Fukushima, TEPCO & Kamikaze Shareholder Activism

It is no surprise that with stock prices not rising with any alacrity in the developed world for years and years, shareholder activism has become a high art of sorts. The most common complaint is of firms holding too much cash on hand. Who's brave enough to invest in such an uncertain world? A long time ago, consumer activist Ralph Nader was the scourge of big business, famously calling the Chevrolet Corvair Unsafe at Any Speed before going on to many more targets. With products being built to a generally higher standard nowadays, Nader has mellowed with age and become that most pedestrian of whiners, the shareholder activist. He is complaining that Cisco Systems holds far too much cash that should be distributed to shareholders alike himself. Not so wild and crazy anymore, eh, Ralph?

However, not all shareholder activists are created equally reticent. The Japanese are famous worldwide for their surface calm and general orderliness. Witness that country's noted fastidiousness about cleanliness, timeleness, and other hallmarks of conscientiousness. However, when excited, these most calm peoples of the earth can and do go banzai. Witness kamikaze attacks during World War II or group suicide as an online recreational activity in contemporary Japan.

In case you missed it, we had a very interesting phenomenon happen with the Tokyo Electric Power Company (TEPCO), parent firm of the now-infamous Fukushima nuclear power plant whose emissions have been the largest since Chernobyl and whose fate gripped the world in fear for a number of weeks after the devastating Tohoku earthquake. As the nation's largest utility, you can bet much anger was vented during its recent shareholder's meeting. Combine the apologetic tendencies of Japanese who've felt they've let the side down [hari-kiri, anyone?] with outraged shareholders who are just coming to grips with the magnitude of TEPCO's contingent safety liabilities and you had a most interesting gathering. "Go jump into a reactor and die!" yelled a crazed fogey evidently displeased with this turn of events. From the New York Times:

The operator of the stricken Fukushima Daiichi nuclear plant met with angry shareholders on Tuesday, offering profuse apologies as hecklers shouted abuse from a rowdy floor. But a motion that would have forced the company to abandon its nuclear program was defeated. “I apologize from the bottom of my heart for the trouble and fear that we have brought to our shareholders, and to society,” the chairman, Tsunehisa Katsumata, said at the shareholders’ meeting at a tightly guarded Tokyo hotel. “We will do our utmost to bring the accident to a resolution and to work toward our mission of providing a stable source of electricity,” he said.

Some investors refused to be placated. “Go jump into a reactor and die!” one elderly man shouted at the row of executives, before being escorted out by attendants. At one point, when Mr. Katsumata tried to wrap up a question-and-answer session, angry shareholders rushed toward the stage. The session continued. With her voice shaking, a woman told board members that they were unfit to lead the company. She said the company had ignored warnings about the dangers of nuclear power. “Shame on you!” she cried. “You should all be sacked.”

Tokyo Electric has been fighting for its survival since the March 11 quake and tsunami ravaged the Fukushima Daiichi nuclear power plant, about 140 miles north of Tokyo, leading to hydrogen explosions and releases of radioactive material in the worst nuclear accident since the Chernobyl disaster in Ukraine in 1986.

Total up the amount of compensation due to those whose lives have been disrupted and it could make BP in the Gulf of Mexico look distinctly Little League, like say Bush-era deficits compared to Obama-era cataclysmic debt orgies. Despite having a public debt already 200% of GDP, the Japanese government may yet have to keep the troubled parent company afloat. Someone needs to keep the lights on, right? It's not pretty:

At least 80,000 people in northeastern Japan have fled their homes, and farmers and fishermen in the area have had to abandon their livelihoods. Factories within a 20-kilometer evacuation zone have had to move or close. Tokyo Electric could face as much as 11 trillion yen, or $136 billion, in compensation claims, analysts have estimated. The cost of dismantling the Fukushima Daiichi plant could reach an additional 20 trillion yen, according to the Japan Center for Economic Research.

The dismal forecasts have cast a dark cloud on the financial health of Japan’s largest utility, a company with strong links to government that has dominated the country’s power industry for decades. Last week, Moody’s cut Tokyo Electric’s credit rating to junk status, after a similar move by Standard & Poor’s last month. Tokyo Electric shares have plunged more than 80 percent since the earthquake.

Prime Minister Naoto Kan has said that the government should provide a safety net for Tokyo Electric, to keep the company afloat while it pays damage claims. Japan is considering setting aside about 230 billion yen from a planned 2 trillion yen supplementary budget to help Tokyo Electric, according to Bloomberg News. Mr. Kan has been eager to hold Tokyo Electric accountable and to avoid having to dip into public money. But he also wants the company to avoid bankruptcy, which would bring chaos to the stock and credit markets.

The company had about 933,000 shareholders at the end of March. At that time, financial institutions held about 30 percent of Tokyo Electric shares, while other corporations had 5 percent. Individual investors held about 44 percent, while overseas investors held 17 percent.

We then come to the crux of the energy issue. The Germans have done themselves no favours economically or environmentally by announcing that their nuclear plants will be wound down in due course. What more Japan, a country even more hard up in terms of local energy sources?

Still, the shareholders’ demands mirror a growing antinuclear sentiment among the Japanese public. On June 11, tens of thousands marched across the country, calling for an end to nuclear power in Japan. In a poll published by the Nikkei business newspaper on Monday, 47 percent of respondents said they wanted fewer nuclear power plants in Japan, an increase of 5 percent from a month earlier.

Most experts agree that it would be difficult for Japan to permanently close all of its 54 plants without substantial fuel costs, as well as a large increase in carbon emissions. Before the Fukushima crisis, nuclear power provided 30 percent of the electricity needs of Japan, a resource-poor country with few domestic sources of energy to draw on.

Still, 35 of Japan’s 54 reactors are already closed for maintenance or safety checks, and others are scheduled to follow, which could leave the country without any nuclear power by next April. To make up for the shortfall, power companies around Japan have increased their purchases of natural gas.

Alike the kamikaze pilots of yore, shareholder activists with a penchant for self-immolation--let's all jump in the reactor and die!--should ponder whether their proposed cure is worse than the illness that plagues a nation in troubled times. Increasing the safety margin of nuclear plants I understand--these are problems dealing with corporate governance where there is indeed room for improvement. Doing away with them altogether in Japan's case? To paraphrase Ralph Nader, modern shareholder activist, I am not fully convinced nuclear power is Unsafe at Any Location.