Japan’s ruling Liberal Democratic Party (LDP) is preparing proposals to strengthen enforcement of shareholder disclosure requirements for activist investors, as policymakers seek to ensure greater transparency amid the continued growth of shareholder activism in the country, according too a report by Reuters.
The recommendations, expected later this month, include increasing resources for the Securities and Exchange Surveillance Commission (SESC) to help it investigate potential breaches of disclosure regulations. Measures under consideration include expanding staffing levels and making greater use of digital technology during investigations.
The proposals are being developed by an LDP working group on corporate governance chaired by lawmaker Fumiaki Kobayashi.
Speaking to Reuters, Kobayashi said activist investors have played a constructive role in improving Japanese corporate governance by encouraging management teams to focus more closely on shareholder value. However, he also warned that some investors’ short-term objectives could undermine companies’ willingness to invest in long-term growth initiatives, while raising concerns about compliance with disclosure requirements.
Japan has become one of the world’s most active markets for shareholder activism outside the US, attracting both domestic and international hedge funds that have pushed companies to improve capital allocation, unwind cross-shareholdings and enhance governance standards.
The LDP’s proposals follow recent changes to Japan’s large shareholding disclosure rules, which expanded the definition of “deemed joint holders” in an effort to address concerns around so-called “wolfpack” investing, where investors are suspected of coordinating their activities without formally disclosing their relationships.
Kobayashi said the priority is now to ensure those revised rules are properly enforced. He added that any agreements between activist investors and private equity firms relating to the future transfer of shares should be disclosed through the relevant shareholding filings. Failure to do so, he said, should be met with stronger regulatory action.
The working group is also expected to recommend a review of Japan’s shareholder proposal framework. Potential reforms include introducing stricter eligibility requirements for shareholder resolutions while creating a statutory mechanism that would allow investors to submit non-binding advisory proposals at annual general meetings.
The review reflects broader concerns within the governing party that, despite a sharp improvement in corporate earnings and shareholder distributions in recent years, investment in areas such as capital expenditure, research and development, and workforce development has not kept pace.
Shareholder activism remained a prominent feature of this year’s AGM season in Japan, with listed companies facing a record number of activist resolutions. Among the more notable campaigns was Hong Kong-based Oasis Management’s call for shareholders to vote against the leadership of media and gaming group Kadokawa.
Kobayashi rejected suggestions that the proposed reforms represent a move against activist investors, describing them instead as an effort to bring Japan’s disclosure regime into line with international standards while supporting greater transparency and helping companies communicate their long-term growth strategies more effectively.
