William Pesek is an award-winning Tokyo-based journalist and author of “Japanization: What the World Can Learn from Japan’s Lost Decades”.
Japan undoubtedly invented the modern idea of the “lost decade”. This created a cottage industry of analysts distilling the lessons of the paralysis and missed opportunities that held back Tokyo.
Still, the latest Toshiba scandal suggests that Japan needs a serious refresher course.
Not to dwell on the decade angle, but the controversy over Toshiba bullying an overseas hedge fund with government help gives me a bad case of Olympus on my brain.
2011 was a terrible year for Japanese corporate governance. The $ 1.7 billion Olympus fraud fiasco won over global media in part because of its scale, in part because a non-Japanese CEO – the rarest of the hybrids – was at the heart of the story.
Michael Woodford was not responsible for the fraud, which began long before he was handed the reins in 2011. The British national also didn’t need to shoot a Carlos Ghosn and run away. But Woodford did something extraordinary: he blew the whistle at Olympus.
Oddly enough, the company’s board seemed more upset with Woodford’s IPO than with the malfeasance itself. He was shown the door and claimed to have received death threats. The controversy arose just as Tokyo Electric Power Co. Holdings was in the hot seat for the security failures that led to the radiation crisis in Fukushima.
It is no coincidence that Shinzo Abe rose to the post of prime minister in 2012 on a platform promising corporate change. His measures to increase return on equity, increase the number of foreign directors and give voice to shareholders clearly seemed political victories. By the time he stepped down in September 2020, the Nikkei Stock Average was flirting with 30-year highs.
Enter Toshiba, reminding us that the ways of ancient Japan thrived below the surface from the start.
Recall that Toshiba has been the subject of an accounting scandal in recent years and came close to bankruptcy in 2017. The bulk of the latest mess: a 145-year-old conglomerate has agreed with government officials to block activist investors. At its center was an application from Effissimo Capital Management, based in Singapore.
At the July 2020 Annual General Meeting, or AGM, Toshiba management succeeded in blocking proposals to add outside directors to the board. It would have seemed like an obvious “yes”. Board diversity is the most fundamental tenet of good governance, something Team Abe has encouraged, at least rhetorically.
This never really pleased Effissimo, Toshiba’s largest shareholder, who also opposed what he saw as opaque voting dynamics. A new 139-page report details how Toshiba allegedly called on government allies to influence that vote.
There is an argument that this report, released by three independent investigators elected by Toshiba shareholders, is indeed progress – a rare justification for a foreign activist hedge fund.
As Woodford told Reuters last week: “This time around, the hope that things can really change is that a shareholder-commissioned investigation by outside lawyers was explicit in its findings. and that these in fact saw the light of day. “
Fair enough. Until you think about the way the wagons turn in Tokyo. Toshiba’s chairman of the board, Osamu Nagayama, refuses to resign. Worse yet, Abe’s successor Yoshihide Suga, who was chief secretary to the cabinet at the time, is all deviating and defensive about what he knew and when he knew it.
Lawyers investigating Toshiba say they scanned 778,000 emails and attachments, finding nine locations where it worked “in unison” with the Commerce Ministry that Abe and Suga oversaw. Suga met Toshiba CEO Nobuaki Kurumatani ahead of the AGM. Impressive that he has found the time, given the pandemic ravaging the economy – Suga denies any knowledge of Toshiba’s project.
You will also be shocked, shocked to learn that Minister of Industry Hiroshi Kajiyama claims that there is nothing to see here. Or, in his own words: “No problem, no need to investigate the Toshiba scandal.”
So here we have it: a lost decade of supposedly daring retooling. A report by analyst Nicholas Smith of CLSA Securities sums up the problem: a bull market this year of poison pills and aggressive efforts to schedule overlapping AGMs. Activists can’t be in two places at the same time, can they?
“The cars remain surrounded, with 82% of AGMs in a single week and 85% of companies not allowing virtual attendance,” Smith said. And since COVID-19 makes international travel difficult, nothing less. It is not a coincidence.
All of this highlights why Tokyo is chasing the Olympics during a pandemic that has already killed 3.84 million people, despite widespread public disapproval. If you think of Japan’s 126 million people as shareholders, Suga’s government treats its largely unvaccinated masses the same way Toshiba treats investors. Or Olympus and Tepco before him.
In 2014, Toshiba was named one of the 400 companies Tokyo considered to be the best managed in the country. Three years later, the need to cut costs prompted Toshiba to remove its logo from the One Times Square building, from which the giant ball descends every New Year’s Eve. Toshiba’s name dominated New York’s most iconic intersection. York since, you guessed it, a decade.
Now the only thing Toshiba can claim to be the best is to remind the world that Japan Inc. is still not responding to anyone. And, in some ways, remains as lost as ever.