Shareholder Activism & Engagement 2019 Activism Shareholder Shareholder Activism & Engagement 2019 Contributing editors Willem Calkoen and Stefan Wissing © Law Business Research 2019 Publisher Tom Barnes [email protected] Subscriptions Claire Bagnall Shareholder [email protected] Senior business development managers Adam Sargent Activism & [email protected] Dan White [email protected] Engagement Published by Law Business Research Ltd 87 Lancaster Road London, W11 1QQ, UK 2019 Tel: +44 20 3780 4147 Fax: +44 20 7229 6910 The information provided in this publication Contributing editors is general and may not apply in a specific Willem Calkoen and Stefan Wissing situation. Legal advice should always be sought before taking any legal action NautaDutilh based on the information provided. This information is not intended to create, nor does receipt of it constitute, a lawyer– client relationship. The publishers and authors accept no responsibility for any Lexology Getting The Deal Through is delighted to publish the fourth edition of Shareholder acts or omissions contained herein. The information provided was verified between Activism & Engagement, which is available in print and online at www.lexology.com/gtdt. March and April 2019. Be advised that this Lexology Getting The Deal Through provides international expert analysis in key areas of is a developing area. law, practice and regulation for corporate counsel, cross-border legal practitioners, and company directors and officers. © Law Business Research Ltd 2019 Throughout this edition, and following the unique Lexology Getting The Deal Through No photocopying without a CLA licence. format, the same key questions are answered by leading practitioners in each of the jurisdic- First published 2016 tions featured. Our coverage this year includes new chapters on Brazil, Hong Kong, Israel and Fourth edition New Zealand. 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London April 2019 Reproduced with permission from Law Business Research Ltd This article was first published in June 2019 For further information please contact [email protected] www.lexology.com/gtdt 1 © Law Business Research 2019 Contents Introduction 3 Japan 56 Willem Calkoen and Stefan Wissing Yo Ota, Ryutaro Nakayama and Shigeru Sasaki NautaDutilh Nishimura & Asahi Austria 5 Luxembourg 62 Christoph Nauer and Daniel Reiter Margaretha Wilkenhuysen bpv Huegel NautaDutilh Avocats Luxembourg Brazil 12 Netherlands 67 Carlos Portugal Gouvêa and Caio Henrique Yoshikawa Leo Groothuis, Frans Overkleeft, Paul van der Bijl PG LAW and Stefan Wissing NautaDutilh France 18 Bertrand Cardi and Forrest G Alogna New Zealand 73 Darrois Villey Maillot Brochier David Raudkivi Russell McVeagh Germany 24 Martin Schockenhoff, Gabriele Roßkopf and Martin Hitzer Russia 79 Gleiss Lutz Alexander Zharskiy, Alexander Kleschev and Kristina Akalovich ALRUD Law Firm Hong Kong 32 Sherman Yan and Dominic Wai Switzerland 85 ONC Lawyers Mariel Hoch Bär & Karrer Ltd Ireland 41 Ciaran Healy and Naomi Barker United Kingdom 92 Matheson Harry Coghill and Richard Burrows Macfarlanes LLP Israel 48 Amir Shachar United States 99 Shibolet with Raved, Magriso, Benkel & Co Adam Emmerich, Trevor Norwitz, Steven Cohen, Sabastian Niles and Jenny Lin Wachtell, Lipton, Rosen & Katz 2 Shareholder Activism & Engagement 2019 © Law Business Research 2019 Japan Yo Ota, Ryutaro Nakayama and Shigeru Sasaki Nishimura & Asahi GENERAL with management to improve the governance structure, management plan, or financial structure of the targeted company. They will some- Primary sources times launch a formal shareholder proposal at a general shareholders’ 1 What are the primary sources of laws and regulations meeting to elect outside directors or to increase dividends. As such relating to shareholder activism and engagement? Who proposals are generally in line with other shareholders’ common makes and enforces them? interests, and due to the fiduciary duty of financial institutions and non- activist type of funds as shareholders complying with the Stewardship The Companies Act and its relevant ordinances provide for the rights Code (which may also be applied if a shareholder voluntarily chooses of shareholders with regard to the company and its organisation, such to accept the Stewardship Code and does not have any legally binding as the right to make a shareholder proposal or initiate a derivative suit power), it is not uncommon for such proposals to attract general share- against directors. The rights stipulated in the Companies Act are, in holder support even without intensive proxy campaigning. principle, of a civil nature and enforced through court rulings. The Financial Instruments and Exchange Act (FIE Act) and its rele- 3 How is shareholder activism generally viewed in your vant orders and ordinances regulate or provide for: jurisdiction by the legislature, regulators, institutional • the disclosure obligations of companies whose securities are and retail shareholders and the general public? Are some widely held; industries more or less prone to shareholder activism? Why? • the rights of investors to sue the company or its related parties; • the rules regarding a tender offer (TOB); Shareholder activism has been mostly viewed negatively, as the • the disclosure obligations of an investor with large shareholdings; activities of activists are sometimes deemed short-termism, which • the rules protecting market fairness, such as prohibitions against is criticised in the Stewardship Code and the Corporate Governance market manipulation and insider trading; and Code. However, in some instances, those views may change if activist • the rules regarding a proxy fight. shareholders make proposals that are reasonable or constructive for mid-term or long-term investors. While there is little observable bias The FIE Act has both civil and administrative aspects. It is therefore among the industries targeted by activist shareholders, on an individual enforced through court rulings and administrative actions by the company level, one or more of the following factors often apply to the relevant authorities, such as the Financial Services Agency and the targeted listed companies: Securities and Exchange Surveillance Commission. In some cases, • low price-to-book ratio; criminal sanctions may be imposed for certain violations. • excess reserved cash or cash equivalents; Both the Companies Act and the FIE Act are legislated and • management scandals or inefficient management; amended by the Diet, while relevant Cabinet orders and ordinances are • status as a conglomerate; and enacted by the Cabinet or by various ministries or agencies, such as the • status as a listed subsidiary. Financial Services Agency, as the case may be. Securities exchange rules and guidelines also regulate disclosures 4 What are the typical characteristics of shareholder activists by listed companies, and their communications with investors. While in your jurisdiction? such rules and guidelines are not enforced through court rulings or administrative procedures, securities exchange regulatory entities While there are some individual activist shareholders who make share- may impose various sanctions against a violating company, including holder proposals or, in some instances, bring a lawsuit against the a suspension of transactions of the company’s shares on the securities targeted company, most activist shareholders of Japanese companies exchange, a designation as a security on alert, a monetary penalty for are financial funds. While the boundaries are not so clear, such activist a breach of the listing contract, submission of an improvement report, funds can be categorised into two types. and, in extreme cases, delisting. The first are ‘aggressive’ or ‘dogmatic’ activists who seek short- term returns by putting pressure on the company’s management in Shareholder activism various ways. They criticise the existing management’s plans or skills 2 How frequent are activist campaigns in your jurisdiction and or, as the case may be, any management scandals in order to put pres- what are the chances of success? sure on management, via either private or public methods such as media appeals, proxy campaigns or partial tender offers. Although their Activists’ campaigns have been very frequent recently. Based on a arguments are often too dogmatic and myopic to attract the support of media reports, activist held shares in listed companies worth as much other shareholders, in order to avoid wasting management resources as 1.6 trillion yen in market values. Some funds try to have a dialogue and damaging the company’s reputation, management will sometimes 56 Shareholder Activism & Engagement 2019 © Law Business Research 2019 Nishimura & Asahi Japan compromise with