A success for shareholder democracy in Japan

The shareholders have forced the Toshiba group to set up an independent investigation committee. It’s about explosive allegations.

Nobuaki Kurumatani came to Toshiba in 2018 to bail out.

In a victory for the shareholder democracy in Japan and as a slap in the face for the management, the Toshiba group must set up an independent investigation committee to clarify disagreements around the general meeting last year. An extraordinary shareholders’ meeting on Thursday in Tokyo voted by a majority in favor of the corresponding proposal by the activist investment fund Effissimo from Singapore.

The hedge fund, Toshiba’s largest shareholder with almost 10 percent, accuses the company of the fact that last year’s annual general meeting was not fair and impartial. It’s about pressure on shareholders and the fact that not all votes have been counted. Toshiba had recommended the shareholders to reject the motion because everything had already been investigated.

“Definitely a big breaking point”

Analysts in Japan spoke of a crucial turning point ahead of the decision. It remains to be seen whether the efforts of recent years to strengthen the rights of shareholders will bear fruit or not. After the decision, however, there were also cautious voices.

“Symbolically, it is definitely a big breaking point that Japan takes the code of good corporate governance seriously, even when the going gets tough,” said Jesper Koll of the investment company Wisdom Tree of this newspaper. However, he warned against excessive hopes. “It is a step in the right direction, but there is still a long way to go.”

Under the guise of consensus, traditional corporate culture in Japan usually grants great power to management at the expense of shareholders. It is very rare in the country for a company to have to call an extraordinary general meeting under pressure from shareholders.

The fact that Toshiba is one of the country’s long-standing large companies adds weight to the case. A motion by the investment fund Farallon Capital Management was also put to the vote, according to which Toshiba would have to submit its medium-term investment plans to the shareholders’ meeting for approval. It was about the allegation that Toshiba had surprisingly changed its investment plans. This request was rejected.

The traditional Japan AG protects their interests

The events surrounding the Annual General Meeting last year highlight how traditional Japan AG tries to protect its interests. Company boss Nobuaki Kurumatani was only confirmed with a meager vote of 58 percent.

He is under pressure because he is supposed to get the company that had been involved in major scandals back on track in previous years. In order to support Kurumatani in the general meeting, according to media reports, pressure was exerted on larger shareholders even before the shareholders’ meeting to vote on the recommendations of management.

In one case, according to a report in the Financial Times, the former chief investment officer of the state pension fund, Hiromichi Mizuno, who sits on the board of directors of Tesla, spoke to the investment fund of Harvard University. The investment fund then abstained from voting at the general meeting.

Mizuno is said to have pointed out Toshiba’s close ties with the Japanese government. He denies speaking to the Harvard Fund on behalf of the Japanese government. According to other media reports, the influential industry ministry is said to have put pressure on Toshiba shareholders.