Toshiba shareholders remove chairman Osamu Nagayamaover alleged government collusion

The company grappled for years with scandal and allegations of shoddy management

Toshiba Corp. Board of Directors Chairperson Osamu Nagayama attends a news conference in Tokyo Japan June 14, 2021, in this handout photo taken and released by Toshiba Corporation. Toshiba Corporation/Handout via REUTERS THIS IMAGE HAS BEEN SUPPLIED BY A THIRD PARTY. MANDATORY CREDIT. NO RESALES. NO ARCHIVES.
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Toshiba shareholders voted to oust chairman of the board Osamu Nagayama, a rare victory for activist investors that will worsen the turmoil at an iconic nuclear-to-electronics conglomerate that’s grappled for years with scandal and allegations of shoddy management.

The surprise decision on Mr Nagayama, the 74-year-old outside director some investors opposed publicly, came after a contentious meeting with shareholders that extended for nearly three hours. His departure marks a high point in the months-long campaign by largest shareholder Effissimo Capital Management to probe the company’s governance. An investigation prompted by its efforts uncovered alleged collusion with senior Japanese government officials to influence last year’s board selection.

Toshiba’s shares erased losses and traded as much as 1.7 per cent higher in Tokyo after the vote.

Ahead of the decision, Toshiba chief executive Satoshi Tsunakawa, who stepped into the post recently after the departure of under-pressure former leader Nobuaki Kurumatani, endorsed Mr Nagayama’s handling of the current crisis and reiterated his faith in the board chair. Investors were not convinced that enough was being done to address the serious allegations levied against the company and several of them voiced passionate critiques during the Friday meeting.

“Given Toshiba’s stature as a blue-chip company and the seniority of the government officials and management involved, the vote is a message from domestic investors that malfeasance and shareholder oppression is a matter of the past and will no longer be tolerated,” said Justin Tang, head of Asia research at United First Partners in Singapore. “This result is a sign of a paradigm shift in Japan and will only embolden activist investors whether foreign or domestic.”

Mr Nagayama, a former chairman of Chugai Pharmaceutical who also served as an outside director for Sony Group has said repeatedly his wish was to take responsibility by resolving the crisis. Toshiba will also start looking for candidates to fill other vacant seats on the board. It decided against nominating two current board members after the report.

Once a storied name in Japan, Toshiba has faded dramatically since its glory days after years of management missteps. It paid a record fine in an accounting scandal and then lost billions on a bungled foray into nuclear power. The conglomerate invented flash memory three decades ago, but was forced to sell most of its prized chip business in 2018 because of losses in its nuclear-power operation. That deal led to an infusion of cash - but also a large contingent of more vocal shareholders.

Toshiba’s board will meet later on Friday to discuss electing a new chairperson.

“The denial of Nagayama was inevitable because he failed to show what exactly he can do as a chair to improve the company’s deteriorated governance,” said Hideki Yasuda, an analyst at Ace Research Institute. “A real tough time is ahead for CEO Tsunakawa because finding people for vacant seats will likely be extremely difficult.”

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