Ousting Toshiba chairman risks strategic hold-up

Shareholders walk into the venue for Toshiba’s annual general meeting in Tokyo, Japan on June 25, 2021. REUTERS / Kim Kyung-Hoon

HONG KONG, June 25 (Reuters Breakingviews) – Revenge can be sweet, but it’s not always a profitable emotion. Toshiba (6502.T) shareholders elected Chairman of the Board Osamu Nagayama in one of the biggest upheavals ever for Japanese companies. As the $ 20 billion conglomerate embarks on a strategic review, abruptly dethroning a leader who has just shown he can take control of a wayward gang may prove short-sighted.

The ouster of Nagayama and another director shows the depth of investor anger over the release of a damning report just two weeks ago detailing the collusion last year between Toshiba executives and the powerful Japanese Ministry of Economy, Trade and Industry to derail proposals from foreign shareholders. Nagayama, who joined the board after the campaign, brings up the company’s resistance to independent inquiry.

The vote is a milestone for Japanese governance and militant power, and yet Nagayama deserved more time to put things in order before he left. At the very least, the 74-year-old’s position as one of Japan’s most successful business leaders has given scandal-ridden Toshiba some seriousness.

Nagayama’s swift action since the report’s release – he quelled a board revolt and dumped the two most heavily implicated directors – was promising. There are also payoffs to think about: his six years as head of the Sony board (6758.T) through 2019 produced an annualized total return of 21% – compared to the 3% delivered to Toshiba shareholders. since 2015.

The irony of Nagayama’s ejection is that the strategic review board he planned – partly a listening tour of angry shareholders, partly a forensic examination of Toshiba’s structure – is taking more importance as a key to proving that the company can overcome its scandals and conflicts. The board of directors reduced to nine from 13 initially planned and with four new members, must shake things up if it is to meet its original deadline of October for the production of proposals.

A positive point of all this would be that the four new directors that the board must also propose represent a real departure from Toshiba’s past. But it is far from certain. A gradual series of directors’ resignations, including possibly that of Nagayama, would at least have given an impression of stability, which Toshiba is still far from finding.

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– Toshiba shareholders on June 25 dismissed chairman of the board, Osamu Nagayama, clearly demonstrating their anger and mistrust, two weeks after the Japanese conglomerate revealed in an independent report that it had gotten along with the government to block the interests of foreign investors last year.

– Pressure for Nagayama’s impeachment has increased since the June 10 release of the damning 140-page report detailing the close ties between Toshiba executives and government officials and their collaboration to block certain shareholder proposals in the annual general meeting last year.

– Another member of the board of directors, Nobuyuki Kobayashi, was also excluded during the shareholders’ meeting on June 25.

Editing by Una Galani and Sharon Lam

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