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Toyota chair faces removal vote over governance issues

Toyota is on the right track for an unprecedented showdown with traders subsequent month after proxy advisers backed a shareholder problem on local weather coverage and beneficial a vote towards Japan’s strongest enterprise govt.

The problem to the nation’s largest firm by market capitalisation epitomises what many traders imagine are huge shifts below manner within the Japanese inventory market as shareholders and the Tokyo trade search larger governance requirements.

In a report despatched to traders final week, the US proxy adviser Glass Lewis beneficial that shareholders vote towards the reappointment as Toyota chair of Akio Toyoda, the grandson of the corporate’s founder and a determine extensively tipped to be a future head of Japan’s highly effective Keidanren enterprise foyer.

Glass Lewis argued that Toyoda had presided over a board that didn’t have sufficient impartial administrators. Toyoda stepped down because the group’s president final month however stays chair of the board.

In the meantime, one other proxy adviser ISS beneficial traders assist a shareholder proposal submitted by AkademikerPension, a $20bn Danish fund, and two different European asset managers searching for extra disclosure on the carmaker’s local weather lobbying efforts. Toyota’s board opposes this, saying the corporate is dedicated to disclosing data on its local weather measures.

ISS additionally urged shareholders to vote towards one statutory auditor, warning that the person’s “affiliation with the corporate may compromise independence”.

The 2 reviews had been printed final week forward of Toyota’s annual shareholder assembly in mid-June — a quick interval the place roughly 80 per cent of Japanese corporations maintain their annual conferences.

This 12 months’s season is predicted to current considerably higher challenges to entrenched managements, mentioned traders, who word that over the previous month they’ve been on the receiving finish of a large attraction offensive by the investor relations departments of dozens of Japan’s largest corporations.

In most of the briefings, mentioned individuals who have attended them, corporations are focusing their efforts on steering traders away from a vote towards chief executives or different distinguished board members as international funds introduce blanket guidelines obliging them to punish corporations that don’t deal with board range and different governance points.

The stakes have been raised considerably, mentioned folks inside the investor relations departments of three corporations, after the Canon chief and former Keidanren head Fujio Mitarai obtained a low 50.59 per cent assist at its annual assembly in March. BlackRock, together with different giant funds, mentioned it didn’t assist his reappointment over considerations concerning the composition of Canon’s board, which at the moment has no girls administrators.

Different pressures are constructing. Below the brand new management of Hiromi Yamaji, the JPX group that controls the Tokyo bourse has referred to as on listed Japanese corporations to commit themselves extra to elevating their company worth and bettering capital effectivity. Higher governance, Yamaji has indicated, is central to attaining that.

The Glass Lewis report on Toyota, the world’s largest carmaker by gross sales, additionally highlighted its “excessively” giant holdings of stakes in different listed corporations — an instance of the “cross-holding” phenomenon that many traders determine as a systemic downside for governance in Japan.

On the finish of March 2022, Toyota held roughly ¥3tn ($21bn) in shares of different public corporations as funding securities, representing roughly 11.5 per cent of the corporate’s internet belongings.

“Given the considerations raised concerning each common safety funding practices and cross-shareholding relationships in Japan, we’re troubled by the scale and extent of [Toyota’s] investments in different public corporations,” wrote Glass Lewis, although it added that the difficulty didn’t, at this stage, warrant a vote towards explicit board members.

In response, Toyota mentioned the variety of cross-shareholdings declined from 200 on the finish of March 2015 to 148 final 12 months and that it deliberate to scale back them additional.

Relating to the board’s independence, the corporate mentioned it had been taking steps to extend range and cut back the variety of administrators. “Now we have no considerations concerning the objectivity, independence, and skill to offer applicable supervision as described within the Glass Lewis report,” it added.