Japanese companies are increasingly unwinding cross-shareholdings, a practice where firms own stakes in each other, as they face pressure from activists and regulators to improve governance. Major companies, including Toyota Motor and Nintendo, have already moved to reduce these holdings. This practice, common in Japan but unusual in the West, has traditionally provided management with a stable investor base. However, critics argue it reduces transparency and insulates management from shareholder voices.
Regulators and the Tokyo Stock Exchange are pushing firms to dissolve cross-shareholdings, leading companies to fear being targeted by activists if they are seen as laggards. Investment firms are noting a rapid shift in mindset, with Japanese companies now understanding and acting on the need for governance reforms. Elliott Investment Management’s recent success in influencing Toyota’s bid for Toyota Industries underscores the growing influence of activist investors in the Japanese market.
Toyota plans to sell approximately $19 billion worth of its shares held by banks and insurers, signalling its commitment to improved governance. This significant move could prompt other companies to follow suit. Meanwhile, Nintendo, a multinational consumer electronics and video game company, recently announced a $1.9 billion sale of its shares held by banks and a stock buy-back scheme. Ibiden, an electronics manufacturer, and Nichirei, a frozen food company, have also announced the sale of their shares by other companies.
While activists are playing a role, some analysts believe the impetus for this change began with former Prime Minister Shinzo Abe’s governance initiatives. The current government is expected to continue pushing companies to utilise their cash reserves to increase wages and invest in their businesses. Kyoto Financial, which had held shares in Nintendo since the 1960s, has a policy to reduce cross-shareholdings by more than 100 billion yen by March 2029 and has somewhat accelerated the pace.
