Toshiba engulfed by scandal again — and the prime minister is implicated

Company conspired with government to make life hard for activist foreign investors


Japanese industrial giant Toshiba is attempting to recover from its third major corporate governance scandal in six years — and this time the nation's prime minister is alleged to have played a part.

Toshiba’s first big mess was the 2015 accountancy scandal in which it admitted to over-stating revenue by $1.2 billion. Next came a mess at Toshiba’s US-based nuclear power plant business, which went so far over budget on some projects that the company had to sell its NAND flash chip joint venture with Western Digital to raise desperately needed cash.

We view the current Board to be ineffective.

Those two messes saw Toshiba pledge to improve its corporate governance. Ahead of the company’s 2020 annual general meeting, activist investors sought to accelerate that change by proposing the election of new officers untainted by the company’s troubles.

That effort failed, and one of the activist investors — Singaporean fund management company Effissimo capital management — smelled a rat. It sought to investigate what it thought were irregularities in the way the meeting was conducted.

Toshiba’s report from that investigation was released ten days ago, and its findings [PDF] include an explosive account of Toshiba and Japan’s Ministry of Economy, Trade and Industry conspiring to “beat up” Effissimo by threatening to act under Japan’s foreign investment laws, before suggesting new governance-related appointments that suited Toshiba more than Effissimo.

The investigation also alleges that Japanese Prime Minister Yoshihide Suga was aware of the plan to use the Ministry to stymie Effissimo.

Suga was a cabinet secretary at the time of the alleged plotting, but was appointed Prime Minister in part due to his reputation as a cleanskin. News of his involvement in Toshiba’s dealings rather changes that perception.

The allegations of collusion between Toshiba and Japan’s government came as the nation’s opposition sought a vote of no confidence in the government. While that move was primarily motivated by the government’s poor management of the COVID-19 pandemic, broader issues of government accountability were another element of opposition complaints.

The no confidence vote did not eventuate, but ministers have since defended their role in the Toshiba scandal and PM Suga has since dropped heavy hints about a snap election.

Toshiba, meanwhile, promised to remove two of the three members of its audit committee.

Effissimo has shot back that the move is not enough, labelling the decision “a reminder that [Toshiba] is unwilling to hold the Board members accountable.”

“This latest reactive move does nothing more but add to the list of unresolved governance and compliance shortcomings at Toshiba that its Board continues to not remedy. Therefore, we view the current Board to be ineffective.”

Effissimo will fight on to improve governance at Toshiba. ®

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