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In surprise decision, Toshiba shareholders vote to oust board chairman Nagayama

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In a rare move and a victory for activist investors, Toshiba Corp. shareholders voted down the reappointment of the board chairman at the annual shareholders meeting on Friday, after corporate governance issues at the industrial conglomerate were brought to the fore by a government collusion scandal.

Investors ousted Osamu Nagayama, who had expressed his intention to stay on to tackle Toshiba’s deep-rooted governance issues. A recent probe by lawyers showed that the conglomerate had sought help from the government to influence the voting behavior of foreign shareholders.

Of the 11 director candidates Toshiba proposed, shareholders rejected Nagayama and Nobuyuki Kobayashi, an audit committee member who was also up for reappointment.

Following the surprise turn of events, foreign investors frustrated over Toshiba’s flawed management are likely to have a bigger say on the firm’s business. 

For Toshiba, on the other hand, the vote is likely prolong its current troubles, with the firm now needing to look for replacements for the pair of directors. Toshiba said it has not decided who will replace Nagayama and the matter will be discussed by its board members.

During Friday’s shareholders meeting in Tokyo, individual investors voiced concerns about Nagayama prior to voting.

“It’s been about six years since the 2015 accounting scandal, but Toshiba has failed to learn lessons and correct selfish values shared among its employees,” a 63-year-old shareholder who claimed to be a former Toshiba worker said.

That was a reference to accounting malpractice in which Toshiba made a series of inappropriate accounting entries, inflating its profit to ¥152 billion ($1.3 billion) from fiscal 2009 to 2014.

Toshiba’s corporate governance was put under the spotlight at that time, as its top executives — including three former presidents — were involved in the manipulation and there was no internal system in place to stop them.

“Is the board chairman really capable of pinpointing the problems among Toshiba employees and leading improvement efforts?” the shareholder asked.

Toshiba CEO Satoshi Tsunakawa defended Nagayama, saying he quickly took action after a report revealed the government collusion scandal earlier this month.

Nagayama and other board members decided to dismiss executives involved in the scandal, dropped two director candidates from a list of reappointments for the general meeting and instructed the firm to come up with new preventive measures, Tsunakawa said.

Pedestrians near the company's facility in Kawasaki on June 10 | REUTERS
Pedestrians near the company’s facility in Kawasaki on June 10 | REUTERS

Nagayama, former CEO of Chugai Pharmaceutical Co. and a former board chairman at Sony Corp., took the top role on Toshiba’s board in July last year — after the collusion attempt took place — but voices calling for Nagayama’s resignation were nonetheless growing.

Institutional Shareholder Services Inc., a U.S.-based corporate governance consultancy, reportedly recommended that shareholders reject Nagayama’s reappointment, while 3D Investment Partners, Toshiba’s major shareholder, said that he should step down.

Earlier in June, a probe by independent lawyers revealed that Toshiba and the Ministry of Economy, Trade and Industry teamed up to influence the voting behavior of some major foreign investors — Effissimo Capital Management, 3D Investment Partners and a Harvard University endowment fund — at the 2020 general shareholders meeting.

Toshiba was struggling to win support from those investors for various proposals at the meeting, so Toshiba relied on the ministry to sway their voting intentions by hinting that Japanese regulators might block some courses of action, the report said.

Toshiba is designated as a firm that operates businesses important to national security under the Foreign Exchange and Foreign Trade Act, but even so, the report asserted that some of the actions by the economy ministry were inappropriate.

Trade minister Hiroshi Kajiyama has said officials’ activities fell within the scope of their regular duties, saying that it was natural to communicate with companies such as Toshiba that run businesses with a significant role in the country.

Yet Toshiba has effectively admitted to the accusations contained in the report. It plans on conducting a further investigation to clarify the responsibility of those involved.

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