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Lixil shareholders throw down gauntlet in leadership battle

Focus shifts to foreign and retail investors in move to replace CEO and COO

A Lixil Group director has joined British and American investors in calling for an extraordinary shareholder meeting. (Photo by Koji Uema) 

TOKYO -- A Lixil Group shareholder alliance has formally requested an extraordinary meeting aimed to eject the Japanese building materials supplier's top executives, it said Wednesday, shifting the spotlight to which side retail and foreign investors will take in the power struggle.

The U.K.'s Marathon Asset Management and Polar Capital, as well as U.S. asset managers Indus Capital Partners and Taiyo Pacific Partners, will press for Chairman and CEO Yoichiro Ushioda and Chief Operating Officer Hirokazu Yamanashi to be replaced before June's regular shareholder meeting.

Concerns over Lixil's corporate governance arose after the board installed Ushioda as CEO last fall, ousting Kinya Seto. Last month, a company probe found that Ushioda gave misleading statements on Seto's replacement. Ushioda claimed to have convened the board's nominating committee because Seto had indicated openness to the idea of stepping down, though Seto had no such desire. Ushioda also told Seto it would be difficult to overturn his dismissal, because it was based on the consensus of the nominating committee.

The investors were joined by Lixil Director Keiichiro Ina, a member of the founding family of group member Inax. Ina, who opposed Seto's removal at the October board meeting, said he endorsed the call for an extraordinary meeting after "hearing institutional investors' desire to correctly orient the company's governance."

Dimissing executives requires approval by just a simple majority at a shareholder meeting. As of September, about 40% of Lixil's shares were held by overseas stakeholders, including the more than 3% held by the dissident investors leading the charge. Retail investors controlled a roughly 17% stake, including Ushioda's roughly 3%.

Lixil's CEO Yoichiro Ushioda, right, and COO Hirokazu Yamanashi at a January earnings meeting. Some investors aim to oust both. (Photo by Yasuaki Takao)

Other overseas stakeholders may join Marathon and its peers. BlackRock, the world's largest asset manager, has demanded in a letter that Lixil explain its actions. How proxy advisory firms such as U.S.-based International Shareholder Services respond to the matter will also sway the outcome of any meeting.

Lixil projects that its net profit for the year ending this month will plunge 97% on the year to 1.5 billion yen ($13.5 million). If the power struggle at the top continues to dog management, it could prolong the bleeding on the earnings front.

Lixil will "respond appropriately after assessing the content of the documentation" sent by the shareholders, a representative said.

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