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business

Toshiba colluded with ministry to undermine shareholders, probe finds

48 Comments
By Makiko Yamazaki

Toshiba Corp and Japan's government colluded to lean on foreign investors to back company management in a key vote, according to an investigation which alleged one executive said they would ask the trade ministry to "beat up" a hedge fund.

The shareholder-commissioned report released on Thursday also said that Yoshihide Suga - then chief cabinet secretary and now prime minister - verbally encouraged the pressure on investors during a meeting with a senior Toshiba executive last year, an allegation Suga has denied.

Toshiba is of strategic importance to Tokyo as a maker of nuclear reactors and defense equipment. The probe's findings mark an explosive turn in a long battle between the Japanese company's management and foreign shareholders, which include activist investors and Harvard University's endowment fund.

The report, written by independent investigators, says Toshiba's management reached out to the Ministry of Economy, Trade and Industry (METI) for support ahead of its annual general meeting last July, to counter activist investors.

The management "worked closely" with the ministry to exert "undue influence on some shareholders" including an attempt to force Effissimo Capital Management to withdraw its candidate nominations, according to the probe.

Singapore-based Effissimo, Toshiba's top shareholder, had nominated three candidates, including its own co-founder, as directors. Ultimately none were elected.

The investigators detailed one email among top Toshiba managers about Effissimo in which an executive said: "We will ask METI to beat them up for a while."

Contacted by Reuters, METI said it was aware of the report and was looking into its contents.

Toshiba said it would "carefully review" the report and comment at a later date.

An Effissimo spokesperson said it was looking at the report, but declined to comment further.

SUGA UNDER MICROSCOPE

Once a crown jewel of corporate Japan, Toshiba was battered by accounting scandals that stretch back to 2015 and massive writedowns for its U.S. nuclear business as well as the sale of its semiconductor unit, leaving it a shadow of its former self.

The report was commissioned by shareholders, who voted in March for an independent investigation into allegations investors had come under pressure from the company. That vote was seen as a watershed moment for shareholder activism in Japan.

The investigators also allege that Suga encouraged the pressure on Toshiba investors in a breakfast meeting with a senior company executive last July.

"If we are aggressive, we can get them" with foreign ownership rules, Suga allegedly told the executive, referring to rules introduced in 2020 and designed to protect industries critical to Japan's national security.

Asked about his alleged comment, Suga told reporters: "I am absolutely not aware of that. There was nothing of that sort."

The allegations of METI's intervention - previously reported by Reuters - are likely to raise doubts about Japan's commitment to improving governance and drawing more foreign investors, goals set by former Prime Minister Shinzo Abe.

The probe found Toshiba had "devised a plan to effectively prevent shareholders from exercising their shareholder proposal right and voting rights," by putting undue influence on Effissimo, the Harvard fund and another fund, 3D Investment Partners.

The ministry was said to have contacted Singapore-based 3D to warn it against "barbecuing next to your neighbor when there is a big fire," in an apparent suggestion it should refrain from backing Effissimo's proposals, the report said.

A spokesperson for the Harvard fund declined to comment, while 3D did not immediately respond to a request for comment.

Some of the actions raised "suspicions of violations of laws and regulations in many places", the report said. Investigators later told a news conference that the violations may involve confidentiality requirements for bureaucrats.

"The conclusions and facts in this report are very disturbing," said Nicholas Benes, head of the non-profit Board Director Training Institute of Japan.

"The report raises a hornet's nest of questions. Will an EGM(extraordinary general meeting) be called to elect the board again? Will directors or others be sued? Could Toshiba even be delisted?"

Following a 2017 capital raising, a number of foreign funds invested in Toshiba, making an uneasy marriage of activist investors and a key strategic asset.

Reuters previously reported Harvard's endowment fund had been told by Hiromichi Mizuno, a METI adviser at the time, that it could be subject to a regulatory probe if the fund did not follow management's recommendations at the AGM last July.

The Harvard fund ultimately abstained from voting.

Based on that Reuters report, Toshiba's board launched its own investigation in January of this year on whether Harvard had come under pressure, the investigators said. Toshiba said at the time it was not involved in any efforts to pressure Harvard.

Since then, Toshiba has seen former CEO Nobuaki Kurumatani resign and the ensuing turmoil lead to a $20 billion bid for the conglomerate from CVC Capital.

CVC's offer to take the Japanese conglomerate private and retain incumbent management was perceived by some in the company as designed to shield Kurumatani from activist shareholders, Toshiba sources have said.

