LEX You win some, you lose some. The Children’s Investment Fund laid claim to victory in the US, after a close vote on board representation at railroad company CSX, but was roundly defeated in Japan just a matter of hours later.
The battle lost was the bigger one. Activist investor TCI mounted a two-track campaign in Japan: to enhance returns at J-Power, the electricity wholesaler in which it has a near-10 per cent stake, and to highlight inadequacies in the country’s corporate governance. Both are legitimate causes. J-Power lagged behind its domestic peers in terms of payout ratios, while its return on equity is roughly half the global sector average. Much the same could be said for Japan Inc, which has an ROE well below that of the US and Europe. Shareholder friendliness is unlikely to change any time soon if last year’s series of failed proposals, mainly for dividend hikes, is anything to go by. Rather, companies have responded by implementing poison pills and boosting cross-shareholdings to bolster their defences.
It is therefore tough for TCI to claim success on either score. True, Tokyo is getting more shrewd, prefacing the annual general meeting season with proposals designed to please foreign investors. But deeds are yet to follow words. Meantime, TCI is sitting on an investment that, at best, has produced small gains since TCI began accumulating shares in 2005. J-Power’s share price continues to slide, down by nearly a fifth in the past 12 months.
In fact TCI’s timing now looks unfortunate and its target ill-judged. J-Power can argue more easily for only modest dividend increases when a heavy capital expenditure plan is in the offing and the economic backdrop is deteriorating. With most investors firmly on management’s side (partly a reflection of cross-shareholdings), and two rounds of failed proposals behind it, TCI must question the wisdom of sticking around.
