Toshiba’s inflammatory report could finally change Japanese businesses


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Over the past 17 weeks, the hit Japanese Sunday night show has dramatized the life of Eiichi Shibusawa, face of the new 10,000 Y banknote and “father of Japanese capitalism.” The show still has months to go, but we already know how it ends: Japan emerging from the 19th century with a unique, ethically and socially superior brand of actor capitalism whose qualities resonate powerfully today.

It’s a cozy mythology, which Toshiba, through his epic machinations with the government to suppress shareholder rights, may have just pulverized.

Perhaps the thorniest challenge of the 147-page report on Toshiba released last week by an independent investigative group that reviews last year’s annual meeting of shareholders, determines who is doing the worst. The pick includes Toshiba management, the Ministry of Economy, Trade and Industry (METI), former superstar investment chief of $ 1.6 billion Japanese pension fund Hiromichi Mizuno, potentially Prime Minister Yoshihide Suga and, above all, Japan’s global image as an investment destination. Nobuaki Kurumatani, who stepped down as Toshiba’s chief executive in April, is likely to win.

Beyond that, the really tricky question is whether the past six years of slogans and apparent reforms, in which Japan has sought to convince the world of its commitment to governance and stewardship, have been the sham pessimists have always feared under the superficial signs of progress.

The villainous document eviscerates a collaboration between the government and Toshiba management in which both sides appear to view boisterous and militant shareholders as an enemy. Toshiba’s 2020 AGM, he concludes, was not properly organized. The collusion was intended to rely on particularly important shareholders to change their opposition to a sharp AGM vote on which Kurumatani’s survival depended. One leader, he says, called on the Commerce Ministry to “beat up” large activist shareholders on his behalf. Another pointed to how foreign funds were “afraid” of the Japanese authorities and suggested that it could be used against them as a weapon.

The report suggests that some METI officials believed leverage on foreign activists was available through the Foreign Exchange and Trade Law – a law revised in 2019, according to the FT, could have that effect. A subsequent letter to FT from the Deputy Finance Minister for International Affairs reassured readers that activists are urged to engage with Japanese companies to increase the company’s value.

The investigation, which only took place because shareholders forced it on the company, is damning in a way that Japanese reports rarely are: dishonesty, subterfuge and hypocrisy appear to be the culprits. where normally incompetence, group thinking and unconditional hierarchical structures are blamed. In an unprecedented move, four members of Toshiba’s board of directors issued a statement describing the report as “surprising, disappointing and, in some areas, deeply disturbing.”

As the four noted, the detailed exposure of wrongdoing in the report makes a particularly painful contrast to Toshiba’s initial internal investigation into the matter – a laundering that was done to look like a master class in the field. sidelining shareholder interests and contempt for corporate governance.

For all this, the report is a document whose blast radius depends on the viewer. For those who see his findings as specific to an extraordinary corporate situation, and who already thought Toshiba was some irremediable governance horror story, the air is thick with smoldering weapons. For those who have long suspected that the METI is predisposed to meddling and even conspiracy, that does little to allay fears that the ministry will do the same with other Japanese companies if it does. felt the need. It’s not hard to imagine Carlos Ghosn, who has long claimed that METI was among the conspirators who precipitated his arrest in 2018, using this report to reinforce that belief.

But again, there is a strong temptation to see the whole affair as revealing a larger truth: that the basic attitudes of Japanese companies and government officials most directly involved in this affair have, in many cases. , that very little evolved towards paying attention to shareholders.

This conclusion, for all its negativity, may ultimately be helpful if, as one of Toshiba’s biggest shareholders put it, the report and its inflammatory nature now become the catalyst for real change. The risk around Toshiba’s long run of misery, which began with an accounting scandal in 2015 and brought the company to the brink of collapse a few years later, has always been that it would be treated as an outlier. rather than sitting on the same specter of bad governance as most Japanese companies.

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About Emilie Brandow

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