In the last twelve months, activist investors, often leading hedge fund managers from the U.S., have increasingly acquired equity stakes in some of Asia’s highest profile companies to lobby for change.
This agitation has manifested itself in aggressive attempts to block mergers or in very public recommendations as to how management teams can implement changes to strategy or environment, social and governance (“ESG”) policies, for the benefit of all stakeholders.
Recent market turmoil in Hong Kong and mainland Chinese markets has underscored the importance of companies being transparent and persuasive in setting out their long term investment stories; those that don’t are not only more exposed to activism, but could run the risk of experiencing greater share price falls when markets falter.
In the U.S., where shareholder activism has surged since the Global Financial Crisis, the likes of Carl Icahn, David Einhorn, Bill Ackman and Dan Loeb have achieved celebrity status. The world’s leading endowments, family offices and sovereign wealth funds can now be counted as their clients. Globally these activists are being taken seriously; it is time for management teams in Asia to follow suit.
Historically, Asian corporates have perceived activism as a far-flung US problem. The prevalence of family-controlled listed companies, shareholder unwillingness to challenge management teams and a cultural etiquette that discourages public confrontation have resulted in a dearth of shareholder activism. However, profound change is afoot: recent actions taken against Asian corporate heavyweights such as Samsung Group and Bank of East Asia by Elliott Associates, and Fanuc by Third Point, have all raised eyebrows. Other institutions, including pension and sovereign funds, have also joined hedge funds in voicing their opinions, particularly on governance issues.
Simultaneously, governments and regulators in Asia are in the early stages of reshaping the corporate and investment landscape, as evidenced by the recently implemented Japanese Corporate Governance Code and Hong Kong’s Securities & Future Commission’s consultation paper on the Principles of Responsible Ownership. These developments could signal a more widespread adoption of international best practices in governance and investor engagement.
Asian management teams need to prepare for the shifting landscape and reset their perceptions of activists. Activists are not Gordon Gecko-type corporate raiders, but seasoned investors who can often assist companies in unlocking value and driving growth. They are more than willing to play the long game and tackle both small and large companies. They are also becoming skilled and proactive communicators: engaging with local and international media to build credibility and lobbying other investors to join their campaigns.