The Poison Pill Paradox: Fuji Media and the New Era of Corporate Governance in Japan

In late 2024, Fuji Media Holdings (FMH) faced a governance crisis that exposed the fragility of Japan's traditionally opaque corporate culture. A sexual misconduct scandal at its flagship subsidiary, Fuji Television Network, triggered advertiser exodus, executive resignations, and a public backlash that reverberated across Japan's media landscape. Now, as FMH confronts shareholder activism demanding reforms, its response—and the broader precedent set by Cosmo Energy—reveals a pivotal moment in Japan's evolving corporate governance.

The question for investors is clear: Do defensive measures like poison pills, pioneered by Cosmo Energy, protect corporate value or entrench managerial complacency? And how should investors navigate the tension between short-term volatility and long-term governance improvements in companies like FMH?

Fuji Media's Governance Crisis: A Catalyst for Change?

The scandal at Fuji Television involved a prominent producer's misconduct, which the company delayed disclosing, citing privacy concerns. This led to a collapse in advertiser revenue—over 75 advertisers withdrew by January 2025—and a leadership exodus. By May 2025, FMH's board had rejected all 12 independent director candidates proposed by activist investor Rising Sun Management (7% stake), claiming a “sincere consideration” process. Shareholders argue the board's refusal was preordained, highlighting systemic governance flaws:

1. Lack of Transparency: Delayed scandal disclosure and inadequate independent oversight.
2. Resistance to Accountability: Rejection of activist proposals despite public pressure.
3. Structural Weaknesses: A free-floating shareholding structure (now ~30% in FMH) has empowered activists to demand reforms, but entrenched management resists.

Despite these challenges, FMH's shares surged 45% in early 2025, making it the top performer on the TOPIX. This anomaly reflects investor speculation about a governance overhaul, but it also underscores the risks of overvaluing companies in transition without tangible reforms.

The Cosmo Energy Precedent: A Blueprint for Resistance

While FMH has not adopted a poison pill, the tactics pioneered by Cosmo Energy (COSMO) in 2023 and 2025 offer a strategic blueprint for resisting activism. In 2023, COSMO introduced a poison pill with a 15% ownership threshold to deter activist investor Sardar Biglari. By 2025, it took a further step: a “majority-of-minority” vote excluding shares held by Yoshiaki Murakami's group (20% stake), securing approval for its poison pill. This mechanism allows COSMO to dilute activist stakes if they attempt to increase holdings without disclosure.

The COSMO precedent matters for two reasons:
1. Legal Innovation: It demonstrates how Japanese firms can use exclusionary voting to block activist influence.
2. Cultural Resistance: It aligns with Japan's historical preference for consensus over conflict, prioritizing managerial control over shareholder rights.

For FMH, this raises the question: If COSMO can weaponize corporate law to deter activists, might FMH follow suit in future governance battles? The answer hinges on whether FMH's board views activist pressure as a threat or an opportunity for renewal.

Broader Implications: A Shift in Shareholder Rights?

The COSMO and FMH cases highlight a growing tension in Japan's corporate governance landscape:

• Activist Momentum: Rising free-floating shares (due to Tokyo Stock Exchange reforms) have empowered funds like Rising Sun to demand accountability.
• Defensive Measures: Poison pills and exclusionary voting are now tools to resist reforms, potentially stifling governance improvements.
• Cultural Backlash: Many Japanese firms view activists as “mendokusai” (a nuisance), preferring to avoid confrontation even when governance failures are exposed.

Investors must weigh these dynamics:
- Risks: Companies like FMH that resist reforms may face sustained reputational and operational damage, as scandals erode stakeholder trust.
- Opportunities: Firms that embrace transparency and independent oversight could unlock value, as seen in post-activist outcomes for companies like Recruit Holdings.

Investment Implications: Navigating Volatility and Value

For investors, FMH presents a high-risk, high-reward scenario:

1. Short-Term Volatility: Governance disputes and scandal-related uncertainty could keep FMH's stock price volatile. Activist campaigns often trigger initial rallies (as seen in 2025), but sustained gains depend on tangible reforms.
2. Long-Term Value: If FMH adopts COSMO-style defenses without addressing governance flaws, it risks becoming a “value trap”—a stock that remains cheap due to structural issues. However, if it embraces reforms (e.g., independent investigations, board diversification), it could regain market confidence.
3. Sector Context: FMH's position in Japan's media sector, which faces digital disruption and declining ad revenue, adds another layer of risk. Investors should assess whether governance improvements can offset broader industry headwinds.

Advice:
- Aggressive Investors: Consider a small position in FMH to capitalize on potential reforms, but pair it with a hedging strategy (e.g., options) to mitigate volatility.
- Long-Term Holders: Demand proof of governance progress (e.g., independent board appointments, scandal resolution) before increasing exposure.
- Avoid: If FMH's board doubles down on COSMO-style defenses without addressing root governance issues, it may signal a deteriorating corporate culture—best avoided until clearer signs of change emerge.

Conclusion: Governance as a Litmus Test

The Fuji Media and Cosmo Energy cases are twin lenses through which to view Japan's corporate governance evolution. While poison pills and exclusionary voting may deter short-term activism, they risk entrenching the very governance flaws that activists seek to address. For investors, the key is to distinguish between defensive tactics and meaningful reforms. FMH's path forward will test whether Japan's corporate culture can adapt to global governance standards—or remain a relic of the past.

The poison pill paradox is this: defensive measures may protect managerial control, but they cannot shield a company from the consequences of poor governance indefinitely. Investors who focus on governance outcomes, not just corporate rhetoric, will be best positioned to navigate this shifting landscape.