Toyota is on track for an unprecedented showdown with investors next month after proxy advisers backed a shareholder challenge over climate policy and recommended a vote against Japan’s most powerful corporate executive.
The challenge to the country’s largest company by market capitalization illustrates what many investors see as big changes underway in Japan’s stock market as shareholders and the Tokyo Stock Exchange seek higher standards of governance.
In a report sent to investors last week, US proxy advisor Glass Lewis recommended that shareholders vote against Toyota’s reappointment as chairman of Akio Toyodathe grandson of the company’s founder and a figure widely tipped to be the future head of the powerful Japanese business lobby Keidanren.
Glass Lewis argued that Toyoda chaired a board that did not have enough independent directors. Toyoda stepped down as group chairman last month, but remains chairman of the board.
Meanwhile, another ISS proxy adviser recommended investors back a shareholder proposal submitted by AkademikerPension, a $20 billion Danish fund, and two other European asset managers seeking more information on the automaker’s climate lobbying efforts. Toyota’s board opposes it, saying the company has pledged to disclose information about its climate measures.
ISS also urged shareholders to vote against an auditor, warning that “the individual’s affiliation with the company could compromise their independence.”
Both reports were released last week ahead of Toyota’s annual shareholders’ meeting in mid-June – a brief period when around 80% of Japanese companies hold their annual meetings.
This year’s season is expected to present much greater challenges for established managements, investors said, noting that over the past month they’ve been the target of a massive charm offensive from the finance departments. investor relations with dozens of Japan’s largest companies.
In many briefings, people who attended said, companies focus on trying to steer investors away from a vote against CEOs or other prominent board members, as global funds introduce sweeping rules requiring them to punish companies that fail to address board diversity. and other governance issues.
The stakes have been raised significantly, people in the investor relations departments of three companies have said, after Canon chief and former Keidanren chief Fujio Mitarai received a weak 50.59% support during of its annual meeting in March. BlackRock, along with other big funds, said they did not support his reappointment due to concerns about the composition of Canon’s board, which currently has no female directors.
Other pressures are building up. Under the new leadership of Hiromi Yamaji, the JPX Group which controls the Tokyo Stock Exchange has urged listed Japanese companies to focus more on increasing their enterprise value and improving capital efficiency. Better governance, Yamaji said, is key to achieving this.
The Glass Lewis report on Toyotathe world’s largest automaker by sales, also pointed to its “excessively” large holdings in other listed companies – an example of the “cross-holding” phenomenon that many investors identify as a systemic problem for governance in the Japan.
At the end of March 2022, Toyota held about 3 trillion yen ($21 billion) of shares in other public companies as investment securities, which represents about 11.5% of the company’s net assets.
“Given the concerns raised about both general safety investment practices and cross-shareholding relationships in Japan, we are troubled by the size and extent of (Toyota’s) investments in other companies. public,” Glass Lewis wrote, although he added that the issue had not, at this stage, warranted a vote against some council members.
In response, Toyota said the number of cross-shareholdings fell from 200 at the end of March 2015 to 148 last year and that it plans to reduce them further.
Regarding board independence, the company said it has taken steps to increase diversity and reduce the number of directors. “We have no concerns about the objectivity, independence and ability to provide appropriate oversight as described in the Glass Lewis report,” he added.