Investors Draw the Line at Toshiba in Rare Rebuke of Management

Investors delivered a rare rebuke to Toshiba Corp.’s management on Friday in a vote that analysts say could have broader implications for how Japan Inc. deals with stock holders.

Shareholders at the once-iconic conglomerate voted to oust Chairman of the Board Osamu Nagayama, weeks after an independent investigation alleged the company colluded with bureaucrats in an attempt to influence last year’s board selection.

It’s the second recent example of stock owners holding management accountable at the 145-year-old manufacturer. It comes just months after Toshiba investors backed Singapore-based hedge fund Effissimo Capital Management Pte.’s call for a probe into the 2020 annual general meeting, in what was also considered a landmark vote.

Nagayama’s ouster is a “hugely shocking result for Japan’s business scene,” said Shin Ushijima, president of Japan Corporate Governance Network.

Toshiba declined to comment.

Management at the Japanese company worked hand in hand with public officials in an attempt to sway the outcome of the 2020 AGM, according to a 139-page report this month by three independent investigators elected by Toshiba stock holders to examine the issue. It was a rare public account of how Japan’s bureaucrats allegedly coordinated with a private company to exert control over foreign shareholders.

That led Nagayama to say the board of directors “sincerely accepted” the points raised in the report and would work to restore trust.

But as Friday’s vote shows, his pledge wasn’t enough for shareholders.

Corporate governance experts said the ouster sends a message to management at other companies in Japan.

“This AGM sent a clear signal to directors in Japan that shareholders will hold them accountable not just for attending meetings, but for running an effective board,” said Nicholas Benes, head of the nonprofit Board Director Training Institute of Japan. It’s “extremely rare” for director candidates backed by the company not to be elected in Japan, he said.

For one analyst, it shows stock owners fulfilling their role of holding management accountable for oversight of the company, even if they weren’t personally involved in the events alleged in the independent probe.

“This is a bullish outcome,” said Travis Lundy, a special-situations analyst who publishes on Smartkarma. “Nagayama-san did not perpetrate the wrongdoing uncovered but the idea that the board chair has to be responsible for committee failures is key, and the fact that shareholders made sure he was responsible is very important. It shows that shareholders matter.”

Still, one question is whether the shareholder assertiveness seen at Toshiba, where foreign investors own a majority of the stock, will spread to other public companies. Whatever the case, one academic in Tokyo said Japanese firms need to take notice.

Companies “should take this as a wake-up call and realize what shareholders are capable of doing,” said Atsushi Osanai, a professor at the prestigious Waseda University in the capital. “Japan should take this as a watershed moment.”

©2021 Bloomberg L.P.

BQ Install

Bloomberg Quint

Add BloombergQuint App to Home screen.