Toshiba’s Shareholder Revolt Is Japan’s Too

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Toshiba’s chairman was ousted in a vote at the company’s annual meeting in Tokyo on Friday, a milestone in Japanese shareholder activism.



Photo:

Katsuya Miyagawa/Associated Press

Shareholders have scored a rare upset victory at Japan’s venerable electronics firm

Toshiba.

TOSYY 0.18%

This could be a pivotal moment for the country’s corporate governance.

Toshiba’s shareholders voted against the re-election of chairman

Osamu Nagayama

at the company’s annual meeting Friday. They have sent a clear message to management that the 146-year-old Japanese industrial icon needs a fresh start after years of scandals.

A shareholder-commissioned report released June 10 done by outside lawyers found that some of the company’s management and directors colluded with government officials to prevent foreign investors from exercising their rights. Singapore-based hedge fund Effissimo Capital, Toshiba’s top shareholder, failed to put its own candidates into the board at the shareholders’ meeting last year. Toshiba’s investors agreed in March to conduct an independent probe into the matter leading up to last year’s vote.

Toshiba has already said two executives and two directors would resign after the revelations, but today’s vote means shareholders aren’t happy with just halfhearted, piecemeal reform. Foreign investors make up half of Toshiba’s shareholder base. Recommendations from proxy advisers Institutional Shareholder Services and Glass Lewis to vote against Mr. Nagayama probably helped to garner votes too.

Toshiba’s management can no longer ignore the voices of its activist shareholders. The latter will probably be able to force their own candidates onto the board if the company keeps refusing to listen.

One key demand is that Toshiba be open to bids from private-equity firms and other potential suitors. There would be no shortage of interest: Toshiba is a classic example of a private-equity target. A big chunk of its value comes from its 40% stake in Kioxia, the memory-chip business that is looking for an initial public offering. The rest of the company is a mishmash of businesses from elevators to sewerage systems, which could become quite valuable if they were better managed. Toshiba’s shares have gained 69% this year—one of the best performances in recent years—as investors hope the current scandal will force management to boost the company’s value, including potentially through an eventual sale.

Toshiba should take the latest crisis as a chance to end all previous crises once and for all.

Write to Jacky Wong at jacky.wong@wsj.com

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