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Toshiba in turmoil

Toshiba colluded with government against investor, probe finds

Report says former CEO likely informed PM Suga about plans to block activist

Activist investors had pushed for an investigation into whether Toshiba applied pressure on shareholders over voting at last year's meeting.   © Reuters

TOKYO -- An independent investigation has found that Japanese government officials colluded with Toshiba in an attempt to prevent shareholders from exercising their voting rights at last year's annual general meeting.

The Japanese conglomerate released a report on Thursday which said Toshiba, together with officials from the Ministry of Economy, Trade and Industry, "devised a plan" to prevent Effissimo Capital Management, which holds 9.9% of Toshiba shares, from exercising its shareholder proposal at the AGM.

The 139-page report concluded that Toshiba's AGM was "not fairly managed." It deals a blow to Toshiba's management, and will likely amplify shareholders' calls for change at the company ahead of its annual shareholder meeting on June 25.

It also risks undermining Japan's efforts to improve corporate governance and poses questions about the country's willingness to accept investor activism.

The investigation, conducted by three lawyers, follows an extraordinary general meeting in March. At that meeting, a majority of Toshiba's shareholders voted in favor of an independent investigation into alleged voting irregularities at the company's AGM. Effissimo had called for the investigation.

At Toshiba's AGM in July 2020, Effissimo made a shareholder proposal to add three of its nominees to the Toshiba board. According to the investigation, Toshiba and METI officials tried to have the proposal withdrawn.

The report stated that Toshiba requested METI's support in dealing with its shareholders with hopes that "there would be some regulation or control of the company under the revised Foreign Exchange and Foreign Trade Act." The revised law, which came into effect on May 8, 2020, required investors acquiring stakes of 1% or more in companies deemed to be strategically important to notify the authorities in advance.

The probe also found that METI officials sent Toshiba written questions that listed possible questions and answers to "elicit gaffes" from Effissimo.

On May 11, Toshiba's then CEO Nobuaki Kurumatani attended a breakfast meeting at a hotel in Tokyo with Yoshihide Suga, who was chief cabinet secretary at the time and is now Japan's prime minister.

The report presumed that Kurumatani explained the contents of a "position paper" that outlined Toshiba's plan to "prevent" the shareholder proposals by "fully applying and operating the [revised foreign exchange act]."

In response to questions from reporters at the Prime Minister's Office following the report's release, Suga denied that he was given an explanation.

In a press conference by the three lawyers, one of them said they were not aware of the details of the conversation during the May 11 meeting. The lawyer also said they struggled to retrieve data from Kurumatani's mobile phone after he resigned on April 14 because the contents were deleted.

Toshiba and METI also worked in unison to persuade another shareholder, 3D Investment Partners, not to get involved in Effissimo's proposal, the report said. "If you are barbecuing next to your neighbor when there is a big fire, it may not be enough," a METI official told 3D, suggesting that the government might probe 3D if it voted in favor of Effissimo's proposal.

While there had been reports about Toshiba possibly interfering with Harvard Management Company's exercise of voting rights at the AGM, the report determined that "there is no evidence that Toshiba directly communicated with [a METI executive adviser]," regarding the exercise of voting rights at the AGM.

However, it also stated that based on the exchange of emails between Toshiba executives and METI officials, the investigation assessed that Toshiba, through a METI director, "effectively requested an executive adviser to the METI to negotiate with HMC" including the non-exercise of voting rights. The executive adviser is referred to as Mr. M, and a lawyer declined to identify the person when asked during the press conference.

The issue had been raised in May during a lower house committee meeting. "METI did not ask [the adviser] to influence a specific investor's vote," the head of the ministry's Commerce and Information Policy Bureau answered at the time, a statement inconsistent with the report.

A METI official identified in the report as being involved told Nikkei that the ministry had not asked the adviser to negotiate with Harvard Management but that Harvard Management had sought the advice of the adviser. "We will address the issue if Toshiba provides a briefing on the report," the METI official said.

Toshiba stated that the company will discuss and release its own response to the report at a later date.

In early April, Nikkei reported that investors including private equity fund CVC Capital Partners made a proposal to acquire Toshiba. A buyout would have given Toshiba an opportunity to end its relationship with activist investors. But CVC effectively canceled the bid after Kurumatani resigned.

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