While Toshiba has dismissed that bid, it has announced it will conduct a strategic review.

Activist investors are estimated to account for about 25% of Toshiba's shareholder base - an unusually large proportion after the company, on the verge of collapse, had to quickly issue some$5.5 billion worth of shares in 2017.

© Thomson Reuters 2021.

©2021 GPlusMedia Inc.

48 Comments
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Shocking News?: “a J Corp colluded with J Gov”.

27 ( +30 / -3 )

And there will not be ANY punishment fir Suga....He will continue his daily routine of doing nothing.

20 ( +25 / -5 )

Is it possible something similar with Nissan?

32 ( +34 / -2 )

All Japanese companies cook the books and publish false accounts. Anyone read Dogs and Demons?

25 ( +27 / -2 )

More positive publicity for japan before the olympics

12 ( +16 / -4 )

Another Nissan or is Nissan another Toshiba?

Time for investors to strike back!

Is Suga going to complain about a tummy ache, so he can step down, too?

19 ( +22 / -3 )

Lobbying, influencing is part of the deal.

Is it possible something similar with Nissan?

As for Nissan, it was also a case of plea bargaining from a lower employee against Kelly at least.

Since this law was enacted in Japan, it has been 3 cases of plea bargaining

-4 ( +4 / -8 )

I am still confused how Suga has not stepped down yet. I feel like every single month, he is involved in a new scandal.

15 ( +17 / -2 )

Why is anyone surprised? Japan Inc has been "colluding" with the government for like forever!

16 ( +20 / -4 )

Governments in other countries protect domestic companies specializing in key, sensitive technologies from falling into the hands of foreign vultures. Is that shocking news?

-18 ( +3 / -21 )

Every time I hear Toshiba I'm reminded of their CoCom violation. Not good for their brand when it's always related to some corruption scandal.

5 ( +9 / -4 )

I don't know why Japanese firms continue to seek foreign investors ?? They should just do on there own if they are not willing to share power! You can't have it both ways, you either stand alone and stay local, or get foreign funds and share power.

Make up your mind.

22 ( +24 / -2 )

Yoshihide Suga is on pace to be one of Japan's most incompetent corrupt politicians.

How about looking at who's behind him?

17 ( +19 / -2 )

Why do foreign investors continue to invest in Japan? Have we not already learned the downside of investing in Japan?

11 ( +14 / -3 )

I don't know why Japanese firms continue to seek foreign investors 

Maybe because the Japanese are among the most aggressive and biggest "foreign investors" in overseas markets? Take a look at Softbank, for one. The Japanese love "globalization," but only when it's a one-way street.

15 ( +19 / -4 )

Foreign investors should run away before the j-justice gets involved.

They can jail you for 130+ days with no accusation.

17 ( +21 / -4 )

I'm shocked. Shocked . . .

6 ( +9 / -3 )

The foreigner gets screwed, now where have I heard that before from a large Japanese company with lies to the government?

12 ( +15 / -3 )

Suga is such a spineless, weak old man the he is actually starting to make me respect Abe a little. No doubt Suga will lament taking the flak for his actions on this -- not on the actions themselves.

8 ( +9 / -1 )

Governments in other countries protect domestic companies specializing in key, sensitive technologies from falling into the hands of foreign vultures.?"

No they don't. Britain did nothing to block the sale of ARM, the world's must influential semiconductor company, to Japan's Softbank, which now wants to hand it off NVIDEA, a US multinational.

14 ( +15 / -1 )

If you're pulling tricks to deprive shareholders of their rights, you're engaging in theft.

I understand the concern about scary foreign capital, but if you don't want to give control, don't go public in the first place, or let the J Govt buy up a load of your stock. Don't go about it in a dishonest way.

6 ( +7 / -1 )

@Andrew

The Cambridge Research Laboratory of Toshiba Europe made a great breakthrough on quantum data transfer.

Cambridge, as in Cambridge University, as in England, as in not Japan. Tell me how a Toshiba is going to keep this from "falling into the hands of foreign vultures", when it's the "vultures" breakthrough. More like; "I hope the foreign vultures share their breakthrough with the living gods, known to us common scum as, the Japanese" /s

One can only dream andrew.

Loathful hubris.

11 ( +12 / -1 )

Suga: "I am absolutely not aware of that. There was nothing of that sort."

Well that settles it.

8 ( +9 / -1 )

JCoruption - its everywhere!

