In a recently published paper I argue that the recent surge in shareholder activism in Japan is not simply the product of Japanese policy reforms. Rather, it results from a convergence of two parallel historical trajectories: a decades-long evolution of U.S. hedge fund tactics toward quieter, partnership-based engagement, and Japan’s gradual shift toward a more shareholder-centric corporate governance model. The timing of these two developments has facilitated a dramatic upsurge in U.S.-style activism in Japan.

Evolution of U.S. Shareholder Activism

The current form of U.S. shareholder activism can be traced from its regulatory foundations in 1942, when the SEC first allowed shareholders to submit proposals for inclusion on corporate ballots. For several decades following this, activism was dominated by individual investors focused largely on social issues. The 1980s brought institutional investors back into the picture, with their ownership of U.S. equities rising from roughly 7% in 1950 to 40% by 1980, and eventually over 70%. This concentration of institutional capital was a crucial precondition for what came later.

The takeover era of the 1980s introduced an aggressive, confrontational style of activism oriented toward short-term gains. Activists operated largely alone and on the fringes of large private-equity and raider-driven transactions under traditional long-short and arbitrage strategies. Through the 1990s and 2000s, as institutional investors searched for higher returns, their interests started aligning with the activist agenda, resulting in more money flowing to hedge funds to push for improved performance of target companies. Proposals for larger structural changes began appearing on the activist agenda, aided by regulatory changes shifting towards shareholder empowerment in the form of new SEC rules such as those permitting short slates of directors and greater private solicitations of shareholders without disclosure.

The Great Financial Crisis as Turning Point

The 2008–2010 Great Financial Crisis was the pivotal moment in reshaping activist strategies. In the run-up to the crisis, hedge fund assets and numbers had grown exponentially, bringing institutional capital — from pension funds, endowments, foundations — to the hedge fund sector alongside money from wealthy individual investors. As they grew in numbers, hedge funds refined their strategies, pressuring targets more overtly to undertake governance, structural and financial changes. By the time the crisis arrived, the foundation for a significant shift in activist strategies was already in place.

The crisis led to a marked shift in the balance of power between corporations and shareholders, led by legal responses driven by intensified public distrust of corporate management and regulatory reforms including the Dodd-Frank Act and subsequent SEC rule changes loosening the requirements for shareholder proposals. Boards and management struggled to regain the confidence of the markets by voluntarily dismantling structural defenses as a signal of receptivity to shareholder frustrations. The heightened focus of institutional investors on governance reforms led to their increased willingness to support hedge funds in bringing pressure on companies to force changes.

Refinement of Hedge Fund Strategies

The post-crisis period saw hedge funds develop markedly more sophisticated approaches. By 2014, three key changes stood out. First, dramatically increased capital allowed activists to target large and mega-cap companies with stakes under 1%, where previously a 5% stake had been the practical threshold of influence. Second, activists started demonstrating a more patient, value-oriented mindset rather than short-term opportunism, as indicated by longer holding periods, with more than 15% of activist positions extending beyond 24 months. Third, and most important, quiet engagement started displacing adversarial public campaigns as the prevalent mode of activism. Rather than applying immediate public pressure, funds increasingly built relationships with management, worked through investor relations channels, conducted deep qualitative research into governance and culture, and sought to present themselves as partners in value creation rather than agitators.

Japan’s Trajectory

Japan’s path ran in a complementary direction, though from very different starting conditions. The structural barriers to U.S.-style activism have traditionally been well-recognized as being characterized by entrenched cross-shareholdings, management-deferential governance norms, and structurally weak shareholder rights. The long decline of the post-bubble “lost decades” during the 1990s and 2000s did not fundamentally change the dynamics of the shareholder-corporate relationship. Similarly, Japan’s post-GFC recovery efforts focused more on macro-economic stimulus and monetary easing in contrast to promoting corporate restructurings or governance reforms.

The turning point came during Prime Minister Abe’s second term (2012–2020), when Abenomics, which explicitly prioritized shareholder returns and return on investment, merged with increasing levels of foreign capital in the Japanese market. Foreign ownership of Japanese equities had surpassed 30% by 2014, attracted by the gradual unwinding of cross-shareholdings and significant under-valuations. The introduction of the Corporate Governance Code (2015) and Stewardship Code (2014) represented a formal alignment of Japanese government policy with the fundamentals of the shareholder rights movement in the U.S. The result was a marked shift in the balance of power towards shareholders with an emphasis on shareholder empowerment and value creation.

The Convergence Argument

The most important analytical point concerns timing. Japan’s governance reforms and increased openness to shareholder engagement coincided precisely with the moment when U.S. hedge funds shifted toward quiet, dialogue-based tactics. The opportunities in Japan arising from corporate governance reform and increased emphasis on shareholder returns came at a time when more hedge funds themselves were finding success with the type of engagement that Japanese companies could accept and work with. It is notable how often U.S. activists cite the quiet engagement process in Japan as the one they believe is most effective and therefore preferred, resulting in increasing numbers of hedge funds now building significant experience in how to use such tactics effectively in the Japanese context.

The dramatic increase in activism in Japan over the past several years is arguably attributable to this convergence of multiple changes both in the U.S. and Japan, which broadly culminated in an alignment of long historical preparation on the U.S. side and opportunity created by necessity on the Japanese side.

Nobuhisa Ishizuka is executive director of the Center for Japanese Legal Studies and a lecturer in law at Columbia Law School. This post is based on his recent article, “U.S. Shareholder Activism: Convergence with Japan,” available here.