Why Activist Shareholders Are Shifting Their Focus to Governance
During the 2025 shareholder meeting season, a notable trend is emerging. Activist investors, often called “vocal shareholders,” are clearly shifting their focus from traditional “shareholder returns” to “governance.”
According to reports from the Asahi Shimbun, concerns about corporate governance have also been raised regarding SpaceX’s listing plans. Behind the dream of a ¥12 trillion space business, it’s not just technical issues but also governance opacity that is raising investor caution.
This trend isn’t limited to listed companies. For SMEs, the question of “who monitors management and how” is becoming an unavoidable theme in investment, business succession, and M&A scenarios.
The Growing Interest in Governance: Key Drivers
Nissan Motor’s decision to shorten the term of its outside directors (reduced from six years), as reported by the Nikkei, is also part of a broader push for greater governance transparency. Beyond large corporations, SMEs are now expected to have mechanisms that prevent “management dictatorship.”
Three key changes are particularly impacting SMEs:
- An increase in external shareholders during business succession
- Governance integration following M&A
- Stricter lending criteria from financial institutions
These changes signal that the traditional model of “the owner-manager holds all the power” is no longer viable.
Three Steps SMEs Can Take Now for Better Governance
So, what should SME owners do specifically? Through my work supporting over 38 clients, I am confident that the following three steps are effective.
Step 1: Make Decision-Making “Visible”
Start by documenting your management decision-making processes. The key is not to create a perfect governance system all at once.
For example, get into the habit of recording the following:
- Board meeting minutes (including resolutions and discussion details)
- The process for signing important contracts
- Risk assessments and corresponding response policies
These records serve as crucial evidence for explaining “why this decision was made” at a later date.
Step 2: Introduce an External Perspective
For many SMEs, appointing outside directors or advisors can be challenging. However, even setting up a monthly review meeting with an external expert can be highly effective.
In one manufacturing client I supported, introducing a monthly review with a tax accountant and a lawyer led to the early detection of internal fraud. Subsequently, this company saw its rating from financial institutions improve and successfully secured better loan terms.
Step 3: Create a Forum for Dialogue with Shareholders
“Vocal shareholders” are not necessarily enemies. In fact, investors with constructive ideas for growth can become valuable partners.
By holding regular shareholder briefings or individual meetings, you can gain understanding of your management strategy while also identifying potential concerns early on.
Three Common Pitfalls in Governance Design
Here are some common failure patterns to avoid for effective governance design.
Pitfall 1: “Governance in Name Only”
Even if you create meeting minutes, they are meaningless if they only say “approved.” It’s crucial to record the discussion process, including any dissenting opinions and their content.
Pitfall 2: “Keeping It All In-House”
Governance without an external perspective ultimately fails to “stop the president from running amok.” Actively leverage outside experts or advisors with industry knowledge.
Pitfall 3: “Trying to Eliminate All Risk”
The purpose of governance is not to reduce risk to zero. Its essence is to design a “framework” that allows you to take the necessary risks for business growth.
Conclusion: Governance as a “Growth Mechanism,” Not a “Defense”
Now that activist shareholders are turning their attention to governance, it’s an excellent opportunity for SME owners to review their company’s control structure.
Governance is not just about compliance or internal controls. It is a “higher-level management design concept” that arranges legal, accounting, and tax rules from a holistic optimization perspective to achieve business objectives.
Start today by recording your decisions. That first step is the foundation for earning the trust of future investors and financial institutions.
I urge business owners to abandon the idea of “governance = troublesome rules” and reframe it as a “design technology” to accelerate your company’s growth.
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