Pressure from activist investors, and the fear of attracting their attention, is prompting a faster unwinding of cross-shareholdings among Japanese companies that have long supported one another through mutual stakes. Corporates from major automakers to videogame publishers have begun moving to dissolve these interlocking ownerships, signaling a shift in how companies approach shareholder relations and governance.
Cross-shareholdings - the practice where firms hold shares in other companies with whom they maintain business ties - is common in Japan and has historically provided management teams with a pool of steady, supportive shareholders. Critics, however, argue that the arrangement can obscure corporate transparency, distort valuations and insulate executives from shareholder pressure.
As both regulators and the Tokyo bourse press companies to reduce or eliminate those holdings, firms perceived as slow to respond risk becoming targets for activists. Investors and advisers say the market response in Japan has been unusually swift.
"Five years ago Japanese companies would ignore activists," said Jordan Cvetanovski, Chief Investment Officer at Pella Funds. "Today, however, it feels as though companies have all read the same memo - they understand what they need to do and they are doing it. I have never seen such a rapid shift in mindset across an entire market."
The growing prominence of activists was underscored this month when Elliott Investment Management achieved a notable victory, forcing Toyota to improve the terms of its offer for Toyota Industries amid criticism relating to transparency and fairness to minority shareholders. In a separate, large-scale demonstration of intent to reform governance, Toyota plans to orchestrate the sale of roughly $19 billion of shares currently held by banks and insurers.
Analysts say the decision by such a major company to engineer large share sales could encourage others to follow. "Anybody who has had an activist in the house wants to look better," said Nicholas Benes, founder of the Board Director Training Institute of Japan and a supporter of the country's corporate governance reforms.
The number of activist campaigns in Japan reached record levels last year, according to Jefferies, and the unwind of cross-shareholdings is gathering pace. Companies that have announced the sale of shares formerly held by other firms include electronics manufacturer Ibiden and frozen food maker Nichirei. In addition, Kansai Electric Power, which has been the subject of activist attention, is reportedly considering selling shares it holds in construction company Kinden.
Observers point to multiple drivers behind the shift. "The activists are great but they’re not the ones driving this, they’re in the sidecar - the fuse on the governance revolution was lit by Abe," said Nicholas Smith, a strategist at CLSA Securities, referring to former Prime Minister Shinzo Abe. Smith added that the current government led by Prime Minister Sanae Takaichi - widely seen as aligned with Abe - will press companies to deploy cash reserves toward higher wages and business investment, rather than allowing large stockpiles to accumulate.
In one prominent example of the trend, Nintendo late last month disclosed the sale of $1.9 billion of shares held by banks including Kyoto Financial, while also announcing a stock buyback program. Kyoto Financial has held a stake in Nintendo since the 1960s. Hideki Onishi, general manager at Kyoto Financial's corporate planning division, said Nintendo approached the bank about the sale.
Kyoto Financial has a stated policy to reduce cross-shareholdings by more than 100 billion yen by the end of March 2029 and, responding to market requests, has accelerated that pace to some extent, Onishi said. The bank intends to set out its future policy for reducing cross-shareholdings in its next mid-term plan, which begins in April.
While cross-shareholdings have long provided mutual business support, they have also functioned as a defensive structure for management teams seeking protection from takeover attempts. "Using the stable shareholder structure as a shield - as seen five or six years ago or in the 2000s - and fighting to the bitter end is becoming harder," said Yasuhiro Kikuchi, head of the shareholder and capital strategy advisory department at Mizuho Securities.
At the same time, companies are under concurrent pressure to lift short-term returns to shareholders even as government policy seeks to ensure a continued focus on medium- to long-term growth strategies. The interaction of activist pressure, market expectations and government guidance is creating a new, more disciplined environment for corporate management.
Summarizing the evolving roles, Smith of CLSA offered a blunt analogy: "With heartfelt respect, activists are the garbage collectors - they eject bad managers and bad practices, doing the heavy lifting while the ministries are supporting and directing to get the job done."
Currency reference used in market disclosures in the market: $1 = 158.8700 yen.
Key points
- Activist presence and the risk of being targeted are prompting Japanese firms to accelerate the dissolution of long-standing cross-shareholdings.
- High-profile moves by major companies, including engineered share sales and buybacks, are influencing broader corporate behavior and may trigger further reductions of inter-company stakes.
- Regulatory and market pressure, combined with government encouragement for firms to deploy cash toward wages and investment, is intensifying demands for clearer governance and improved shareholder returns.
Risks and uncertainties
- Companies that lag in unwinding cross-shareholdings risk becoming targets for activist campaigns, affecting sectors with heavy inter-company stakes such as manufacturing and finance.
- Management resistance to dismantling stable shareholder structures could lead to heightened conflict with activists and potential governance battles, particularly in sectors where defensive cross-holdings are common.
- Pressure to boost near-term shareholder returns while pursuing medium- and long-term growth may create strategic tension for firms across industries reliant on capital-intensive investment.