Editorial: Gov't pressure on Toshiba shareholders warps corporate governance

Following an investigation by a group of external lawyers, suspicions have emerged that Japan's Ministry of Economy, Trade and Industry (METI) exerted pressure on certain shareholders of industrial giant Toshiba Corp.

Ahead of a general meeting of shareholders last year, the ministry allegedly worked to discourage shareholders from submitting a motion and exercising their voting rights.

If the suspicions are true, it means the government acted in a way to warp corporate governance. The ministry and Toshiba must confirm the facts, and provide an explanation that makes sense to investors.

The probe was conducted following a request by Effissimo Capital Management Pte. Ltd., Toshiba's top shareholder.

Effissimo, known as an outspoken shareholder, had been preparing to submit a motion opposing the reappointment of then Toshiba President Nobuaki Kurumatani, and calling for the appointment of four external board members.

The response of Toshiba and the ministry to the hedge fund's move was seen as problematic.

A section head at the ministry who was approached by Toshiba is said to have urged Effissimo to reconsider its decision, hinting that the ministry's powers under the Foreign Exchange and Foreign Trade Act, which regulates the influence of overseas shareholders, could be invoked.

Email correspondence that Toshiba's senior officials are said to have exchanged at the time are said to contain references to having "METI hit them (Effissimo)," and state that "the main player is the economy ministry."

The foreign exchange law restricts foreign investment in Japanese companies with ties to national security. Toshiba is involved in nuclear power and defense, and it is necessary for the government to be aware of the actions of investors. But in the latest case, it is possible that METI worked to eliminate a motion that ran counter to the will of management as a measure to deal with the shareholders' meeting. If the law were used as an excuse for that, it would undermine trust in government administration.

The reason relations between Toshiba and investors deteriorated in the first place was because of a scandal at a subsidiary and poor business performance. The proper way to go is to implement measures to prevent a recurrence and present a path for growth to win understanding from shareholders.

A report pointed to suspicions that a senior Toshiba official met with Prime Minister Yoshihide Suga when Suga was serving as chief Cabinet secretary, and explained the background. If Toshiba thought that it could contain investors by relying on political influence, it would be an unforgivable act for a listed company.

Toshiba has undertaken industrial and energy policy advanced by METI, and it appears that this relationship may have led to mutual back-scratching between Toshiba and the ministry. A proper investigation to clear away the concerns of investors and the public is indispensable.