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Japan's Misaki Capital teaches Harvard about taking the long view

A different sort of activist shareholder could counter short-termism

TOKYO -- On the last day of February, Charles Wang's students at Harvard Business School in Boston were given a rare opportunity: A chance to talk strategy with the CEO of Misaki Capital, the Tokyo activist investment fund that provided the day's case study.

The topic was Misaki's investment in Sangetsu, a Nagoya-based company trading in interior design materials and furnishings. Misaki uses its weight as a shareholder to push management toward reform -- an approach learned from U.S. activist funds. So what could students at this citadel of American capitalism learn from Japan?

According to Wang, an assistant professor at the school, heavy pressure from shareholders is driving American companies to take an excessively short-term view on growth. Looking at the Japanese fund's record, he thought, could reveal an different kind of investor activism that takes all of a company's stakeholders, not merely shareholders, into consideration, encouraging longer-term thinking.

This does not mean a return to the old ways of Japanese capitalism, when management was insulated from pressure to change by bank and cross-shareholding ties. Misaki's approach in the Sangetsu case had much in common with typical activist investment: proposals to boost capital efficiency and increase shareholder returns, for example. But the fund's innovation was to persuade Sangetsu's management of those reforms' value, not merely to demand change. The fund also targeted change over the course of five years or so, rather than quarter by quarter.

That strategy apparently struck a chord with Wang's students. When asked at the beginning of class whether they would invest with Misaki, just one-third of the roughly 90 students agreed. By the end, after a lengthy discussion with CEO Yasunori Nakagami , a full three-quarters of the class said they would invest. The CEO, for his part, left the discussion impressed by their strong, critical reflection on rampant short-termism and emboldened in his search for a new capitalist paradigm.

Changing of the guard

The Japanese companies that Harvard business students have been exposed to in recent years are all technological or business innovators built around long-term visions. Cyberdyne, a developer of robots with medical and nursing-care applications, and JR East Tessei, tasked with cleaning East Japan Railway's shinkansen bullet trains, made the list of case studies, along with Astroscale, a Singapore-based startup founded by a Japanese entrepreneur who seeks to monitor and remove space junk. Misaki and Sangetsu are the latest additions.

Nobuo Sato, executive director of the business school's Japan Research Center, has had a hand in several of these case studies. His sense is that the old-line giants of corporate Japan no longer hold the fascination they once did. Instead, Harvard must focus on shifts at individual companies that are characteristic of broader change.

Both Japan and the U.S. are grappling with how to adapt free-market capitalism to the current era. The former aims to use market forces to become competitive once again, while the latter is at war with entrenched short-term thinking. The academic world is looking on as those attempts play out.

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