Introduction

This report examines the effectiveness of private engagements by Governance for Owners Japan (GOJ), an active ownership service acting on behalf of Japanese and international institutional investors. It uses proprietary data to measure the success of engagements and the stock market’s response to announced outcomes. Unlike public activism, which is visible through disclosures, private engagements remain confidential. The study is the first of its kind for Japan, where corporate governance has traditionally prioritised stakeholders such as employees, with boards largely composed of insiders. Reforms, including stewardship and corporate governance codes introduced from 2014, aim to shift focus towards shareholder interests, encouraging constructive engagement and sustainability considerations.

Data and methodology

The analysis is based on quarterly client reports from GOJ until 2019, containing details of target companies, engagement agendas, meetings, and outcomes. These were coded into a dataset at agenda-item level and supplemented with external information, including stock price reactions to outcome announcements. Market and ownership data were sourced from Nikkei NEEDS databases.

Private engagements

Between 2009 and 2019, GOJ started 40 engagements, of which 39 began before 2018 and were included in the analysis. The average engagement lasted 5.1 years, with a median of 4.6 years, considerably longer than public activist engagements. Target firms had an average foreign ownership of around 30%, a significant factor as foreign investors are more likely to press for governance changes.

Engagement objectives were diverse, covering seven categories: balance sheet improvement, board composition and independence, disclosure, environmental and social issues, remuneration, removal of takeover defences, and corporate strategy. Strategy appeared most frequently, with 49 cases, including growth, restructuring, and profitability. Board-related objectives focused on independence and diversity, while remuneration was rarely raised, reflecting lower executive pay in Japan compared to other OECD countries.

Case study – beverages group

A case study of a drinks company (2009–2016) illustrates GOJ’s approach. The agenda included strategy, overseas expansion, and removal of takeover defences. Through 16 private meetings, GOJ engaged with management, eventually contributing to the company’s decision to allow its takeover defence to lapse in 2013. The announcement generated cumulative abnormal returns of 14.1% over an 11-day window. Overall, the company delivered 120% buy-and-hold abnormal returns relative to the TOPIX index during the engagement period.

Engagement outcomes and returns

Of 39 engagements, 32 achieved at least one outcome, amounting to 80 outcomes publicly announced. The mean cumulative abnormal return (CAR) for outcomes was 2.6% in an 11-day window, and 6.5% when aggregated across multiple outcomes per engagement. The strongest positive market reactions were linked to defence removal, board changes, and strategy. Disclosure improvements showed mixed effects, while balance sheet and payout actions had limited statistical significance.

Public activism objectives and outcomes

A comparison with public hedge fund activism between 2001 and 2019 highlights differences in approach and effectiveness. Hedge funds focused mainly on restructuring, takeovers, and payout policies. Their success rate was approximately 33%, considerably lower than GOJ’s quiet activism outcomes. Public activism generated higher returns when successful—averaging 16% when combining disclosure and outcome announcements—but outcomes were less frequent, and confrontations with management often failed.

Conclusion

The evidence suggests that private, “quiet” engagements can be effective in Japan, aligning with stewardship and governance codes and delivering measurable shareholder value. GOJ achieved outcomes in over three-quarters of cases, resolving about 70% of 156 agenda items. While not a substitute for public activism, which remains necessary for major restructuring and takeovers, private activism has proven well suited to Japan’s governance culture. Quiet engagement provides a constructive mechanism to influence company practices and appears consistent with the country’s ongoing governance reforms.