IN-DEPTH: Q&A with Oasis Management
An interview with Seth Fischer, founder and chief investment officer of Hong Kong-based Oasis Management regarding the activist fund's investments in Japan.
How do you find being a shareholder activist in Japan different from activism in the U.S.?
I think the conversation is at a different stage and about different issues. The U.S. may have gone too far in terms of shareholder primary, while in Japan it's the other extreme, shareholders are only part of the conversation. So, it's a different start to the conversation. The issues with companies are also different. In the U.S., incentives are important, so you talk in very financial terms because that's where people are. In Japan, you talk about stakeholders and what's good for the company.
What’s your take on the Tokyo Stock Exchanges (TSX) requirement for companies to have a price-to-book ratio of one or higher?
The stock exchange wants better companies, so they say they need to have a price-to-book of one or higher. But that's the lowest common denominator phenomenon as opposed to being all you can be. Benchmark yourself against the best that your company can be. And it depends on what your industry is. Not all businesses are asset heavy businesses that might trade at 1.2 times. Some businesses should trade at three times, or at five times.
How has the TSX’s increased emphasis on benchmarking changed the nature of shareholder activism in Japan?
In the past, to mount a successful campaign you typically needed to have a scandal at the target company like hiding assets or financial irregularities, like at Toshiba. Today, it’s a new world where we're going to start benchmarking you to the best that you can be. Boards believed their job was only to decide what's legal. Now we're asking boards to decide what's wise.
That's what we're trying to do at [consumer products company] Kao, very frankly. We showed the president the books and said you should be benchmarked against P&G, Unilever or L'Oréal. Some of those companies have a majority of women on their board. Why does Kao have just one token woman on the board? If women are prime source of your business, maybe it should be 90%.
In your Kao campaign you highlight the need for marketing. Is marketing something Japanese companies need to do better?
Marketing is super important. Look at Asics, they doubled down on marketing and their share price went up four times. But most Japanese companies still do very traditional media. They are still way behind social media advertising. They haven't bought into the new age media yet. The fact is that every teenager in Japan is addicted to TikTok, but this reality hasn't made it into the Japanese corporate boardrooms that are made up of 81-year-olds who only watch television.
People say that if Japanese companies sold all their cross holding in affiliate companies, it would unleash a huge amount of market value. Is it as important as people say it is?
I think it's even more important because it's the concept of unused assets. It's the concept of using the balance sheet better and smarter, thinking about return on equity and return on capital. But it's also a matter of holding management accountable and answerable to their shareholders.
We have seen a surge in shareholder proposals for Japanese companies to disclose additional information. What types of information are they looking for?
A lot of Japanese companies hide assets. For example, one company that makes color cartridges for printers didn't disclose that it owns a painting by Rothko. How do you not disclose that you own millions of dollars' worth of artwork?
They also do a poor job disclosing what business lines really make money and which lose money because they don't want to be questioned about it. When one of their business lines loses money, they try to hide it somewhere, like in other operating expenses. So, you have to ask for information and dig deep to find the true value of these companies.
What are some key steps that Japanese companies should take to improve their valuations?
We're past the stage of one size fits all. So, for one company that might be board independence, or better governance or disclosure. For others it might be capital allocation, changing the business makeup, shutting down money losing businesses. More broadly, make sure your board nomination and compensation committees are really functioning. Get away from nepotism, get away from simply appointing based on seniority and get the best quality management, best quality boards you can.
