Toshiba management woes seen deepening after strong shareholder rebuke
27 June, 2021
The strong shareholder rebuke on Friday of Toshiba Corp's intend to retain two outside directors responsible for overseeing management is defined to deepen the woes of the industrial conglomerate tarnished by its alleged collusion with the federal government.
Toshiba has spent years since its 2015 accounting scandal trying to improve corporate governance. Introducing directors from beyond your company and the appointment of board chairman Osamu Nagayama, a former outside director at Sony Corp and currently honorary chairman of Chugai Pharmaceutical Co, were part of its efforts.
The shareholder revolt, led by foreign activist investors, against the approval of Nagayama as chairman and another external director has put into the tumult at Toshiba in the last couple of months, marked by the abrupt departure of former CEO Nobuaki Kurumatani in a management spat over a buyout offer by a British equity fund.
Some market observers said the rejection at Friday's gross annual shareholders' meeting was a good sign of emerging shareholder activism in Japan, while some saw Toshiba at a crossroads over whether its management will truly reunite on its feet or plunge into further turmoil.
Some professionals even fear that the latest governance scandal at Toshiba may pour cool water on Japan's drive to market good corporate governance and draw more foreign investors.
"Isn't it possible to create an organization which has a fail-safe mechanism? I need to hear how you plan to create one," a shareholder asked Toshiba CEO Satoshi Tsunakawa through the meeting.
An independent investigation by legal representatives concluded two weeks before the shareholders' meeting that Toshiba had colluded with Japan's industry ministry to prevent foreign activist shareholders from influencing the board.
At a general shareholders' meeting last year, major shareholder Effissimo Capital Management Pte Ltd submitted a proposal to send three outside directors to Toshiba nonetheless it was voted down.
Nagayama was brought in in July this past year but didn't unearth the collusion, according to Toshiba shareholders. Prior to the independent investigation launched at the urging of activist foreign investors, Toshiba's audit committee had no issue with the way the 2020 shareholders' meeting was conducted.
"It's an excellent development for japan stock market because the voices of shareholders were heard," said a senior executive of a significant Japanese brokerage. "On the face of it, there are various companies that have governance systems but are in reality old-fashioned inside."
Of the 11 nominees presented to shareholders Friday, the quantity of independent directors was nine, including Nagayama and another rejected candidate, Nobuyuki Kobayashi, a member of the audit committee.
Among Japanese companies listed on the First Portion of the Tokyo STOCK MARKET, 6.4 percent had independent directors who accounted for at least a third of their boards in 2014. But the figure rose to 58.7 percent in 2020, according to data from the Tokyo bourse operator.
Japan's revised corporate governance code now calls for outside directors to constitute a third or more of the directors at major companies. At least two external directors were required before.
"Toshiba wasn't prepared for what would come after accepting foreign funds" said Shoichi Tsumuraya, a professor at Hitotsubashi University. "Foreign investors specifically normally await companies to improve from within by making use of outside directors, however the latest case indicates that the board was dysfunctional."
"It used to be the case that backing activist investors wasn't a choice for domestic institutional investors. But there seem to be to become more domestic players who will be ready to endorse activist proposals if they're good," Tsumuraya added.
The growing presence of overseas investors, who now take into account about 50 % of Toshiba's shareholders, has added pressure on the conglomerate.
Toshiba is seen as a company critical to national security and it sought to use a law that allows the federal government to keep in check foreign shareholders at such companies, in line with the independent probe. Its businesses include nuclear power and defense equipment.
Toshiba CEO Tsunakawa, who took the post after Kurumatani resigned in April, said he will pursue "proactive" dialogue with shareholders to regain trust.
Hours after the shareholders' meeting ended, Toshiba shares finished Friday down 0.62 percent at 4,815 yen.
"It's a reminder that companies have to work harder to place themselves in the shoes of shareholders," said Makoto Sengoku, senior equity market analyst at Tokai Tokyo Research Institute.
Source: japantoday.com
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