Toshiba Corp. (TOSYY, Financial) announced on Sunday a major shuffle of its board of directors after an emergency board meeting was called due to the release of a scathing independent report.
Senior vice president Masayasu Toyohara and managing director Masaharu Kamo will retire from their positions as executive officers. Audit committee chair Junji Ota and audit committee member Takashi Yamauchi have both been removed from their recent nomination to the board and will also retire according to Toshiba's press release.
The independent report, commissioned by shareholders, was voted for in March to investigate shareholder allegations that the company had placed pressure on shareholders to vote alongside the company. The report also linked Japan’s Ministry of Economy, Trade and Industry (METI) and the current prime minister Yoshihide Suga to the allegations.
Led by a team of lawyers, the independent report concluded that Toshiba’s board had worked with the Japanese government in order to place pressure on shareholders to vote with company sentiment prior to the company’s Annual General Meeting in 2020.
The report details multiple exchanges between the company and Japan’s METI strategizing different ways that activist shareholders could be influenced to vote alongside the board of directors and avoid collaboration amongst the shareholders. The exchanges highlight the METI’s conclusion that Toshiba is critical to Japan’s national security and economy due to its nuclear and defence manufacturing and must be protected.
The METI also raised concerns that dissent between shareholders and the company could result in “theatrical” and “sensational” media coverage. Their communication with Toshiba began shortly after major shareholders 3D Investment Management and Effissimo Capital Management proposed changes to the board of directors.
Japan’s METI specifically reached out to 3D warning the activist fund to not vote alongside Effissimo at the upcoming meeting. It was suggested that the fund would come under new regulation and enforcement should they vote against the company. Once the METI had forced the shareholders into submission the executives planned to offer up a compliance committee in place of any new director candidates.
Alongside the foreign shareholders, Harvard University’s Endowment fund came under fire after becoming increasingly “difficult” to deal with in the months preceding the meeting. Come the voting period, Harvard abstained to avoid any regulatory probes for going against the company.
On Monday, Institutional Shareholder Services Inc. put forth a call that board chairman Osamu Nagayama should also step down from his position. Nagayama apologized for the situation during a press conference, but refused to step down saying “I want to focus on fulfilling the duties that must be fulfilled.”
On June 14, Toshiba's (TOSYY, Financial) stock was trading at $21.47 per share, up 2.47% on the news, with a market cap of $19.78 billion. According to the GF Value Line, the shares are trading at a significantly overvalued rating.
GuruFocus gives the company a financial strength rating of 6 out of 10, a profitability rank of 5 out of 10 and a valuation rank of 2 out of 10. There is currently one severe warning sign issued for declining revenue per share. The company’s cash-to-debt ratio of 0.97 ranks it worse than 54.39% of the industrial products industry and an Altman Z-Score of 2.32 places in the grey zone implying there is some financial stress.
