In Rare Move, Watchdog Urges Shareholders to Oust Two Japan CEOs

(Bloomberg) -- It’s not often that the chief executive officers of two major Japanese companies get targeted by a corporate governance watchdog for lax oversight.

Yet that’s what happened when Institutional Shareholder Services advised investors of Nissan Motor Co. and Nomura Holdings Inc. to vote against the reappointment of their CEOs.

The recommendations suggest that shareholders, emboldened by recent reforms, are becoming less tolerant of corporate governance mis-steps. The most recent scandals include the arrest of former Nissan Chairman Carlos Ghosn, broker Nomura’s leak of market-sensitive information, and an ongoing parade of product recalls and scandals involving companies from Toshiba Corp. to Kobe Steel Ltd.

“This year is different from anything that’s ever happened in Japan,” Zuhair Khan, an analyst at Jefferies in Tokyo. “Suddenly it’s okay for shareholders to express strong views. ISS really just reflects the change in shareholder attitudes.”

Prime Minister Shinzo Abe introduced new governance rules in 2015 and updated them last year, with the goal of giving shareholders more say in company decisions and stamping out self-dealing. Despite some recent successes by activist investors, progress has been slow and scandals keep popping up, fueling questions over how serious Japan Inc. is about embracing reforms.

ISS and Glass Lewis recommended that Nissan shareholders vote against the re-election of CEO Hiroto Saikawa, 65, at the annual meeting this month because of his close association with the firm’s former chairman. Ghosn, arrested in November and charged with financial crimes, has denied any wrongdoing.

Saikawa has been under intense pressure since the arrest, with questions about his role in Ghosn’s alleged misdeeds and Nissan’s faltering profitability. Earlier this month, a petition filed with the Tokyo District Court’s Prosecution Board argued that the CEO should also face trial for financial crimes for signing off on accounts at the center of the Ghosn saga.

Asked about the ISS and Glass Lewis reports, Saikawa said: “I believe I should follow through with my responsibilities and I hope my stance is understood.”

In Nomura’s case, ISS said CEO Koji Nagai, 60, should be held responsible for the leakage of sensitive stock market information that led regulators to order Japan’s biggest brokerage to improve internal controls. The firm was dropped from bond deals and missed out on a key role managing a $12 billion equity offering in the wake of the incident.

Nagai has been in the post since 2012, when his predecessor stepped down following an insider-trading scandal.

ISS is also advising shareholders to vote against the re-election of Nomura Chairman Nobuyuki Koga, citing the information leak and lax governance, along with board member Mari Sono, who it says isn’t sufficiently independent because she used to work for the firm’s auditor.

A spokesman for Tokyo-based Nomura declined to comment.

Nomura will hold its shareholder meeting on June 24 and Nissan’s will follow a day later. Given that Renault SA holds 43% of Nissan’s shares as part of its global auto alliance with Nissan and Mitsubishi Motors Corp., Saikawa and other board members would find it difficult to pass measures without the French automaker’s support.

Jean-Dominique Senard, Renault’s chairman, threatened in a letter to block critical governance changes at Nissan’s shareholder meeting, but hasn’t indicated he would do the same for specific board appointments.

--With assistance from Takashi Nakamichi.

To contact the reporters on this story: Maiko Takahashi in Tokyo at mtakahashi61@bloomberg.net;Takako Taniguchi in Tokyo at ttaniguchi4@bloomberg.net

To contact the editors responsible for this story: Young-Sam Cho at ycho2@bloomberg.net, ;Marcus Wright at mwright115@bloomberg.net, Marion Dakers, Keith Campbell

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