HERE COME THE ACTIVISTS
Asia and the global liquidity crunch.
By Abe De Ramos

The shareholders are coming. Investor activism in Asia has reached a scale—whether measured in number of cases, amount of money involved, or level of media coverage—that suggests recent activity has been more than just a random, anecdotal burst of dissent. Momentum is growing, thanks to a combination of shareholder-friendly behavior among regulators and lawmakers and the influx of foreign investors, whose methods of boardroom campaigning are influencing local players. If these trends are sustained, the result could be a major shift in investor culture in a region where the Confucian ethic of deference to figures of authority still predominates.

Much of the recent activism has been happening in Japan. A series of legal changes has eased foreign-led acquisitions. During Japan’s proxy season in June, shareholder advisory firm Glass Lewis recorded 85 investor motions at 21 companies, compared with 47 motions at nine companies last year. These motions ranged from proposals for raising dividends to challenges against poison pills introduced by some companies in an effort to thwart foreign takeovers. As a result, a number of hedge funds and asset managers are now looking for profitable companies with poor management that they can either shake up or acquire.

“Assets under management of the activists are growing, which suggests that activism will become increasingly aggressive,” says Patrick Mohr, equity strategist and head of quantitative research at Nikko Citigroup in Tokyo. Mohr puts the amount at 700 billion yen, nearly a record high. The rest of Asia is catching up. In Southeast Asia, activism will get a push from Railpen Investments in the United Kingdom, which, through shareholder advisory firms Governance for Owners in London and HIM Governance in Singapore, has undertaken a pilot program on voting and engagement at the companies in which it invests.

Tan Lye-Huat, CEO of HIM Governance, says the firm’s approach, involving up to 60 companies in Thailand, Indonesia, Malaysia, and Singapore, focuses on pragmatic engagement rather than vocal and public confrontation. “We don’t perceive ourselves to be a replacement of management or the board,” he says, “but we are supposed to be a change agent.” Tan’s role will be similar to that of Jang Ha-Sung, South Korea’s most prominent business activist, who was tapped last year by New York-based Lazard Asset Management to advise its US$210 million Korea Corporate Governance Fund, which invests in small- to medium-sized companies.

Targeting companies that are sitting on an excess of cash has been the recurrent theme of shareholder uprisings in the region. Last April, for example, shareholders of Hong Kong-listed CNOOC stopped the Chinese oil company from depositing US$450 million of its cash with the financing arm of its Beijing-owned parent (with no guarantee that it would be returned). In South Korea, U.S. investor Carl Icahn and New York-based Steel Partners teamed up last year to force tobacco giant KT&G to raise its dividend and buy back US$2.9 billion in shares. In Japan, investors are urging companies to revalue property still accounted for at historical value, sell off the assets, and use the proceeds for other investments.

There have been defeats, but so far activism is paying off. Tracking six funds that have taken companies to court, launched takeover bids, or claimed to actively engage with management, Nikko Citigroup’s Activist Index outperformed the benchmark Topix Index by 225 percent from 2002 to 2006.

“This is the kind of success that feeds on success,” says Nikko’s Mohr, who launched the index last May.

This article first appeared in Impact Zone, a bi-monthly published by the CFA Institute in Hong Kong.