10 ( +12 / -2 )

All Japanese companies cook the books and publish false accounts. Anyone read Dogs and Demons?

A) This incident isn't about a Japanese company cooking the books or publishing false accounts (though in fairness, Toshiba has done both). Its about the government pressuring institutional shareholders to vote a certain way in a shareholders meeting.

B) Dogs and Demons is a nice book, but its about 20 years old and its written by an art collector who doesn't really have much knowledge of corporate governance.

If you're pulling tricks to deprive shareholders of their rights, you're engaging in theft.

I'm not actually sure the government has done anything illegal here. Its a fine distinction, but important in legal terms since they didn't actually try to deprive the shareholders of any rights (which would be illegal, ie preventing them from voting at all), they instead applied pressure to make the shareholders exercise their rights in a certain way (which I think is legal, at least in terms of corporate law, though they might have violated some rules on what public servants can/can't do).

I don't think its something the government should be doing since it conflicts with a lot of principles about good corporate governance, etc, but at the same time you'll note there is no mention of any lawsuits or other legal fallout happening as a result.

-4 ( +1 / -5 )

Suga is such a spineless, weak old man the he is actually starting to make me respect Abe a little. No doubt Suga will lament taking the flak for his actions on this -- not on the actions themselves.

Tend to agree with you, he's weaker than a paper bag in a thyphoon, he is surrounded in curruption and has his head in the sand.

5 ( +6 / -1 )

And that is how business is done in Asia.

2 ( +5 / -3 )

Tell me that some of the opposition party leaders are preparing a strong message about fighting corruption in the upcoming elections. Even though some people will say it's part of Japanese society, then I will say that the last couple of years should be fueling a popular/populist desire to wage some form of war against corruption more than ever before.

4 ( +5 / -1 )

I guess the powers that be have decided it is time for Mr. Suga to leave. And somehow Nissan gets a free pass.

2 ( +3 / -1 )

Suga already left landed in the UK about one hour ago ahead of the G7 meetings. Thought his wife was bowing too low.

5 ( +6 / -1 )

Suga: I am absolutely not aware of that. There was nothing of that sort.

READ MY LIPS.

6 ( +7 / -1 )

This sort of reminds me of the Olympus scandal of 2011.

6 ( +7 / -1 )

Japan Subculture Research Center had a terrific piece about this a couple weeks ago.

1 ( +2 / -1 )

Is it possible something similar with Nissan?"

Ya, think?

Suga: "I am absolutely not aware of that. There was nothing of that sort." Well that settles it."

LOL...indeed. rotten apple.

6 ( +7 / -1 )

This is further proof that Japan is corrupt to its core.

A public company should work in the interests of its shareholders, not collude with the government to screw them over.

Surely this contravenes rules regarding being a public company, and should put the company in danger of being delisted. I know that won't happen, because it's Toshiba and this is Japan.

The Japanese government has been trying to make it easier or more attractive for foreign companies to come and set up operations here, but any sane entity would stay the hell away.

The government has so many fingers in so many pies, that there's not much room for pie. At the first sign of any problems, or any disadvantage to a Japanese competitor, the Japanese government has shown it has no issues getting involved with the intention of screwing the foreigner - be it the CEO, or the investors.

11 ( +13 / -2 )

I am still confused how Suga has not stepped down yet. I feel like every single month, he is involved in a new scandal.

What else is new with politicians.

Definitely something fishy going on here, but also convenient for the opposition that the current prime minister was somehow involved. Not really sure I'm buying that, but we'll see.

-3 ( +1 / -4 )

JCoruption - its everywhere!"

Nah...real problem is foreigners just don't understand Japanese culture. It's unique. Muzukashii naa...sucks teeth.

5 ( +7 / -2 )

“Does this SURPRISE You”?…(as spoken in that James Bond movie)

0 ( +1 / -1 )

Just sold all my shares in the JP indices today. Why would anyone support such a blatantly corrupt system that is so anti-foreign investor. Corporate governance will only change when starved of financial resources.

7 ( +8 / -1 )

Saving a dying corporation for the sake of empty pride and the hubris of elite bureaucrats, while Japan can rack billions in tax profits if there is a merger&acquisition. ONLY IN JAPAN!

The Japanese government has been trying to make it easier or more attractive for foreign companies to come and set up operations here, but any sane entity would stay the hell away.

