Toyota Shareholders Demand Vote against Chairman Toyoda as Automaker Embroiled in Testing Scandal

AP

17:23 JST, June 16, 2024

TOKYO (AP) — Toyota’s chairman Akio Toyoda will be facing some disgruntled shareholders this week, as two major proxy groups demand a vote against keeping the grandson of the founder on its board.

The vote expected at the June 18 annual shareholders meeting comes after Toyota apologized recently over fraudulent certification tests for vehicles, a major embarrassment for a company that prides itself on a reputation for excellent quality. The raft of problems at Japanese automakers including Toyota are said not to involve any safety problems and no recalls were announced. But Toyota suspended production of three models produced by group companies in Japan.

Toyota’s stock prices had tripled over the last five years to nearly 3,800 yen ($24) before cascading downward amid its latest troubles. Its shares are now trading at above 3,000 yen ($20) — a loss of about 3 trillion Japanese yen ($18 billion) in market value.

Institutional Shareholder Services, majority owned by the German capital market company Deutsche Borse Group, which advises investors, said in its proxy report that Toyoda “should be considered ultimately accountable.”

It noted his promises for change did not involve reshuffling of the board. While Toyota said it plans to communicate better with workers on the ground, that likely wasn’t enough to prevent a recurrence of problems with cheating on testing, ISS said.

“The company’s propensity to preserve its corporate culture is in fact suspected, and Toyoda should be held accountable for that,” it said.

ISS is not opposing appointments of other board members, including Toyota Chief Executive Koji Sato, who took up his post in 2023.

The past year has brought a flurry of scandals involving improper checks on vehicles, including collision tests, at group companies Daihatsu Motor Co., which makes small models, truckmaker Hino Motors and Toyota Industries Corp., a manufacturer of forklifts and other machinery.

Japanese officials say such violations were also found at Honda Motor Co., Mazda Motor Corp. and Suzuki Motor Corp.

Another major shareholder, proxy advisory company Glass Lewis & Co. recommended voting against the reappointment of Toyoda and Shigeru Hayakawa, another top executive.

“More specifically, we believe that Mr. Toyoda holds responsibility for failing to ensure that the Group maintained appropriate internal controls and for the failure to ensure appropriate governance measures were implemented at Group companies,” it said in its proxy report.

“Moreover, given the widespread occurrence of issues throughout the Toyota Group, this further raises questions concerning the corporate culture which has developed under the leadership of Mr. Toyoda.”

Hayakawa oversaw appointments of board members, and more independent board members should be added, according to Glass Lewis, which is based in San Francisco. It also recommended voting against a proposal on lobbying by Toyota on climate change, stressing a need for more disclosure.

Under Toyoda, the automaker has pushed a “multi-pathway” approach to ecological vehicles, emphasizing hybrids, which have both a gasoline engine and electric motor, and using hydrogen for fuel instead of focusing on battery electric vehicles that some ecologists favor for cutting auto emissions.

Toyoda is unlikely to be ousted at the general shareholders’ meeting, to be held at the company’s headquarters in the central Japanese city named after the maker of the Prius hybrid, Lexus luxury models and Camry sedan.

The biggest of Toyota’s nearly 1 million shareholders are Japanese companies such as Japanese banks and financial institutions that are unlikely to challenge the automaker. Toyota Industries, a group company, is the No. 2 shareholder.

Tightly held cross-shareholdings among affiliates, long the rule in Japan, are gradually unraveling but longstanding loyalties are likely strong enough to keep Toyoda in his post. Last year, he won re-election with nearly 85% of the vote, although that was down from 96% in 2022.

In a recent report on Toyota, Kazunori Maki, an auto analyst at SMBC Nikko Securities, noted that the shipments Toyota suspended affected just 1% or 2% of its global sales.

He also hinted that factory workers might have skirted rules seen as meticulous but not vital for safety.

In the fiscal year ended in March, Toyota’s profits doubled from the previous year, to 4.9 trillion yen ($31.9 billion), exceeding its own projections, as vehicle sales surged and a weak Japanese yen inflated overseas earnings.

Even though Toyota has lagged in shifting to EVs, the company is the world’s leading automaker, with sales of 9.4 million vehicles in the fiscal year that ended in March.

The company is doing well, said Aaron Ho, an equity analyst at CFRA Research. The recent scandal would make only “a small dent,” he said. “So there are no fundamental issues. We merely think that since production is being halted — for likely a few months, we estimate — deliveries will be affected,” he told The Associated Press.

“We really do not see any deterioration in the company’s culture or how the company is being managed.”

In his apology over the latest problems, Toyoda referred to how he had faced a massive recall scandal in the U.S., shortly after becoming chief executive in 2009, over what was called “unintended acceleration.”

Toyoda was questioned by Congress, and apologized. This time, he appeared to be reassuring himself as well as the public that Toyota had gone through worse, and survived.

“We are not a perfect company. But if we see anything wrong, we will take a step back and keep trying to correct it,” he said.