It’s difficult to resolve latest turmoil over Toshiba’s shareholders’ meeting

Without a thorough investigation of the truth, and clarification of where responsibility lies, it will be impossible to strengthen corporate governance.

Toshiba Corp. has announced its decision to drop two of its current outside directors from a list of candidates for nomination to its board of directors to be submitted to an annual general shareholders’ meeting set for June 25. In addition, two executive officers — a corporate senior executive vice president and a corporate senior vice president — will step down from their posts, according to the company. It is unusual to revise a management personnel proposal immediately before a general shareholders’ meeting.

A report on an external investigation into the company’s annual general shareholders’ meeting in July last year was released on June 10, saying the meeting “cannot be said to have been fairly managed.”

The report pointed out that Toshiba and the Economy, Trade and Industry Ministry worked together to ask foreign funds to withdraw their shareholder proposals and encouraged other funds to refrain from exercising their voting rights. The four resigning executives were criticized by name.

Osamu Nagayama, chairman of Toshiba’s board of directors, apologized for the company’s handling of the general shareholders’ meeting, saying that the company “lacked awareness about corporate governance and compliance.” The management apparently aims to evade shareholders’ pursuit of the company’s responsibility by revising the management personnel proposal to get through the coming general shareholders’ meeting.

As members of the audit committee, the two outside directors conducted an independent investigation into the management of the general shareholders’ meeting at the request of a foreign fund, and concluded in February that there were no problems. As the external investigation report questions the conclusion of the company’s independent investigation, Toshiba judged that it would be difficult to obtain approval for the reappointment of those board directors.

In addition, it remains to be seen whether the election of the remaining 11 board directors, including Nagayama, will be approved at the meeting. Nagayama intends to bring in new board members and reflect shareholders’ opinions. Toshiba should make efforts to put an end to the confusion by providing detailed explanations.

Regarding the handling of last year’s general shareholders’ meeting, the company said that it will conduct another investigation with third-party support. It is necessary to fully elucidate the actual situation to see if the content of the June 10 report is true. In addition to such efforts, it is important to devise strategies for growth and squarely face shareholders.

On the other hand, the report has raised the question of the cozy relationship between the ministry and the private sector, based on email exchanges between Toshiba executives and the ministry. Foreign investors could interpret this to mean that the central government is intervening in companies’ management to eliminate “activist shareholders” who are pressing companies for corporate reform.

Industry minister Hiroshi Kajiyama said that it was appropriate that the ministry conducted an examination of foreign investment in Toshiba in terms of national security. He stated that he “can’t help feeling doubt” regarding what the report claimed to be facts. If that is the case, the ministry should conduct a thorough investigation and refute these points.

Public distrust in government ministries and agencies has been growing recently. Reasons for this include the issue of a broadcasting-related company’s violation of foreign capital regulations, in which the company claims that it reported the matter to the Internal Affairs and Communications Ministry, while the ministry claims not to remember receiving the information. Against this background, the industry ministry must fulfill its accountability and dispel suspicions.

— The original Japanese article appeared in The Yomiuri Shimbun on June 16, 2021.