Yep. Japanese elites still stuck in the 19th-century mentality of "zero-sum game". They obsessed with keeping big companies as political dynasties instead of profitable businesses. Meanwhile, their Asian peers are more profit-driven, entrepreneurial, and adaptive to the world. Chinese and Southeast Asian billionaires/millionaires create successful enterprises to sell away on M&A tables or list on the stocks exchange at high prices, then they sell those enterprises to start an even more successful one.

Japan does not have this mentality, and this is why they are losing to their Asian peers badly.

Maybe because the Japanese are among the most aggressive and biggest "foreign investors" in overseas markets? Take a look at Softbank, for one. The Japanese love "globalization," but only when it's a one-way street.

Almost all of those foreign acquisitions end in failures.

https://www.japantimes.co.jp/opinion/2017/08/20/editorials/learning-overseas-ma-cases-went-wrong/

All overseas acquisitions are financed by the Japanese declining A+ credit rating (Japanese taxpayer revenues as well, look at the case of TOLL and Japan Post) - the Big Three are going to downgrade Japan this year or next to one. If Olympics does not get commenced, Japan's credit rating will slide even worse. The US turns a blind eye to Japanese contradictory practices of abuse because the Japanese elites keep buying American worthless T-assets every year.

12 ( +12 / -0 )

In Japan, companies don’t belong to shareholders.

The concept of holding shares in companies was imported to Japan, and adopted to local culture, but like democracy, Japan doesn’t really “get it”.

I had funds in JP indices too, after initially being optimistic on the reform angle that Abe promised, but ditched it for S&P 500 several years back, but recently switched to plain global indices (ex-Japan) after Biden’s election and recent policy suggestions. The Congress is holding it up so I might not have jumped so soon, but anyway.

Not really impressed by leadership in any of the major economies today.

But Japan? Pfft.

The collusion with Nissan and the govt to get Ghosn, and then this… happy to live here, but happy to be fully invested overseas thanks.

6 ( +7 / -1 )

Nothing new.

1 ( +1 / -0 )

Old companies run by dinosaurs just can't compete anymore with newer more progressive companies. These dinosaurs, who don't know hardship, should just hand down the reigns to younger people.

Dinosaurs will crash and burn this country if we let them stay in the driver seat. One thing they didn't learn from their parents, who grew up during the war, is how to adapt to the changing world. Dinosaurs are the reason Japan is still stuck in the 80s.

4 ( +4 / -0 )

Now I expect J-prosecutors to act swiftly, arrest several suspect and keep them for months to prevent them from altering evidence!

9 ( +9 / -0 )

MarkToday 08:09 am JST

I don't know why Japanese firms continue to seek foreign investors ?? They should just do on there own if they are not willing to share power! You can't have it both ways, you either stand alone and stay local, or get foreign funds and share power.

Make up your mind.

Lol, that's been Japan's basic dilemma since St. Francis Xavier showed up in the 16th century

-1 ( +1 / -2 )

In the 1980s, the US government destroyed Toshiba's semiconductor division.

In 2013, it destroyed Als*om's nuclear division in France.

Currently, they are trying to destroy Hu*wei.

0 ( +2 / -2 )

Why is this not in the crime section and instead in the business section or is

it because it is business as usual.

Not surprised, bureaucrats work for J-inc and not the J-people.

My only surprise is that there are a lot of people even here who think government doesn't lie.

1 ( +2 / -1 )

In the 1980s, the US government destroyed Toshiba's semiconductor division.

Toshiba sold classified machine tooling and the necessary computer controls to the USSR from 1981-84. Toshiba falsified part numbers and model numbers on the equipment they sold to avoid export controls. I don't know if there is any truth to your claim that somehow the US government "destroyed Toshiba's semiconductor division". Such claims one reads on boards like this are usually either wildly exaggerated or outright false, but if indeed the US government did that then good for them. Those milling machines and other high tech computer controlled machines they sold them allowed the Soviets to make submarine propellers that were much quieter than anything the Soviet kludge could produce. It set western navies including the JMSDF back a decade in terms of the quietness advantage US and Japanese subs enjoyed over their Soviet counterparts. Soviet subs were much harder to detect afterwards. eeIt was at the time considered the greatest setback the west suffered at that point in the Cold War. Some of you weren't alive then but I was on the pointy end back then and remember it well. The Soviets had a lot of subs back then and ASW was serious business. JMSDF was and still is considered to be one of the best ASW forces in the world and the Toshiba affair became a serious point of contention between Japan and the US.

0 ( +1 / -1 )

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