Toshiba shareholders demonstrate distrust in its corporate governance

The Yomiuri Shimbun

15:08 JST, June 26, 2021

Many shareholders have expressed their distrust of Toshiba Corp.’s management oversight system. Toshiba should take the failure of its corporate governance seriously and come up with concrete measures for reform as soon as possible.

Proposals to reappoint as outside directors Osamu Nagayama, chairman of the board of directors, and Nobuyuki Kobayashi, a member of the audit committee, failed to secure a majority vote at a general meeting of shareholders.

The chairman of the board of directors is key to management supervision. It is extremely unusual that the company’s proposals for appointments were not approved. Nagayama was also responsible for leading the selection of top executives, among other roles. The rejection of the reappointment proposals will inevitably lead to confusion in the management of the company.

President and Chief Executive Officer Satoshi Tsunakawa will serve concurrently as chairman of the board of directors on an interim basis, but it is essential to select Nagayama’s successor from outside the company as soon as possible.

The management of the shareholders’ meeting last July was a factor in the rejection of the proposals. The report of an external investigation released on June 10 pointed out that Toshiba and the Economy, Trade and Industry Ministry had worked together to encourage overseas funds to withdraw shareholder proposals and refrain from exercising their voting rights.

However, an internal investigation report compiled by Toshiba in February had concluded that there had been no undue interference with shareholders. Many shareholders must have concluded that Nagayama and Kobayashi had failed to fulfill their oversight responsibilities.

In 2003, Toshiba shifted to a system that clearly separated management supervision and execution by bringing in outside eyes, and was seen as a leading company in governance reform, but in 2015 an accounting scandal was uncovered.

Governance reform is meaningless if it is only formally put in place. Toshiba said it would conduct another investigation into the management of last year’s shareholders’ meeting by a team including an outside third party. In addition to investigating the facts, the company must tackle reforms from scratch to prevent a recurrence.

It is also important to have a sincere attitude toward shareholders. In 2017, Toshiba’s liabilities exceeded assets due to huge losses from its U.S. nuclear power business, and the company increased its capital by ¥600 billion to make up for it. Many of the shares were acquired by such entities as activist shareholders, who press for management reform.

It should have been foreseeable at the time that the company would face harsh demands from such shareholders. In order to gain their understanding, it is only logical that Toshiba should present a convincing plan to increase its corporate value.

However, Toshiba executives are said to have turned to the ministry in an attempt to dodge the shareholders’ demands. It must be said that they disdained governance reform.

Dialogue with shareholders is expected to remain difficult for Toshiba going forward. Toshiba is planning to focus on renewable energy businesses such as solar and wind power. The company must devise a new growth strategy to satisfy shareholders while identifying promising areas.

— The original Japanese article appeared in The Yomiuri Shimbun on June 26, 2021.