Manuscript Type Empirical Research Question/Issue We look at the reaction to hedge fund activism of managers and shareholders in Japanese firms and explore the implications of our findings for agency theory. Research Findings/Insights Confrontational shareholder activism of the kind practiced by American and British hedge funds in Japan during the 2000s failed to gain acceptance from Japanese investors and managers or to alter the internal focus of corporate governance practices in Japanese firms. Theoretical/Academic Implications We use a qualitative research design which treats the standard agency‐theoretical model of the firm as only one possible approach to understanding corporate governance, to be tested through empirical research, rather than as an assumption built into the analysis. We find that Japanese managers do not generally regard themselves as the shareholders' agents and that, conversely, shareholders in Japanese firms do not generally behave as principals. Our findings suggest that the standard principal‐agent model may be a weak fit for firms in certain national contexts. Practitioner/Policy Implications For policymakers, our work demonstrates the importance of understanding the distinctive features of national‐level corporate governance arrangements. For practitioners, it cautions against the view that national corporate governance systems are converging around the model of shareholder primacy and directs attention to the need for investors to be informed of the diversity of practices across different countries.