Shareholder activism has steadily been on the rise in Asia in the past 7 years, but is it here to stay?

According to a recent report published by J.P. Morgan in May 2018, the numbers seem to support this proposition. As outlined in the report, only 10 shareholder activist campaigns took place in Asia in 2011 — that number ballooned to 106 in 2017.

Unlike the United States — which sees more than 450 shareholder campaigns per year — shareholders of Asian firms have historically been reluctant to engage in public activism. There are likely many reasons for this, including, according to Chelsea Naso, the prevalence of controlling or control block shareholders in the Asian corporate landscape, which makes activist campaigns more difficult.

So why is shareholder activism now seemingly on the rise in Asia?

It's largely due to two factors: 1) an increase in Asian governmental reforms that are encouraging shareholders to take a more activist approach, and; 2) an influx of global institutional investors into Asia who have shown a willingness to support shareholder activism.

Asian Governmental Reforms

Governments in a few prominent Asian jurisdictions have taken steps to reform regulations and protect the interests of minority shareholders. Hong Kong Exchanges and Clearing Limited finalized new rules seeking to "restrict abusive practices and protect the interest of minority shareholders". Likewise, South Korea's Financial Services Commission has announced plans that aim to encourage minority shareholder participation. Finally, in Japan, Prime Minister Shinzō Abe has publically advocated for corporate governance reform, which could be a boon for prospective activist activity.

The actions of regulators and government officials throughout Asia have contributed towards a changing corporate cultural landscape where activists feel more empowered to challenge the status quo of governance structures.

Attracting Global Attention

As shareholder activism demonstrates that it may improve companies' stock performance, global institutional and activist investors have been increasingly willing to launch and/or support activist campaigns.

Examples of prominent investors engaging in Asian activist campaigns include Elliot Management's involvement in Korea and Third Point's activity in Japan. Furthermore, foreign funds now make up approximately 21% of investors in India, compared to 13% in 2008.

Conclusion

While significant obstacles still exist, including cultural factors and development of the legal framework, shareholder activism is beginning to look like it may have some staying power in certain Asian jurisdictions. The recent rise is evident in the numbers: Asian activist activity now makes up 31% of all activist campaigns outside of the U.S., a dramatic increase compared to 2011, when it comprised only of 12%.

If the trends highlighted by J.P. Morgan and others persist, expect those numbers to continue to rise.

The author would like to thank Josh Hoffman, summer student, for his assistance in preparing this legal update.

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