Historically, shareholder activism has rarely been successful at Japanese companies. However, as Japan moves closer to a Western model of corporate governance, shareholders may be playing a larger role in the strategy and leadership of some Japanese companies. This has recently been exemplified by the apparent influence of Daniel Loeb, from the hedge fund Third Point, on the leadership of Seven & i Holdings (“the Company”), which holds its annual general meeting on Thursday, May 26.
Earlier this year, Third Point actively opposed the removal of Mr. Ryuichi Isaka from his current position of president at the Company’s core subsidiary, Seven-Eleven Japan Co., Ltd. The idea of switching the head of the largest convenience store operator in Japan came from Mr. Toshifumi Suzuki, the incumbent executive chairman of the Company and Seven-Eleven Japan, who founded the very first Japanese convenience store back in 1973. Mr. Suzuki was reportedly not satisfied with Mr. Isaka’s performance – despite Seven-Eleven Japan’s increasing profit record for five consecutive years. There were also reports that Mr. Suzuki had plans to nominate his son, who serves as a director and the chief information officer of the Company, as the next president of Seven-Eleven Japan and eventually of the Company, however, Mr. Suzuki denied this rumor.
Despite this denial Third Point demanded, in a letter dated March 27, that the Company avoid having a hereditary president and stated that Mr. Isaka should be the next chief executive of the Company, rather than installing Mr. Suzuki’s son. The letter highlighted that the board’s “fiduciary duty is to all the shareholders and other stakeholders of [the Company] and not to create a dynasty for the Suzuki family by hiring a caretaker manager who will later elevate Mr. Suzuki’s son.”
In light of wide news coverage and the negative reaction of the market, the Company’s outside directors rejected Mr. Suzuki’s personnel proposal at meetings of both the Company’s newly-established nomination and compensation committee and the board itself. At a press conference held after the board meeting, Mr. Suzuki announced his resignation, citing no confidence from some of the inside directors and the non-director honorary chairman, Masatoshi Itoh, who is also the founding family member and who holds approximately 10% of the Company’s outstanding ordinary shares.
At the subsequent board meeting, with the unanimous consent of all attendees, the board decided to propose to its shareholders the slate recommended by the nomination and compensation committee, which included Mr. Isaka as the Company’s new representative director and president. As such, after this annual general meeting the Company will start a new era under new leadership — and without the charisma.
While hereditary succession is no longer common at large Japanese companies, the board’s decision to reject management’s recommendation after shareholders spoke up is, to date, perhaps even less common. Given the relatively unprecedented nature of this kind of successful shareholder activism, the incident may ultimately be viewed as an epoch-making event in the history of Japan’s corporate governance — where shareholders and outside directors truly rejected a personnel proposal made by a top executive.