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Breaking Up Japan Inc.’s Love Affair With Itself

Japanese companies are divesting themselves from each other at a quickening pace—a development shareholders should cheer.

6/21/2021 11:00:00 AM

Heard on the Street: Japanese companies are divesting themselves from each other at a quickening pace—a development shareholders should cheer

Japanese companies are divesting themselves from each other at a quickening pace—a development shareholders should cheer.

makes up around 85% of its market capitalization.While reducing cross-shareholding has long been an objective of Japan’s corporate-governance overhaul, some recent events may have hastened the pace. The Tokyo Stock Exchange is set to revamp its Topix indexes from April next year. The calculation of free float to qualify for the top-tier index will exclude strategic shareholdings.

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Investor advisory firms Glass Lewis andhave issued guidelineslinking support for existing management with cross-shareholdings. ISS recommends investors vote against top executives if a company’s cross-shareholdings are higher than 20% of its net assets. Glass Lewis suggested shareholders vote against a company’s chairperson if that ratio is 10% or more. Meanwhile, nearly a quarter of companies in TSE’s first section have cross-shareholdings equal to 10% or more of their net assets, said Goldman Sachs.

But it’s hard to tell if the unwinding of the cross-shareholding is really going to continue. Such divestitures are especially hard for banks, which see the holdings as a way to keep relationships with clients.The rise of activist investors in Japan may help nudge companies in the right direction, but they still face strong resistance from management. The recent Toshiba drama

encapsulates that dynamic: Management, with the help of government officials, initially managed to brush aside demands from investors, though the latter have now pushed back.Long-suffering investors in Japanese stocks have dreamed of more accountable managers who might take bigger risks or return more cash to shareholders. The fight is far from over, but recent events show that shareholders increasingly have the wind at their back.

Read more: The Wall Street Journal »

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Japan isn’t the only country practiced CrossShareholding, Germany is equally guilty of. And of late, China too became an ardent follower of such practice. Japanese divestiture suggests weakening of SogoSosha under assault from ChinaInc. Now they have to fend for themselves

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