Foreign Investors Score Breakthrough in Japan

Ben Dooley of New York Times provides a great summary of activism in Japan and specifically at Toshiba. Shareholders of Toshiba voted down the Company’s board chairman, a breakthrough for foreign investors who have been pushing to make Japan’s insular corporations more transparent and accountable. The ouster of the chairman, Osamu Nagayama, 74, followed an investigation that revealed that top Toshiba executives had worked with the Japanese government to inappropriately pressure investors who sought to shake up the company’s management.The resulting scandal led to the resignation of the company’s chief executive and four board members. But Mr. Nagayama, who was not implicated in the investigation, had stayed on, arguing that he had a responsibility to clean up Toshiba’s governance.

Since 2013, activist efforts in Japan have skyrocketed, after then-Prime Minister Shinzo Abe began to encourage companies to take investor concerns more seriously in hopes of attracting more foreign capital, increasing corporate profits and boosting the country’s weak growth. While shareholders have found some success in behind-the-scenes efforts to influence corporate management in Japan, the Toshiba case is a rare investor victory in such a public and direct confrontation.

“There’s been a lot of positive change in Japan in terms of governance practices, but if you then don’t have shareholders holding companies to account, a lot of that will just become superficial,” said Ali Saribas, a partner at the shareholder advisory firm SquareWell Partners. Cases like Toshiba’s, he noted, are likely to remain unusual in the near term. The company, which has been weakened by its scandals and disastrous investments, has an unusually high percentage of foreign shareholders, who tend to be more willing to vote against management than Japanese investors.

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