectively. There is also a risk that governance will be sidelined in favour of the two trendier initials in ESG investing—environmental and social. Buy-backs, executive pay and hostile takeovers are far below American levels. There is no chance Japan will adopt cut-throat capitalism overnight.
One of the main motivations for companies to change is ageing. Faced with a shrinking domestic market, companies must get fitter and adapt. Activist investors such as Ms Murakami help accelerate the change. By one estimate, the number of such funds in Japan, domestic and foreign, almost doubled between 2016 and 2018 to 23. Ms Murakami says firms she targets are now quicker to accept the need to improve returns on equity than when she started, as activism has become more common.
Free money, anyone?
But activist investors still need nerves of steel. Ms Murakami knows this from tragic experience. In 2015 she suffered a miscarriage after she was questioned by financial regulators over suspected misconduct. She was not charged. They also need patience. The Murakami family has recently offered to deposit in a brokerage the equivalent of $1,000 for any Japanese child who wants to invest in the stockmarket, to encourage them to view money more positively. The children cannot lose; whatever they earn, they keep (and they only have to return the principal if they profit). So far only 2,500 have applied. But slowly, in business and in society, attitudes are changing.
This post was originally posted at https://www.economist.com/business/2019/03/30/japan-toys-with-shareholder-capitalism-just-as-the-west-balks.