Has Japan's corporate revolution worked too well?

Japan wanted change in its corporate sector. It got it — for better or worse.

A decade on from the introduction of the country’s first Corporate Governance Code, there’s so much M&A activity in Tokyo these days that it’s tough to even keep track. From private equity to activist investors to consolidation among companies fearful they’ll be targeted next, no acquisition seems beyond the pale.

Consider just a handful of examples in recent weeks: A foreign company is making an exceptional unsolicited bid for Shibaura Electronics. Having seen off the advances of billionaire Shigenobu Nagamori’s Nidec, Makino Milling Machine is selling itself to PE firm MBK Partners. Activists have scooped up stakes in everything from insurer T&D Holdings to tablet maker Wacom and Final Fantasy creator Square Enix Holdings. The communications giant Nippon Telegraph and Telephone is buying out its artificial intelligence unit NTT Data Group in a ¥2.37 trillion ($16.3 billion) deal, while its mobile unit Docomo is acquiring online bank SBI Sumishin Net Bank — which only went public in March.

And that’s before we even get to the multibillion mega deals for Toyota Industries and, potentially, the Canadian acquisition of Seven & I Holdings.

In June 2015, Japan adopted the code, which encouraged management to prioritize long-neglected shareholders. While change didn’t happen overnight, in subsequent years it has filtered through to the country’s boardrooms and, along with the weak yen, created urgency among foreign investors who sense that they risk being late to the game. Whereas once Japanese firms would close ranks, leaning on cross-shareholdings or stable investors to ignore approaches they didn’t like, these days boards are forced to engage.

But not everyone is happy with the knock-on effects of today’s Japan-for-sale. One such critic is Yoshihisa Kainuma, the head of Minebea Mitsumi, which has stepped in as a "white knight” in the unsolicited bid for Shibaura Electronics from Taiwan’s Yageo. Kainuma, whose firm supplies Apple and Nintendo, thinks Shibaura’s technology should be kept in Japanese control. "If it’s OK for anyone to buy our companies and we sell everything to foreigners at a high price, then what’s left at the end?” he recently told the Financial Times.

That the code has encouraged M&A activity in Japan is undeniable. But are all these deals having the intended effect? The 10-year mark might be a good time to examine that.

The language in media reporting around Tokyo’s boardrooms tends to be similar: Management are "laggards” that need "shaking up.” But I don’t hew to the heuristic that being more like Western boards is intrinsically positive. Back when he was still known more for his corporate activities than his political involvement, Elon Musk once decried the "MBA-ization of America,” whose boards he said were stacked with too many financiers and too few engineers. While Japanese boards have only improved since the code was introduced, the country should be wary of going down the same path.

As I have noted before, many of Japan’s most iconic companies got where they are by ignoring the herd. Stacking boards with external directors seemingly doesn’t stop firms like Warner Bros. Discovery (with more than 90% of the board independent of the firm) from making silly decisions like changing the name of HBO Max back and forth again — and paying the chief executive officer in excess of $50 million for the privilege. The kind of corporate busy work of merging and splitting companies that Warner is engaged in is a prime example of the short-termism that can dominate boardrooms without contributing anything to society.

The code has certainly set companies to thinking about how to utilize their cash — one thing that is so appealing to activists, many of whom are prodding boards to return those reserves to investors in the form of buybacks and dividends. Bloomberg Intelligence analyst Yasutake Homma notes that campaigns in Japan have nearly tripled over the past five years, with the 151 in 2024 the most of any country outside the U.S. Another 87 campaigns have been launched in the first five months of 2025. A major goal of the code, former Finance Minister Taro Aso said in 2018, was to encourage companies to increase investment, wages and returns to shareholders.

That last target is being met, but what of the other two? There is certainly lots of excess cash to "unlock.” But let’s not forget that having these deep reserves is one thing that helped Japan weather previous crises, from the 2011 earthquake to COVID-19. That Japanese firms are well prepared for shocks is perhaps one reason we don’t see more cases like Marelli Holdings, the auto-parts supplier formed by KKR & Co. from the merger of Calsonic Kansei and Magneti Marelli. Having taken on significant debt to buy Magneti Marelli in 2019, the combined firm struggled and filed this month for bankruptcy, threatening some 45,000 jobs.

It would also be nice to see encouragement of the real consolidation that Japan needs: I’m far from the first to note that Japan probably doesn’t need seven listed automakers and three listed beer companies (soon to be four!)

The corporate governance code has done great work in promoting Japanese equities. But the country’s companies were often already doing better than was recognized. This new era makes for exciting headlines. But it shouldn’t become a clearance sale.