Alicia Ogawa, director of the Center on Japanese Economy and Business at Columbia Business School, acknowledges that stewardship and governance codes adopted under outgoing Japanese Prime Minister Shinzo Abe’s administration were positive for the country, encouraging some foreign activist investors into the sector.

Ogawa argued on The Deal’s Activist Investing Today podcast, however, that time will tell whether the country’s “comply or explain” approach to regulation will transform what she sees as continuing corporate governance problems.

“We’re still waiting to see what the results of all these initiatives will be,” she said. “Not so much in terms of rubber meeting the road yet.”

Ogawa said Japan has been a mixed bag for foreign activists, with many larger and smaller foreign activists shifting away from the country.

“Big activist funds quickly figured out that Japan’s system was a game that was stacked against them,” she said. “But the small-cap space, which is less protected by vested interest, is on fire. That’s not going to move the needle on corporate governance in the [larger] companies.”

Ogawa also discussed new rules for foreign investors in Japan, arguing the final version of the restrictions appears to be “quite reasonable.” She said, though, that a couple of troubling cases during the 2020 proxy season continue to raise concerns about the new measures.

One of those cases emerged at Toshiba Corp., which faced two proxy contests this year. Ogawa pointed out that Toshiba reportedly found that about 1,300 postal voting forms for its annual meeting went uncounted. In addition, one of the activists, Effissimo Capital Management Pte. Ltd., was required to cut its stake to 9.9% from 15% to meet Toshiba’s criteria for independent directors.

“There is a lot of sentiment in the market that what happened in this [Toshiba] proxy fight is a little bit distasteful and it is likely to discourage investment in Japan. I hope it gets a full airing,” she said. “What happened is not so transparent or clean.”

Here’s the podcast:

This and more of The Deal’s podcasts are available on iTunes, Spotify and on TheDeal.com.