Toshiba Chairman Faces Vote for Survival as Opposition Grows

Toshiba Corp. Chairman Osamu Nagayama will seek to convince shareholders Friday he deserves another chance to try and overhaul the 145-year-old nuclear energy to electronics conglomerate.

The 74-year-old is trying to win enough investor votes to stay at the helm of the crisis-stricken Japanese icon, which is under fire from corporate governance experts after an independent investigation uncovered alleged collusion with top government officials to influence last year’s board selection. On Friday, shareholders meet in Tokyo to vote on his and several other directors’ re-appointment, and analysts expect Nagayama to squeeze through by a narrow margin.

The report was a rare public account of how Japan’s bureaucrats allegedly coordinated with a private company to exert control over foreign shareholders, and intensified the controversy surrounding a manufacturer roiled by accounting scandals, business missteps and the departure of its chief executive officer. Effissimo Capital Management Pte., Toshiba’s largest shareholder, said the report shows the Japanese company has “dysfunctional” corporate governance and an “ineffective” board of directors.

“As the chairperson my priority is to provide Toshiba with the governance and leadership that you deserve,” Nagayama said in a letter to shareholders last week. “I pledge to you that I will continue to be an agent of positive change, not a protector of the status quo.”

Toshiba Chairman Vows to Improve Governance With New Directors

Toshiba doesn’t disclose how shareholders have exercised their votes ahead of the meeting, a company representative said.

Once a storied name in Japan, Toshiba has faded dramatically since its glory days after years of management missteps. It paid a record fine in an accounting scandal and then lost billions on a bungled foray into nuclear power. The conglomerate invented flash memory three decades ago, but was forced to sell most of its prized chip business in 2018 because of losses in its nuclear-power operation. That deal led to an infusion of cash -- but also a large contingent of more vocal shareholders.

Toshiba Chairman Faces Vote for Survival as Opposition Grows

Nagayama has vowed to bring in new board members to improve corporate governance, and Toshiba said this month it’s dropping two existing directors. Yet the chairman argued in his letter that the company needs a rapid rebuild rather than a reformation of the board.

Outside lawyers appointed by Effissimo reported that Toshiba had teamed up with the Japanese government to repel activists and press shareholders not to act against management. The report mainly criticized former CEO Nobuaki Kurumatani, but stakeholders have also cast doubt on whether Nagayama fulfilled his duty as the chairman.

Norway’s sovereign wealth fund, State Board of Administration of Florida and Calvert Research and Management are among shareholders who’ve disclosed they’re voting against Nagayama’s re-election. Toshiba’s management is “outdated” and its corporate governance needs improvement, said Chieko Matsuda, a professor at Tokyo Metropolitan University.

“If he ends up approved, that would only be investors judging it’s not the best to hunt them all down at once,” said Shin Ushijima, president of Japan Corporate Governance Network. “Foreign investors are skeptical that he may not have done what he should have done.”

Effissimo Says Toshiba Report Shows Current Board ‘Ineffective’

But shareholders including California State Teachers’ Retirement System have indicated they are voting for Nagayama’s re-election. Nagayama’s backers point to his track record as a leader of Chugai Pharmaceutical Co. and an outside director at Sony Group Corp., with his departure only inviting further confusion.

What Bloomberg Intelligence Says

Toshiba’s governance may now improve allowing the company to focus on growth, following the results of an independent probe into last year’s shareholder meeting that found it attempted to influence a key vote. With the investigation complete, it could now concentrate on technologies such as quantum key distribution, which could add 10% to its implied medium-term operating profit target of 400 billion yen by 2030, in our view.

- Takeshi Kitaura and Ian Ma, analysts

Click here for the research.

“He was open to change, provided strong and steady decision making, and made an invaluable contribution to Sony overcoming a difficult period and finding its way back to shareholder value creation,” John Roos, the former U.S. ambassador to Japan who worked with Nagayama on Sony’s board, said in a statement through a Toshiba spokeswoman last week.

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