Toshiba shareholders vote to remove chairman

TOKYO — Toshiba shareholders have voted to remove board chairman Osamu Nagayama at an annual general meeting that was seen as a test of corporate governance in Japan.

The company’s investors also removed a member of Toshiba’s audit committee as the Japanese conglomerate faced shareholders for the first time since the release of an independent probe into governance at the company.

In total, 11 board member nominees faced shareholder votes. Nagayama’s removal is a win for investors who had expressed discontent over his nomination and signals shareholders’ strong concern over the probe’s findings and loss of trust in the board.

The investigation found that Toshiba executives colluded with Japan’s trade ministry to pressure shareholders over their votes at last year’s general meeting. Toshiba wanted to curb the influence of activist investors.

The report’s publication sparked calls for a major shake-up of the board of one of Japan’s best-known companies that plays a key role in nuclear power and other strategic industries. It also raised investor concerns over the state of corporate governance in Japan.

Toshiba shareholders were eager to have their say on Friday, with demands and calls for action pouring in from a number of investors.

The independent probe, conducted by three lawyers and published on June 10, details how Toshiba allegedly coordinated with officials from the Ministry of Economy, Trade and Industry to try to block activist shareholders from submitting proposals and exercising their voting rights.

At the heart of the probe was Toshiba’s largest shareholder, Effissimo Capital Management. The Singapore-based activist fund had proposed the independent investigation after questioning the voting results at last year’s AGM.

After being authorized at an emergency general meeting in March, the lawyers concluded that Toshiba’s AGM in July was “not fairly managed.”

Toshiba responded by removing two of its directors from its list of board nominees for this year’s AGM and by vowing to reconstitute and diversify the board to include more foreign representatives.

However, shareholders were still critical of Toshiba’s nomination process and its revised board candidates, which still included Nagayama and Nobuyuki Kobayashi, an audit committee member who had taken part in a previous investigation of last year’s AGM that found no problems. Kobayashi was voted down at Friday’s meeting.

Influential shareholder advisers such as ISS and Glass Lewis had also recommended against reappointing Nagayama, the former CEO of Chugai Pharmaceutical. Effissimo called the conglomerate’s board “ineffective,” while shareholders like 3D Investment Partners and Norges Bank Investment Management had expressed opposition to Nagayama’s reappointment.

During the general meeting, one investor at the venue asked of Nagayama: “Is he somebody that can provide guidance to correct what has been revealed?”

President and CEO Satoshi Tsunakawa, who apologized for Toshiba’s governance failures, expressed confidence in Nagayama.

“The board chairman,” Tsunakawa said, “immediately took action after the probe by removing two candidates from today’s slate of nominees and [calling] for the formulation of measures to prevent any recurrence.”

Toshiba has been plagued with governance failures for years, starting with a case of accounting fraud in 2015. After the company raised 600 billion yen ($5.4 billion) from as many as 60 foreign investors in 2017 — in a bid to avoid two consecutive years of negative net worth and a consequent delisting from the Tokyo Stock Exchange — Toshiba faced increasing demand from activist shareholders to enhance its governance.

Currently, around half of Toshiba’s shares are owned by foreign investors.

One consultant at a governance advisory in Tokyo said, “Toshiba was saved by activist shareholders but failed to improve its governance in return.”