Having barely slowed in Asia during the pandemic, activist investing is continuing apace. According to our latest special report, Shareholder Activism in Asia 2022, the continent has gone from representing 7.3% of global activist targets in 2015 through consecutive increases to 14.5% in 2021.
Activist Investing In Asia
And, as I argue in the foreword, “change is fast becoming unmanageable.” A record 12 demands for board representation were at least partially successful as of May 3, 2022, suggesting that last year’s 24 demands might be bested. Since then, most proxy fights have gone management’s way but a settlement between Japanese restaurant operator General Oyster and top holder Nexta shows that some of the old contempt for shareholder demands is being phased out.
Q1 2022 hedge fund letters, conferences and more
Indeed, shareholder rights are starting to be used to pressure companies into more environmentally conscious positions. Although ESG activism has not had quite the same breakthrough in Asia, the report highlights that environmental demands have trebled since last year. Next week, shareholders will vote on nine resolutions advanced by the Osaka Mayor's Office at Kansai Electric's annual meeting. Several, seeking increased management transparency and a clear plan for Kansai Electric to achieve net-zero emissions by 2050, are backed by the cities of Kyoto and Kobe.
All this despite the fact that, as Georgeson CEO Cas Sydorowitz highlights in an article for the report, "Companies in Japan and Korea are often family-controlled, acting as natural insulation against activism." Many factors combine to make companies vulnerable, including lax governance, family feuds, and shareholder discontent.
Activists like Elliott Management and ValueAct Capital Partners, representing different ends of the spectrum from aggressive to constructive, have nonetheless converged on Asian targets. It has not been easy, as ValueAct's increasingly vocal complaints about Japanese grocer Seven & i's failure to engage this year make clear.
Yet to truly consider the rapid change in activism's fortunes in Asia a tipping point, the outcome of Toshiba's annual meeting next week and its long-followed strategic review will need to be widely accepted.
The technology company's annual meeting will almost certainly see two more shareholder representatives elected to the board in the latest settlement, this time with Elliott Management and Farrallon Capital.
Although Mariko Watahiki, a former judge who sits on the nomination committee, has opposed the two candidates' appointments on the grounds that there is already extensive shareholder representation, the more likely sticking points are whether Toshiba accepts one of the eight take-private bids it has reportedly received and whether they are accepted as maximizing shareholder value.
Josh Black, Editor-In-Chief, Insightia
Retail investors are due to play a much more significant role influencing proxy votes with the introduction of As You Sow's and Tulipshare's new investment platform.
In a Wednesday announcement, shareholder advocacy organization As You Sow and U.K.-based fintech Tulipshare announced a strategic partnership to "empower retail investors globally to use their shareholder power in support of resolutions on climate, racial justice, and other pressing issues."
The partnership will enable retail investors to vote for As You Sow shareholder resolutions, which have this proxy season called on leading U.S. companies such as Amazon, McDonald's, and Twitter to strengthen their ESG commitments and reporting.
"This platform is coming at an opportune time given the rise in shareholder proposal submissions and proposals that are going to votes," Brian Valerio, senior vice-president, advisory group at Alliance Advisors told me in an interview. "The retail investment community is notoriously underrepresented at shareholder meetings, but there is growing sentiment and evidence that retail holders are particularly interested in ESG."
As You Sow submitted 90 resolutions with U.S.-listed companies this proxy season, 60% of which were withdrawn prior to annual meetings for agreements with companies. A further six went on to win majority support from investors at companies such as Boeing, The Travelers Co., and Caterpillar.
This new development is likely to bolster support for ESG shareholder proposals and strengthen shareholder advocacy, which As You Sow noted has "largely been in the domain of large institutions."
According to a 2020 report by Broadridge and PwC, individual investor's votes only accounted for 28% of total shares voted during the proxy season, but this is set to change.
"2021 was the year of the retail investor," Cas Sydorowitz, global CEO at Georgeson, told me in an interview this week. "This shareholder group could yield significant voting power. Companies with a large retail investor base will require vastly different shareholder engagement strategies and tactics."
In August 2021, Robinhood Markets agreed to buy proxy voting services provider Say Technologies for $140 million, with the goal of boosting retail investor engagement with portfolio companies and making it "easier for everyday investors to participate as owners."
JP Morgan acquired shareholder engagement service OpenInvest that same month to provide investors with the ability to "personalize their investments."
Retail investors could change the game in more respects than just support for ESG shareholder proposals. A growth in participation of retail investors in shareholder meetings, proxy fights, and other corporate actions may lead to issuers facing requests for new information or different reporting.
Outreach to retail investors formed a critical part of Engine No. 1's campaign at the oil giant last year and Trian Partners' 2017 proxy contest at Procter & Gamble. The retail component of each company's shareholder base was well over 30% and was thought to be less supportive of management than expected based on past contests.
"Ultimately, the success of shareholder proposals largely hinges on larger voting blocs held by institutional investors, however, the power of retail shareholders should not be overlooked and may be impactful depending on a company's shareholder profile," Valerio said. "This new partnership reinforces the importance of companies understanding their shareholder base and effectively communicating with retail shareholders."
Rebecca Sherratt, Publications Editor, Insightia
