Toshiba’s growth strategy back to square one as demerger plan stalls

Toshiba Corp.’s proposed corporate split, which the company has regarded as the best way to increase its corporate value, has stalled. The company needs to reformulate its strategy.

Toshiba submitted a business reorganization plan to split the company in two at an extraordinary shareholders’ general meeting on Thursday, but the proposal was voted down. The plan called for spinning off the devices division, which includes electronic components, while the main company would focus on infrastructure, including power generation.

The aim was to speed up management decision-making, but foreign funds which are activist shareholders of Toshiba had already expressed their opposition to the proposal before the meeting.

At the general meeting, a proposal by a major shareholder calling for the company to actively consider going private was also rejected.

Going private means outside funds and other institutes would buy Toshiba shares and the stock would be delisted to promote management reform. It is common for shares to be bought at a higher price than market value, benefiting shareholders.

It is believed that domestic institutional investors and some individual investors, among others, opposed the proposal. It is not easy to gain the understanding of a wide range of shareholders.

According to Toshiba, the vote on the proposal to break up the company was intended to assess shareholders’ thoughts in preparation for next year’s annual shareholders’ meeting and is not legally binding.

However, it would be difficult to resubmit the proposed split in its current form. It can be said that Toshiba’s business reform is a blank slate once again.

Toshiba President Taro Shimada, who just took office this month, said at the general meeting that the company will “consider all strategic options to enhance corporate value.”

Toshiba’s management has been in turmoil, with presidents and chairpersons of the board of directors stepping down one after another in the face of confrontations with activist shareholders. It is important for the new management team to explore avenues for dialogue with shareholders and to present ideas that will lead to long-term growth for the company.

Toshiba’s woes could also have a negative impact on the nation’s economic security.

Toshiba is involved in critical businesses such as nuclear power, defense-related fields and quantum cryptography communications. Such fields are key targets of scrutiny under legislation regulating foreign investment.

After accounting scandals came to light in 2015, Toshiba’s business performance deteriorated, forcing it to sell off its consumer electronics, personal computer and medical businesses, among others. The company must avoid a situation in which the sale of businesses that would be detrimental to the national interest is carried out at the behest of activist shareholders.

Competition among nations for strategically important technologies and supplies is intensifying. The government should increase its monitoring in this regard.

There is a worldwide movement to rethink the “shareholder primacy” principle of giving priority only to shareholder profits. Activist shareholders, too, need to strive for constructive dialogue and proposals that contribute to medium- to long-term growth, not just short-term profits.

— The original Japanese article appeared in The Yomiuri Shimbun on March 26, 2022.