Toshiba board chair likely to scrape through with reappointment at crucial AGM

Toshiba Corp (6502.T) Board Chairman Osamu Nagayama is tipped to win reappointment at a pivotal shareholders’ meeting this Friday – albeit by a thin margin, two people familiar with the matter said.

Nagayama has come under intense pressure to resign after an independent investigation this month found Toshiba had colluded with Japan’s trade ministry to block foreign shareholders from gaining influence on the board at last year’s annual general meeting.

Indications from shareholders so far have shown “Nagayama is more likely to win than lose reappointment”, said one of the people, adding that domestic investors in general appear to be more supportive of Nagayama than foreign investors.

The sources were not authorised to speak on the matter to media and declined to be identified. Toshiba declined to comment on prospects for board nominees at this Friday’s AGM.

Nagayama’s supporters argue the former pharma executive and Sony Group Corp (6758.T) board director only joined Toshiba’s board in mid-2020 after the alleged pressuring of foreign shareholders took place, and that without him the conglomerate will lack a steady hand to guide it through its latest crisis.

Current CEO Satoshi Tsunakawa retook the helm in April after the company’s previous leader left amid controversy over a $20 billion buyout bid from private equity firm CVC Capital Partners but has said he does not plan to stay on for too long.

Both Sony and former U.S. Ambassador to Japan John Roos have expressed support for Nagayama, highlighting his track record in governance at the electronics giant.

But Nagayama’s critics say he should take responsibility for Toshiba’s board initially having resisted a shareholder’s call for an independent probe.

Singapore-based 3D Investment Partners, Toshiba’s No. 2 shareholder with a 7.2% stake, has demanded Nagayama’s immediate resignation. Shareholder advisory firms Institutional Shareholder Services Inc and Glass Lewis have recommended against his reappointment.

Toshiba’s foreign activist investors secured a landmark win for Japan corporate governance in March when 58% of shareholder votes at an extraordinary general meeting were counted in favour of a probe into the allegations.

But its shareholder base has changed since the conglomerate was reinstated in the Tokyo Stock Exchange’s TOPIX index in late February, a move that brought in more domestic index-linked funds. While many of those passive funds were not eligible to vote in March, they now are.

Overseas investors now account for around 50% of Toshiba’s shareholders compared to 63% a year ago, the company said.

Moreover, not all overseas investors are against Nagayama.

Among votes disclosed so far, Norges Bank Investment Management, the world’s largest sovereign wealth fund, and the State Board of Administration of Florida have voted against Nagayama but California Public Employees’ Retirement System (CalPERS) has voted for him. BlackRock Inc (BLK.N) has also voted for him, according to one of the sources.

BlackRock has a Toshiba stake of more than 5% according to filings. Refinitiv data shows that as of end 2020, Norges had 1.3% while as of end-June 2020, CalPERS owned 0.45%. Florida’s SBA had 0.04% as of end-March last year.

As for domestic asset managers, Japan’s revised stewardship code has made it more difficult for them to blindly vote for companies as has often been the case in the past, so some could vote against Nagayama, governance experts say.

“That said, it’s still extremely rare at large Japanese companies, where institutional investors have large holdings, to have the reappointment of current board members rejected,” said Shoya Okuma, chief executive of proxy advisory firm QuestHub.

Toshiba will be nominating 11 directors including Nagayama at this Friday’s AGM – a truncated slate after it announced in the wake of the investigation that two members of the board’s audit committee, which has been blamed for failing to properly address the allegations, would not be standing for re-election.

One nominee, Nobuyuki Kobayashi, also a member of the audit committee, is unlikely to win re-election after opposition from shareholder advisory firms, one of the sources said.