Toyota chair faces expulsion vote over governance issues

Toyota is set for an unprecedented showdown with investors next month after proxy advisers backed a shareholder challenge on climate policy and recommended a vote against Japan’s most powerful business executive.

The challenge to the country’s largest company by market capitalization is emblematic of what many investors believe are major changes underway in the Japanese stock market as shareholders and the Tokyo Exchange seek higher governance standards.

In a report sent to investors last week, US proxy advisor Glass Lewis recommended that shareholders vote against the reappointment of Akio Toyoda, the grandson of the company’s founder, as Toyota chairman and is widely concerned about the future of Japan’s powerful Keidanren business. Estimated to be major. Lobby.

Glass Lewis argued that Toyoda chaired a board that did not have enough independent directors. Toyoda stepped down as chairman of the group last month but remains chairman of the board.

Meanwhile, another proxy advisory ISS recommended investors support a shareholder resolution by AcademicPension, the $20 billion Danish fund, and two other European asset managers seeking more disclosure on the carmaker’s climate lobbying efforts. Toyota’s board opposes this, saying the company is committed to disclosing information on its climate measures.

The ISS urged shareholders to vote against a statutory auditor, warning that the person’s “affiliation with the company may compromise independence”.

The two reports were published last week ahead of Toyota’s annual shareholder meeting in mid-June — a brief period when about 80 percent of Japanese companies hold their annual meetings.

This year’s season is expected to present notably greater challenges for established managements, investors said, noting that over the past month they have been the victims of massive wooing by the investor relations departments of dozens of Japan’s biggest companies. Has happened.

In several briefings, people who have attended said, companies are focusing their efforts on dissuading investors from a vote against chief executive officers or other key board members as global funds introduce blanket rules that protect those companies. Boards that do not address diversity are bound to be penalized. and other governance issues.

People in the investor relations departments of the three companies said the stake has swelled significantly, with Canon head and former Keidanren chief Fujio Mitarai receiving a low 50.59 percent support at its annual meeting in March. BlackRock, along with other large funds, said it does not support her reappointment over concerns about the composition of Canon’s board, which currently has no female directors.

Other pressures are building. Under the new leadership of Hiromi Yamaji, the JPX group which controls the Tokyo Exchange has called on listed Japanese companies to dedicate themselves to boosting their corporate value and improving capital efficiency. Better governance, as indicated by Yamaji, is central to achieving that.

A Glass Lewis report on Toyota, the world’s biggest carmaker by sales, also highlighted its “extremely” large holdings in other listed companies – an example of the “cross-holding” phenomenon that many investors consider a systemic problem of governance. recognize as. Japan.

At the end of March 2022, Toyota held roughly ¥3tn ($21bn) in shares of other public companies as investment securities, representing about 11.5 percent of the company’s net assets.

Glass Lewis wrote, “Given the concerns raised about both general security investment practices in Japan and cross-shareholding relationships, we are troubled by the size and extent of (Toyota’s) investments in other public companies.” , at this stage, warrants a vote against particular members of the board.

In response, Toyota said the number of cross-shareholdings had dropped from 200 at the end of March 2015 to 148 last year, and that it planned to reduce them further.

On board independence, the company said it is taking steps to increase diversity and reduce the number of directors. “We have no concerns about the objectivity, independence and ability to provide appropriate oversight as described in the Glass Lewis report.”