Toshiba investors secure landmark win in clash with management

A long-awaited showdown between Toshiba and its two largest investors has ended in embarrassment for the conglomerate and an unprecedented show of shareholder strength in Japan.

The landmark vote in favour of a probe into Toshiba’s conduct follows five years of increasingly confident shareholder activism against the conservative bastions of corporate Japan. The result of Thursday’s extraordinary general meeting, which was expected to be very close, triggered immediate speculation among investors that senior Toshiba management, including chief executive Nobuaki Kurumatani, could be forced to resign.

The EGM, a rarity in Japan that prompted Toshiba to hire Goldman Sachs to help fend-off the threat, was convened at the demand of its two largest shareholders.

Effissimo, the Singapore-based activist investor and Toshiba’s top shareholder, called on the company to launch an independent investigation into what it deems potentially improper circumstances surrounding last year’s annual meeting. These include “unprecedented shareholder suppression”. Several of the main areas in question, including the role of the former investment head of Japan’s $1.6tn government pension fund, were first reported by the Financial Times. 

The shareholder voting at the EGM sends a clear message to the Toshiba board and executive team: shareholders expect increased transparency and accountability

The Effissimo proposal passed, despite strenuous efforts by Toshiba to convince shareholders such a probe was unnecessary.

A separate proposal, which required a higher bar to pass and came from US-based Farallon Capital, called on Toshiba to clarify its intentions for large-scale mergers and acquisitions and explain what the fund deemed to be contradictions in recent strategy statements. It was not approved by investors.

Farallon, Toshiba’s second-biggest shareholder, said after the results: “The shareholder voting at the EGM sends a clear message to the Toshiba board and executive team: shareholders expect increased transparency and accountability.”

Effissimo and Farallon have been critical of Toshiba’s management, in particular the leadership of Kurumatani, a former banker who was brought in as chief executive in 2018 to turn the company’s round after an accounting scandal and the collapse of its US nuclear business.

Effissimo called on Toshiba’s management to co-operate with the independent investigation to restore shareholder confidence after its proposal had been approved. “Support for the proposal demonstrates shareholders’ strong commitment to protecting their most fundamental right — the right to vote,” it added. 

Toshiba had rejected Effissimo’s demand, saying a probe by its audit committee found no direct evidence that it was involved in “any undue intervention” in last year’s AGM. 

But following the vote, Toshiba said it accepted the outcome. “We will sincerely cooperate in the investigation … and will strive to ensure further transparency in our operation,” Kurumatani said in a statement. 

Ahead of the EGM, proxy advisers ISS and Glass Lewis both recommended that Toshiba investors vote in favour of Effissimo’s proposal. A number of global asset managers also disclosed their backing for the Singapore-based fund, including Calpers and the California State Teachers’ Retirement System, the US’s two biggest pension funds. Others included Norges Bank, the world’s largest sovereign wealth fund. 

During the 70-minute meeting, several of the 100-plus retail investors who attended the EGM appeared baffled by the two shareholder proposals and sought an explanation of why Toshiba had arrived at this point in the first place.

“What really happened?” asked one retail investor. “If there was actually undue pressure, it should be investigated but if Effissimo is talking up something that never happened, it is wasted costs.”