Did government interfere in Toshiba’s shareholders’ meeting?

A general shareholders’ meeting is the most important forum for corporate decision-making. It would be problematic if Toshiba Corp. and the government worked together to distort the operation of the general meeting. Both parties must fulfill their accountability.

Toshiba released a report of an external investigation into the annual general meeting of shareholders held in July last year, stating, “[the annual general meeting] was not fairly managed.”

According to the report, Toshiba, together with the Economy, Trade and Industry Ministry, asked an overseas fund to withdraw its shareholder proposals and encouraged other funds not to vote in favor of the proposals.

Toshiba has been in trouble since the revelation of accounting irregularities in 2015. Disregarding calls for stronger corporate governance is unacceptable.

The external investigation was demanded by foreign fund Effissimo Capital Management, known as an “activist shareholder,” which applies pressure on companies to reform. The fund is run by former Murakami Fund employees, and the lawyers assigned to the investigation were chosen by Effissimo.

Effissimo planned to make a proposal at the shareholders’ meeting to appoint four outside directors of its own choice and had shown its opposition to the reappointment of then President and Chief Executive Officer Nobuaki Kurumatani. Toshiba had reportedly asked the ministry for assistance in dealing with shareholders.

The revised Foreign Exchange and Foreign Trade Law, which came into effect last year, tightened restrictions on foreign capital investments in Japanese companies that are important for national security. Toshiba, which is engaged in nuclear power and defense-related businesses, has been designated as being involved in the nation’s “core industries.”

It is only natural for the ministry to conduct a rigorous examination on foreign investment into Japanese companies, but it is not reasonable to exclude “activist shareholders” simply because it is inconvenient for corporate executives when there are no national security issues involved.

A mix-up of the two matters could increase the distrust of foreign investors and put a damper on the government’s aim of increasing investment from overseas.

If there was a lack of transparency, such as behind-the-scenes moves to encourage another fund to reject Effissimo’s shareholder proposals, it must be said that such a move was against the spirit of the law.

The report said that Toshiba asked the ministry to approach Harvard University’s endowment fund manager, a major Toshiba shareholder, and asked it not to exercise its voting rights. In fact, it did not exercise its voting rights.

This matter was brought up at the Diet in May, and the ministry denied any involvement. Also, the investigators stated that the nature of the ministry’s involvement were unclear. The report is believed to be based mainly on the fund’s point of view, and the whole picture is unclear.

The ministry and Toshiba should conduct a thorough investigation and clear up any doubts.

— The original Japanese article appeared in The Yomiuri Shimbun on June 12, 2021.