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Kuroda Electric Co. says adding Japanese activist investor Yoshiaki Murakami to its board would damage the company’s reputation.

Murakami, C&I Holdings Co. and related firms have taken a 16 percent stake in the electronic-parts trading company and are asking shareholders to appoint four new directors, including Murakami, to its six-member board at an extraordinary meeting on Aug. 21. Kazuya Murahashi, an executive officer at Kuroda Electric, says Murakami’s conviction for a “serious securities crime” makes him unsuitable to represent the company with its Japanese customers. Murakami was found guilty of insider trading after being arrested in 2006.

Murakami, an outspoken early champion of investor rights in Japan, wants the Osaka-based company to pay all its profit to shareholders for three years. Kuroda Electric’s resistance is an example of how companies find his approach abrasive in a culture that values harmony and has placed less importance on stock owners.

“We’re a trading company, and our customers are listed firms such as Sony, Sharp, Panasonic and Toyota,” Murahashi said in an interview in Tokyo on Aug. 11. “We must think about how they’d react if we added someone with his past history as a director.”

Murakami was found to have bought shares in a broadcaster after learning that Internet entrepreneur Takafumi Horie’s Livedoor Inc. planned to make a hostile bid for the company. Murakami was sentenced to two years in prison, which was suspended for three years.

Institutional Shareholder Services Inc., the proxy adviser, said in a report recommending Murakami’s candidates that the investor has already been penalized for the crime and there is nothing legally preventing him from being a director. Murakami denies all wrongdoing, and some observers believe the charges against him were politically motivated, ISS said.

ISS is suggesting that its institutional investor clients shouldn’t look at Murakami’s past, Kuroda Electric said in a statement published on its website on Monday. “This is unbelievable and totally unacceptable,” it said.

Murahashi says Murakami decided to start a proxy fight without sufficient discussion with Kuroda Electric’s management.

“He first came to the company on June 2, and visited about twice that month,” Murahashi said. “So the discussions started in early June and less than a month after that, quite unilaterally, the shareholder proposal came.”

Murakami says Kuroda Electric’s capital policy has hurt shareholders. It cites a convertible bond issued in 2012 at a low exercise price that diluted existing stock owners’ holdings.

“While it’s true that it diluted other shareholders, the stock price itself has been rising,” Murahashi said. “We’re not saying this convertible bond was 100 percent the right decision. We did it after considering the pros and cons of various options.”

Shares of Kuroda Electric have gained 188 percent since December 2012, compared with a 113 percent advance for the benchmark Topix index.

Kuroda Electric, criticized by Murakami for low shareholder returns, said on July 10 it intended to boost its dividend payout ratio to at least 40 percent and as much as 65 percent from about 20 percent. The company had already planned to make these changes and just brought forward their announcement, Murahashi said.

Yoshiaki Murakami’s daughter, Aya, declined comment on her father’s suitability for the role of director given his conviction for insider trading, or on whether there had been enough discussion with Kuroda Electric’s management.

Murakami’s proposals need the approval of a majority of voting shareholders to pass. As much as 49 percent of the company’s shares may be held by foreign investors, according to data compiled by Bloomberg.

While ISS recommends the appointments, Glass Lewis & Co. has told its clients to reject them.

If Murakami and his fellow candidates succeed in their quest, it seems clear that Murahashi won’t be celebrating and work will be needed to find common ground on how the company should be run.

Murakami seems “overbearing,” Murahashi said.

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