Japan government contacted Toshiba shareholders before AGM

TOKYO – Japan’s government contacted several foreign shareholders in Toshiba Corp <6502.T> ahead of the conglomerate’s annual meeting, three people familiar with the matter said, in what at least one investor saw as an attempt to influence voting.
The revelations raise further questions about interference in governance at Toshiba, following calls for an investigation into uncounted votes at the contentious July 31 shareholder meeting.
Representatives of the powerful Ministry of Economy, Trade and Industry (METI) called at least three funds ahead of the meeting to inquire if they had collaborated with other investors, two of the people said.
The ministry was particularly focused on whether the funds collaborated with Toshiba’s top shareholder, Effissimo Capital Management, communication that could violate rules preventing shareholders from “acting in concert”, the two people said.
One of the funds interpreted METI’s questioning as a signal to back Toshiba’s management and not investor proposals at the meeting, one of the sources said. Foreign shareholders had proposed electing some new directors to the board, something management had opposed.
The sources declined to be identified because the information is not public.
METI declined to comment when contacted by Reuters, calling the allegations “rumours”.
A representative for Effissimo said the fund could not comment. A Toshiba spokeswoman said the company would not comment on speculation.
Reuters reported this month that about 1,300 postal voting forms went uncounted at the meeting.
Last month, a major investor called for an investigation, saying its vote had not been recognised.
Reuters previously reported activist fund Effissimo was kept in limbo by the government over its vote until the day before the gathering.
Together, the revelations have deepened concerns about the treatment of minority shareholders and what appears to be a retreat from the push for better governance in recent years.

Singapore-based Effissimo, which owned around 15% of Toshiba but has since scaled that back to around 10%, had nominated three candidates to the Toshiba board. Effissimo has said Toshiba’s governance has not improved since a 2015 accounting scandal.
Under Japanese regulations, shareholders deemed to be “acting in concert” can be required to submit ownership disclosure filings or, in some cases, can be charged with insider trading.
METI used a similar approach with several foreign shareholders last year, when U.S. hedge fund King Street Capital Management sought to replace a majority of the Toshiba board, according to one of the sources and another person.
King Street declined to comment.
Investors have often complained about what they say is ambiguity in the regulations. Some investors and experts also say the regulations prevent shareholders from working together to improve governance at companies.
In 2017, when Japanese regulators revised the code, one of the public comments submitted to regulators complained the government failed to give investors assurance they could collectively engage with companies without infringing on regulations.
Nicholas Benes, head of the Board Director Training Institute of Japan and an expert on governance, said Japanese regulators should come up with “safe harbour” criteria, similar to those in Britain, that prohibit use of insider information but allow investors to make joint recommendations to companies.
Toshiba has been under pressure from activist funds since it sold 600 billion yen ($5.6 billion) of stock to dozens of foreign hedge funds during a crisis stemming from the bankruptcy of its U.S. nuclear power unit in 2017.
At the meeting, Toshiba CEO Nobuaki Kurumatani saw a precipitous slide in his support to just 58% from 99% a year earlier – a rare rebuke of a Japan Inc chief executive. REUTERS

Lohit Soundarajan

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