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Time to Get Bullish on Japan?


An unlikely shareholder rebellion could be good news for Western investors.

Mention Japan, and many people think of kabuki, castles, and samurai. Mention investing in Japan, and the image of an impenetrable wall comes to mind.

I've been extremely fortunate to have seen all of this firsthand -- for the past 2 decades, I've frequently been in Japan, as a businessman, as a resident, and, most recently, as a husband and parent. Like anyone who's lived as an expatriate for an extended period of time, my powers of observation have tuned into specific aspects of the Japanese culture that I find fascinating.

For instance, since the days of the samurai, rarely has anyone ever questioned anybody's authority directly -- let alone openly. To do so was to risk the loss of one's head -- literally. But for the first time in several hundred years, that reticence to challenge authority is fading -- and it could be the change that prospective investors have long been looking for.

I recall watching in rapt fascination the whole T. Boone Pickens/ Koito Manufacturing battle during my first years here. In case you don't recall, Pickens became Koito's largest shareholder by accumulating more than 20% of the company's stock and then was refused a seat on the board.

The battle came to a head during an annual meeting whose audience was filled with ruffians, embarrassed executives, and a crowd of professional hecklers. I didn't understand until years later that there was nothing "random" about that day 20 years ago: The crowd had been stirred up intentionally and professional hecklers had been hired to deliberately break up the meeting. In fact, it was their job to keep Koito Manufacturing's senior executives from having to answer Pickens's pointed questions (although to outsiders, it would just look like some ne'er do wells had gotten out of hand).

Pickens would not be put down.

Much to the chagrin of my Japanese colleagues, I stood up and cheered when the American tycoon famously picked up his things and stormed out -- with a horde of Japanese media crews in hot pursuit.

Fast forwarding to the present, I find myself reliving those memories, for I'm watching a repeat performance unfold. The cast of players is a bit different -- this time it's the Japanese investor, instead of a US corporate raider, that's trying to buck the system -- but the plot is much the same.

The normally reticent Japanese investors -- long accustomed, or even resigned, to public subtlety and backroom wheeling and dealing -- are getting fed up with this system and becoming quite brazen in their protests. And very direct, as well.

Pickens would probably love it. In fact, I'm virtually certain that he does, though I've not spoken with him in years.

According to a Nomura Securities (NMR) research report cited here by several news media outlets, more than 70% of individual shareholders intend to vote against management in upcoming elections and on specific issues. Normally, shareholder votes are essentially "rubber-stamp" affairs that pretty much sign off on whatever management wants, so this is an earth-shattering change.
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