Japan’s powerful trade ministry, the former head of investment at its giant pension fund, and even the current prime minister.
Those are the actors portrayed in a detailed description of how Toshiba Corp. allegedly tapped government allies to try to influence voting at its annual general meeting last year. Management at the more than 145-year-old manufacturer worked hand in hand with public officials in an attempt to sway the outcome, according to a 139-page report by three independent investigators elected by Toshiba stockholders to examine the issue.
It’s a rare public account of how Japan’s bureaucrats allegedly coordinated with a private company to exert control over foreign shareholders. While it’s unlikely to hurt Prime Minister Yoshihide Suga, it’s already having an impact on the iconic conglomerate and may have wider implications for corporate accountability in the country’s more than $6 trillion stock market.
The report is “surprising, disappointing, and in some areas, deeply disturbing,” four Toshiba board members — George Raymond Zage III, Ayako Hirota Weissman, Paul J. Brough and Jerry Black — said in a statement. On Monday, Chairman Osamu Nagayama said the board of directors “sincerely accepted” the points raised in the report, and would work to restore trust and transparency. The company said over the weekend it will drop two existing board members.
It’s the culmination of a monthslong probe after Toshiba’s largest shareholder, Singapore-based hedge fund Effissimo Capital Management Pte., won a landmark vote calling for an independent investigation of alleged pressure on stock owners and issues with vote tabulation at the AGM. The three independent investigators, all lawyers, appointed under Effissimo’s shareholder proposal said they reviewed more than 778,000 emails and attachments. The report mentions in nine places that Toshiba acted “in unison” with the Ministry of Economy, Trade and Industry against overseas investors.
Suga was chief Cabinet secretary at the time, one of the most powerful jobs in the government. He met with Nobuaki Kurumatani, then Toshiba’s chief executive officer, before the AGM, presumably for a briefing on the shareholder meeting, according to the report. Kurumatani confirmed he attended a meeting with Suga, but said he didn’t talk with him individually, according to the report.
The company was worried that foreign investors, which own a majority of its shares, would vote out management and appoint their own candidates.
Toshiba pointed to its statement over the weekend when asked to comment for this story.
At a later meeting with one of Kurumatani’s subordinates, Suga said Japan could use a new law to keep the overseas shareholders under control, according to the report. He was referring to the revised Foreign Exchange and Foreign Trade Act (FEA), which restricts overseas investment in certain industries that Japan says are core to national security. Toshiba management and the trade ministry were discussing the possibility of threatening to use the law to force Effissimo to divest its shares, the report said.
“If we are aggressive, we can get them with the FEA,” Suga said, according to the report.
Suga, who would become prime minister months later when Shinzo Abe surprisingly resigned, denied making the comments. “I know nothing of this,” he told reporters in Tokyo last week. “There was no such thing.”
Suga’s alleged involvement has created unwelcome headlines at a time when the administration is already struggling with low approval ratings due to its handling of the pandemic and support of the publicly unpopular Olympics, but so far the impact on the prime minister has been limited. A senior government official pointed to Suga’s response last week when asked to comment for this story.
“It’s unlikely to deal a heavy blow to the administration,” said Hajime Sakai, the chief fund manager at Mito Securities Co. in Tokyo. “It’s just one of many factors.”
While Suga is only briefly mentioned in the report, a man referred to as Mr. M allegedly played a more central role.
Mr. M, it says, used his influence to stop Harvard University’s endowment, a Toshiba shareholder, from voting at the AGM. The trade ministry, to which Mr. M was an adviser at the time, had given Toshiba the name of Mr. M as someone with connections to the fund, a Toshiba executive said in the report. Mr. M had a series of calls with Harvard, seeking to get it to either side with management on proposals or not vote at all, according to the report.
The endowment later described to Toshiba’s audit committee a call that was “highly inappropriate in both content and timing,” according to the report. It didn’t identify the caller. Farallon Capital Management, which spoke with Harvard about the matter, said Mr. M made an “aggressive” call and Harvard was “threatened,” the report said. Mr. M pointed out “substantial risks” that Harvard might face. Ultimately, the endowment decided not to vote, it said.
While Mr. M isn’t explicitly named in the report, he’s identified through a tweet that the report cites as Hiromichi Mizuno, one of Japan’s most celebrated finance gurus. The former private equity executive rose to fame in the investing world when he became chief investment officer of Japan’s $1.6 trillion Government Pension Investment Fund.
Trade minister Hiroshi Kajiyama referred to him by name last week when discussing the report. Kajiyama denied that the ministry had asked Mizuno to get involved, although he said Mizuno had given it advice on occasion. He said the report didn’t shed definitive light on what happened.
A trade ministry spokesperson declined to comment for this story and pointed to Kajiyama’s comments on the report.
Reuters and the Financial Times previously reported on Mizuno’s involvement.
Mizuno, who’s currently a Tesla Inc. director and a United Nations special envoy, didn’t respond to requests for comment. In the Dec. 23 tweet cited by the report, he said it was “extremely regrettable” that a Reuters article, citing anonymous sources, portrayed him as threatening the fund.
“It is easy to predict” that Mr. M, in his position as a trade ministry adviser, “would have a strong influence on the decisions of the foreign shareholders regarding the exercise of their voting rights,” the report said. Given its fiduciary duty, it was “highly unusual” for Harvard not to vote, it said. Harvard Management Co. declined to comment.
But beyond Mizuno, and aside from Toshiba’s management, a key player in the report is the trade ministry itself.
For longtime watchers of Japan, the ministry’s hands-on involvement in the matters of a private company may not come as such a shock. This, after all, is the organization that was often credited with orchestrating the rise of Japanese industry.
The ministry coordinated with Toshiba to employ a good cop, bad cop negotiating strategy in which the ministry “beat” Effissimo while Toshiba interacted “politely” with the fund, according to the report. Bureaucrats contacted other shareholders, seeking to influence how they voted. They threatened to use the new law if voting didn’t go the way they wanted, the report said.
Making recommendations for change wasn’t in the scope of the probe, and it’s not clear if there will be any legal fallout. Toshiba’s Nagayama said the company will examine the responsibility of former CEO Kurumatani, who didn’t respond to a text message seeking comment. The trade ministry doesn’t plan to investigate the issue, Kajiyama said.
For one observer, the situation shows the dangers when bureaucrats become too powerful.
“This is incredibly problematic,” said Nobuo Gohara, a lawyer and former prosecutor. “The trade ministry accumulated power during the lengthy Abe administration,” he said. “They think they can do whatever they like.”
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