At noon last Thursday, my phone was bubbling over with texts from Toshiba’s effervescent investor ledger. Minutes earlier, on March 18, they had triumphed in what not long ago would have been a fantastic showdown with the conglomerate’s management, winning for the first time a motion proposed by shareholders in a big way. Japanese company.
The tone of celebration after shareholders humiliated Toshiba for summoning an independent panel to investigate voting irregularities at last year’s AGM ranged from caution to punch. But everyone (Japanese and foreign, large and small) agreed that a balance long tilted towards business had been reversed and that rights had, finally, been rightly claimed.
The significance of what is happening with a name known as Toshiba is enormous, as is the fact that the world’s big funds – Norges Bank, California Public Employees’ Retirement System and others – voted with the activist. A vulnerability in managerial thinking has been exposed, not only for this struggling industrial icon, but for much of Japanese companies and, according to some texts that day, for other stock markets in the region. We sent a message, sparkling one, “about who actually owns a listed company in Asia.”
Toshiba’s extraordinary – and still unresolved – business highlights a visibly changing environment. Track long-term trends in shareholder activism noted a year ago the sharp increase in campaigns in Asia, from 5% of global activity in 2013 to 13% in 2020, with South Korean and Singaporean companies becoming targets. Hong Kong, despite its size as a market, is still a minnow in activism. Japan has become the world’s second largest market for activist events after the United States last year, according to broker CLSA. Recovery from pandemic lull has good momentum, noted research firm Activist Insight in his last investigation, after having declined less in Asia than elsewhere.
Among the attractions, say activists who have launched campaigns in the region, is that companies have the softness you expect from long-term non-threat. They also tend to be less mentally reinforced against shareholder rigor than companies in the US or UK. Another is the tailwind of the ESG investment boom and the legitimized lexicon of criticism it provides. And there was the surprisingly powerful framework of rights that shareholders of Japanese companies have held for a long time but, for complex reasons, have felt unable to exercise until now.
This is spreading, not least because large Asian government pension funds are more heavily invested in their domestic stock markets. The South Korean National Assembly recently passed a trade code amendment that significantly strengthens the rights of minority shareholders, and which Nomura analysts say would encourage activists to seek to influence management policy more aggressively.
But the Toshiba episode transcends that. The company’s particular vulnerability to activism is the result of its desperation to stay listed at all costs. In 2015, Toshiba was caught in a major accounting fraud, followed by a debilitating collapse of its US nuclear business and the financial crisis. He was demoted from the first section of the Tokyo Stock Exchange and was on the verge of full delisting until Goldman Sachs intervened with an emergency issue of $ 5.4 billion in new shares. The price for this transaction (in addition to the fees charged by Goldman) was a redesigned shareholder register with a hard credo that listed companies own and are accountable to their owners.
Companies in Japan, South Korea, Hong Kong and elsewhere in the region have been allowed to forget the harshness of this purist version of shareholder capitalism. This is due to large blocs of submissive investors, cross-shareholding networks, or a reassurance that a soft-focused local version of shareholder capitalism applies.
Toshiba could very easily have given its largest shareholder, Effissimo, the independent inquiry he requested without the humiliation of an extraordinary general meeting, a failed anti-activist campaign by Goldman Sachs and a vote that united activists and the most let it go investors against management. But, at its heart, it is a company that cannot accept the idea of being pushed around by its owners. For most of its existence Toshiba could have gotten away with it, but it misjudged times, which cost it dearly. His intransigence gave the most visible success ever to exercising shareholder rights, inadvertently setting a roadmap that investors across Asia can now choose to follow.
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