Two recent articles show a growing investor rejection of two anti-hostile takeover practices that are common in Japan: poison pills and cross-shareholding networks.

Regarding the former, a recent article by governance agency RiskMetrics disclosed the unprecedented news that a Japanese company had removed a proposal to renew their poison pill clause from their shareholder meeting agenda, due to a lack of shareholder support. The case took place at Works Applications. The fact that only 15% of the company’s shares are held by foreigners stood out, showing that poison pills are being increasingly rejected not only by international investors, but also by local shareholders. According to the agency, over 500 Japanese companies took up poison pills as of 2005, when such a practice became legitimate according to the country’s corporate law.

Cross-shareholding networks (when two or more companies hold equity stakes in each other) were the target of criticism in a The Economist article on November 6th. According to the publication, about 20% of shares traded at the Tokyo Exchange are held by other Japanese companies and financial institutions, creating a shield against hostile takeovers and a rigid business environment, with almost unbreakable alliances and associations.

To give an example, Panasonic held stakes in about 300 other companies in March of this year, at a market value of, at the time, US$ 4 billion. The practice, which is defended as cultural by Japanese managers, has been harshly criticized by investors, especially foreign ones. In an interview to The Economist, manager Ezaki Glico, of the U.S. fund Steel Partners, which holds stakes in several Japanese companies, says that “executives are in charge of running their companies, not a stock portfolio”.