Toshiba and Japan trade ministry colluded, probe finds
Report undermines Tokyo’s efforts to improve corporate governance and win over foreign investors
Tokyo — Japan’s trade ministry colluded with Toshiba’s management to unduly influence a shareholder vote in 2020, an independent probe found, undermining Tokyo’s efforts to improve corporate governance and win over foreign investors.
The investigators’ report released on Thursday marks an explosive turn in a long-running battle between the Japanese company’s management and foreign shareholders, which include activist investors and Harvard University’s endowment fund.
It alleges the ministry of economy, trade & industry leant on the Harvard fund and other foreign investors in an attempt to get them to vote with management at the annual shareholders meeting in 2020.
The allegations of the ministry’s intervention — previously reported by Reuters — are likely to raise doubts about how committed Japan is to becoming more open to foreign capital — a goal set by former prime minister Shinzo Abe. The report also raises questions about who in government was aware of the ministry’s role.
“Toshiba requested the ministry’s support for the so-called measures to counter the activists,” at the annual meeting, the report, written by independent investigators, found. Toshiba’s management “worked closely” with the ministry to exert “undue influence on some shareholders”, the report found.
Contacted by Reuters, the ministry said it was aware of the report and was looking into its contents.
Toshiba said it “will carefully review” the report and comment at a later date.
In one telling episode from the report, the ministry was said to have contacted one foreign fund to warn them against “barbecuing next to your neighbour when there is a big fire”, in an apparent suggestion the fund should refrain from backing proposals by top shareholder Effissimo Capital Management, a Singapore-based fund, the report said.
Toshiba was found “to have devised a plan to effectively prevent shareholders from exercising their shareholder proposal right and voting rights”, by putting undue influence on Effissimo, the Harvard fund and another fund, 3D Investment Partners.
The report also said that some of the actions raised “suspicions of violations of laws and regulations in many places”. Investigators later told a news conference that the violations may involve confidentiality requirements for bureaucrats.
Once a crown jewel of corporate Japan, Toshiba was battered by accounting scandals that stretch back to 2015 and huge writedowns for its US nuclear business as well as the sale of its semiconductor unit, leaving it a shadow of its former self.
But as one of the few domestic manufacturers of nuclear reactors, which also makes defence equipment, the company remains hugely important to the Japanese government.
After a 2017 capital raising, a number of foreign funds invested in Toshiba, making an uneasy marriage of activist investors and a strategic asset.
It was not immediately clear whether the highest levels of the government were involved. The report said that Toshiba’s then president met Yoshihide Suga, who was chief cabinet secretary under Abe, to explain the situation in May 2020.
Suga, now prime minister, on Thursday said he was “absolutely not aware” when asked if the allegations in the report were true.
The probe, conducted by three lawyers, found that Toshiba, with the ministry, tried to force Effissimo to withdraw shareholder proposals for board nominees aimed at improving governance.
Reuters previously reported that Harvard’s endowment fund had been told by a Japanese government adviser it could be subject to a regulatory probe if the fund did not follow management’s recommendations at the meeting last July.
The Harvard fund ultimately abstained from voting. The ministry has previously said that it never asked the adviser to contact Toshiba shareholders.
Thursday’s revelations come after Effissimo and other activist investors in March successfully pushed for an investigation —itself a landmark win for shareholder activism in Japan.
Since then, Toshiba has seen former CEO Nobuaki Kurumatani resign and the ensuing turmoil lead to a $20bn bid for the conglomerate from CVC Capital.
CVC’s offer to take the Japanese conglomerate private and retain incumbent management was perceived by some in the company as designed to shield Kurumatani from activist shareholders, Toshiba sources have said.
While Toshiba has dismissed that bid, it has announced it will conduct a strategic review.
Activist investors are estimated to account for about 25% of Toshiba’s shareholder base — an unusually large proportion after the company, on the verge of collapse, had to quickly issue about $5.5bn worth of shares in 2017.
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