TOKYO -- Sumitomo Mitsui Trust Bank failed to count some shareholder votes ahead of the annual meetings for Toshiba and about 1,000 other companies this summer, in a pattern of errors that has persisted for two decades without the knowledge of client businesses or their investors.
The mishandling of ballots cast by mail raises concerns about stockholder rights and the integrity of corporate resolutions. It also spotlights corporate Japan's stubborn reluctance to move paper documents online.
The bank performs administrative work for the shareholder meetings of public companies on behalf of clients. The Sumitomo Mitsui Trust Holdings subsidiary delegates ballot tabulation to group company Japan Stockholders Data Service.
To handle a flood of mail-in ballots during shareholder meeting season, Japan Stockholders Data Service arranges to receive voting cards one day earlier than their normal postal delivery. This means ballots that would arrive the day after a deadline are received in time. But the company excluded these from tabulation.
Japan's Civil Code stipulates that an indication of intention becomes effective when it arrives at the receiving party. Sumitomo Mitsui Trust acknowledges that voiding ballots that were received in time was inappropriate. The bank plans to hold a news conference soon to discuss the problem.
Japan Stockholders Data Service is a 50-50 joint venture with Mizuho Trust & Banking, and the Mizuho Financial Group unit also uses the company for ballot tallies. Pressure is expected for the two banks to address their accountability, as they are part of the three major trust banks that handle shareholder meeting paperwork for a majority of Japan's public companies.
The issue came to light after an investigation sparked by a shareholder activist. The Singapore-based, Japan-oriented fund 3D Investment Partners noticed that its voting rights card for Toshiba had been received by Sumitomo Mitsui Trust on July 30, the last day for mail-in voting, but was classified as invalid at the industrial group's shareholders meeting the following day.
Toshiba said ballots deemed void, including the one from 3D Investment Partners, accounted for just 1.3% of all voting rights. Those ballots would not have changed the outcome of the resolutions, including the appointment of President and CEO Nobuaki Kurumatani as a board member, which received 58% support, the company said.
An examination by Sumitomo Mitsui Trust has found no case of its ballot mishandling affecting the resolutions at roughly 1,000 other companies covered by the special postal delivery arrangement.
Public companies are required to disclose records of the exercise of voting rights, and businesses that made tabulation mistakes will need to correct them. Sumitomo Mitsui Trust plans to cover the cost of affected clients.
The erroneous processing highlights Japan's stubborn paperwork culture. Institutional investors in the U.S. and the U.K. used electronic shareholder voting for more than 90% of cases in 2017. The figure was a mere 14% in Japan.