For over two decades, Japan has had all of the essential elements that leading academics and sophisticated investors have assumed to be sufficient for a country to develop an active market for hostile takeovers (ie, dispersed shareholder ownership, depressed share values, and a UK or US inspired regulatory framework). This has not gone unnoticed. For decades, leading academics and prestigious pundits have repeatedly predicted the imminent arrival of a wave of successful hostile takeovers in Japan. Based on the same prediction, but with much higher stakes, sophisticated investors have risked billions of dollars. History has consistently proven this prediction wrong—leaving a cadre of bewildered academics, embarrassed pundits, and bitter investors in its wake. How could so many leading academics, prestigious pundits, and sophisticated investors be so terribly wrong (for decades) about Japan’s market for hostile takeovers? This is the enigma of hostile takeovers in Japan, which we seek to explain in our working paper: ‘The Enigma of Hostile Takeovers in Japan: Bidder Beware’.
We argue that, in applying abstract theories derived from the Anglo-American experience, Western observers have neglected to account for local, idiosyncratic, Japanese factors that have stifled the market for corporate control in Japan. First, Japan transcends and complicates the conventional dispersed/concentrated shareholding dichotomy, as shown by the presence of dispersed stable-shareholders who for long-term business relational and/or cultural reasons have consistently rallied in support of incumbent management against hostile acquirers. Second, a corporate and shareholder culture that remains dominated by lifetime employee-controlled corporate boards adds to the resilience of Japanese companies against hostile takeovers. Third, contrary to the belief of Western scholars, Japan’s law on defensive measures cannot be easily compared to the US or UK hostile takeover regimes, as it has developed idiosyncratic features through judicial precedent and corporate practice that have a distinctively anti-takeover flavour. Ultimately, the story of the absence of hostile takeovers in Japan is a cautionary tale to all comparative corporate scholars and foreign investors who underestimate the importance of context: apply Anglo-American generalizations without adequate local knowledge at your own peril.
There are a number of broader theoretical lessons that flow from our analysis of Japan’s failed hostile takeovers market. First, it demonstrates that the criteria which leading academics have suggested should predict the emergence of an active market for hostile takeovers must be re-evaluated. Specifically, Japan’s experience demonstrates that even if a jurisdiction develops an environment that is ostensibly friendly towards hostile takeovers (ie, it has dispersed shareholder ownership, depressed share values, and a UK or US inspired regulatory framework), successful hostile takeovers may not necessarily follow—the opposite of what leading comparative corporate law scholars suggest. Second, by revealing the imperative role of local, Japan-specific, factors in driving the evolution of hostile takeovers in Japan, this working paper contributes to an emerging body of comparative corporate law scholarship which suggests that local factors—rather than universal theories of comparative corporate governance—are the key to properly understanding corporate law comparatively. Third, evidence in this working paper that local factors were imperative in the unique evolution of hostile takeovers in Japan supports the conclusion that the global convergence of corporate law remains largely an academic proposition, with limited applicability in practice.
Dan W. Puchniak is the Director of the National University of Singapore (NUS) Centre for Asian Legal Studies (CALS) and an Associate Professor at NUS Law.
Masafumi Nakahigashi is a Professor at the Law Faculty of Nagoya University.