Toshiba needs to present clear strategy to enhance corporate value

Editorial

12:20 JST, March 3, 2022

Even though Toshiba Corp. is one of the most prestigious companies in Japan, there is no end in sight to its management woes. The new management team should quickly present measures to improve its corporate value that will satisfy shareholders.

Toshiba announced that President Satoshi Tsunakawa stepped down from his post on March 1, and Taro Shimada, an executive officer and corporate senior vice president, has been promoted to take his place. The company said it is revamping its management structure by also replacing a corporate senior executive vice president, among other changes.

In November last year, Toshiba came out with a plan to split the company into three main businesses. Doing so was intended to enable flexible investment in various fields.

Three months later, however, the company was forced to revise its initial plan to one in which it would split into two businesses, due to opposition from activist shareholders who make demands regarding management policies. There is still no prospect of gaining the approval of many shareholders on this matter.

The recent personnel shift was apparently aimed at gaining the understanding of shareholders by changing the top management of the company and clarifying its stance on reform ahead of an extraordinary general meeting of shareholders slated for March 24, at which the pros and cons of the proposed spin-off plan will be on the agenda.

Shimada moved to Toshiba from the Japanese unit of German electronics giant Siemens AG in 2018. He is said to be well versed in the computerization of the manufacturing industry. It is hoped that he will first accelerate efforts under the new leadership to resolve the turmoil in Toshiba’s management.

Under the initial proposal to break up into three businesses, Toshiba had considered spinning of its infrastructure services sector, such as renewable energy, and its devices sector, which includes electronic components.

It was planned under the initial proposal that shares of major flash memory maker Kioxia Holdings Corp., in which Toshiba holds a 40% stake, would be controlled by Toshiba after the split-up of its businesses.

The revised plan to separate into two businesses calls for only splitting the devices sector from Toshiba. However, a company’s value does not increase just from separating businesses. It cannot be said that a convincing explanation has been made regarding how Toshiba will grow after the split, and its stock price has been sluggish.

The revised plan also calls for the sale of the air conditioning, elevators and lighting divisions as noncore businesses. In addition, Toshiba has expressed its intention to increase returns to shareholders from ¥100 billion to ¥300 billion over the next two years, and the company is expected to use the funds obtained from the sale for that purpose.

In business circles, there has been a movement to review excessive shareholder capitalism that gives priority to returns to shareholders. If Toshiba continues to sell its businesses in pieces, while paying close attention to shareholders’ intentions alone, it could nip its medium- to long-term growth potential in the bud.

As Toshiba also has businesses that are important to economic security, such as nuclear power generation, defense-related operations and quantum cryptography communications, the government needs to strengthen its surveillance over them.

Toshiba’s consolidated operating earnings for the business year ending March 2022 are expected to rise sharply on the back of a strong performance in the digital sector. It is vital for the company to reaffirm its strengths and develop a strategy for effectively investing funds in promising areas. Shareholders should also pay attention to the company’s medium- to long-term growth.

— The original Japanese article appeared in The Yomiuri Shimbun on March 3, 2022.