Toyota is on course 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 capitalisation epitomises what many investors believe are big shifts under way in the Japanese stock market as shareholders and the Tokyo exchange seek higher governance standards.
In a report sent to investors last week, the US proxy adviser Glass Lewis recommended that shareholders vote against the reappointment as Toyota chair of Akio Toyoda, the grandson of the company’s founder and a figure widely tipped to be a future head of Japan’s powerful Keidanren business lobby.
Glass Lewis argued that Toyoda had presided over a board that did not have enough independent directors. Toyoda stepped down as the group’s president last month but remains chair of the board.
Meanwhile, another proxy adviser ISS recommended investors support a shareholder proposal submitted by AkademikerPension, a $20bn 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.
ISS also urged shareholders to vote against one statutory auditor, warning that the individual’s “affiliation with the company could compromise independence”.
The two reports were published last week ahead of Toyota’s annual shareholder meeting in mid-June — a brief period where roughly 80 per cent of Japanese companies hold their annual meetings.
This year’s season is expected to present significantly greater challenges to entrenched managements, said investors, who note that over the past month they have been on the receiving end of a massive charm offensive by the investor relations departments of dozens of Japan’s largest companies.
In many of the briefings, said people who have attended them, companies are focusing their efforts on steering investors away from a vote against chief executives or other prominent board members as global funds introduce blanket rules obliging them to punish companies that do not address board diversity and other governance issues.
The stakes have been raised significantly, said people within the investor relations departments of three companies, after the Canon chief and former Keidanren head Fujio Mitarai received a low 50.59 per cent support at its annual meeting in March. BlackRock, along with other large funds, said it did not support his reappointment over concerns about the composition of Canon’s board, which currently has no women directors.
Other pressures are building. Under the new leadership of Hiromi Yamaji, the JPX group that controls the Tokyo bourse has called on listed Japanese companies to devote themselves more to raising their corporate value and improving capital efficiency. Better governance, Yamaji has indicated, is central to achieving that.
The Glass Lewis report on Toyota, the world’s biggest carmaker by sales, also highlighted its “excessively” large holdings of stakes in other listed companies — an example of the “cross-holding” phenomenon that many investors identify as a systemic problem for governance in Japan.
At the end of March 2022, Toyota held roughly ¥3tn ($21bn) in shares of other public companies as investment securities, representing approximately 11.5 per cent of the company’s net assets.
“Given the concerns raised regarding both general security investment practices and cross-shareholding relationships in Japan, we are troubled by the size and extent of [Toyota’s] investments in other public companies,” wrote Glass Lewis, though it added that the issue did not, at this stage, warrant a vote against particular board members.
In response, Toyota said the number of cross-shareholdings declined from 200 at the end of March 2015 to 148 last year and that it planned to reduce them further.
Regarding the board’s independence, the company said it had been taking steps to increase diversity and reduce the number of directors. “We have no concerns about the objectivity, independence, and ability to provide appropriate supervision as described in the Glass Lewis report,” it added.