There was lots of feedback and pushback on my column last week. One reader asked me to look at the tech companies – with their gaming, driverless car and healthcare divisions – and say that modern corporations are focused.

To that reader, I said: You have a point. But big tech is a special case where they’re genuinely in a position to colonise many adjacent industries. Software is eating the world and so on.

Another reader wondered whether I’d looked at Asia recently. Asia is the home of the unwieldy conglomerate.

Alphabet does indeed indulge itself with its moonshots division. But nowhere in corporate America will you find a company like Mitsui. Mitsui is a Japanese conglomerate that does everything from iron and steel to perfume, oil and gas, coffee beans, pharmaceuticals, publishing, banking, venture capital, insurance, shipping, and aircraft leasing. A company like Mitsui would cause a US investor to break out in hives.

Asian, and particularly Japanese, companies do things their own way. There are lots of differences. But the differences flow from one big institutional difference: In the West, particularly the US, the shareholder is king. In Japan, the shareholder is one stakeholder among many.

In the West, shareholders have control over companies. The executive serves at their leisure. The executive’s job is to make as much money as possible for shareholders. A hero of American capitalism is the General Dynamics CEO Bill Anders —who, in his first five years, oversaw a 66 per cent drop in sales — because he sold off underperforming businesses and handed money back to shareholders.

Somebody has to have control over a company. If it’s not the shareholders, it tends to be the managers. Managers like things to be organised in a certain way.

Companies controlled by managers tend to make themselves big and safe. This has two benefits for managers. The first is that they get the pleasure of managing a big empire. The second is that their jobs and positions are made safe.

A widget factory optimised to make as much money as possible for shareholders would focus only on widgets. It might fund itself with some debt — all the better to juice shareholder returns.

A widget factory optimised to make managers happy might launch an unrelated insurance business — lest there be a downturn in the widget industry. It would be unlikely to borrow money since that would increase the risk of bankruptcy.

This is what we see in Japan. Instead of borrowing money, Japanese companies lend it out. And instead of focusing on what they’re good at, lots of them are a hodge podge of random businesses.

Another trick of theirs is to buy equity stakes in other companies in their industry. They call these groups keiretsu. Toyota, for example, owns minority stakes in dozens of its suppliers. The suppliers reciprocate. All of which has the effect of embedding the managers. Underperforming managers are held accountable not by shareholders, but by groups of their peers in smoky rooms. The keiretsu make it hard for any one firm to break into an industry, or rock the boat.

They don’t hold their competitors’ shares for the good of shareholders. Research from Jeffries shows companies with the smallest shareholdings have the highest returns on equity, and vice versa.

Not only do the companies with cross-holdings have lower profits, but the market further discounts their share price. So shareholders get punished twice. Jeffries also found that the companies with the lowest equity holdings have the highest price to book, and vice versa.

For 40 years, as Western shareholders took control, Japanese managers clung to power at their companies. But now the tide is turning. As I wrote in December, Japanese institutions are prodding companies to put shareholders first. The Japanese stock exchange has instructed companies with a low price-to-book multiple that they risk being thrown off the exchange.

The upshot is that things are changing in Japan. Shareholders are taking control. This is showing up in many ways.

The investor Jamie Halse has been doing a great job of showing what’s going on over there.The first big change is more buybacks. Manager-controlled Japanese companies were, unsurprisingly, not keen on returning capital to shareholders. The increase in buybacks tells you something is going on behind the scenes. Research from Nomura shows that by the second week of February, the cumulative value of buybacks was running at more than double the long-run average.

The second change is that there’s more consolidation going on. Japan has a lot of listed companies for its size. In the US, small companies tend to get gobbled up by competitors. But in Japan there’s been a lot less M&A. Companies are happy to hold onto underperforming assets rather than sell them. That is changing. By value, 2023 was the biggest year for Japanese M&A since 2007.

Cross holdings, aka keiretsu, are being unwound. Keiretsu is the thing Toyota does, whereby it owns its suppliers’ shares. Keiretsu is on its way out. It’s going to be harder for companies to resist shareholder demands, and resist takeover attempts. A note from Mitsubishi and Morgan Stanley found the average number of cross-holdings among Topix500 companies declined from 130 in 2019 to 107 last year.

Margins are higher. Japanese operating businesses are healthier now than before. Operating margins at Topix companies have steadily grown from 6 per cent in 2012 to more than 9 per cent last year, according to data from Bloomberg.

To be sure, it’s hard to say whether Japanese companies are more profitable because the economy is stronger, or because Japanese companies are more disciplined and focused than before.

All of this has fed into higher stock prices. The Topix index of Japanese stocks is on a tear. Japan is sometimes said to be ageing into irrelevance, but its stock market says otherwise.

It might be that Japanese companies have been like a balloon held underwater by their sloppy management practices. Now they’re coming back to trend.

The Topix is a broad index of Japanese stocks. It includes more of the small ones with archaic management. The Nikkei 225 is a more concentrated index of big companies. It's those who have made the biggest effort to adopt Western-style shareholder capitalism. The forward price/earnings ratio of the Nikkei 225 — a measure of how confident investors are in the prospects of companies — is currently 23, which is the same as that of the S&P500. The Stoxx 600 index of European stocks, by contrast, is 12.8.

As I wrote last week, shareholder value is a big, broad, society-altering idea. It changes how companies organise themselves, how they invest, how they buy and sell, how they employ people and whom they employ. In the West, it bled into politics too. It'll be interesting to watch whether this idea spreads through Japanese society from its beachhead in the corporate world.