Effissimo Capital Management (“Effissimo”), the largest shareholder of Toshiba Corporation (“Toshiba”) (TYO:6502) through the funds it manages, today released a presentation explaining the reasons behind its proposal for an independent investigation into reported irregularities surrounding Toshiba’s July 2020 Annual General Meeting of Shareholders (“AGM”). Effissimo’s proposal will be voted on by Toshiba’s shareholders at an extraordinary shareholders meeting scheduled for March 18, 2021.
The full proposal in English can be found here.
Supplementing its letter to shareholders dated February 24, 2021, Effissimo’s presentation explains its proposal for an independent investigation into the irregular handling of shareholder voting and shareholder pressure at the closely contested AGM, which Toshiba’s conflicted Audit Committee’s self-audit fails to address.
The presentation provides data showing discrepancies in the claimed delivery times of mailed ballots said by Toshiba’s vote tabulator to have been delivered past the AGM deadline and not counted. It also examines the artificially limited scope and conclusions of Toshiba’s Audit Committee’s investigations into shareholder pressure and vote tampering allegations.
Finally, the presentation provides a detailed historical context of chronic governance and oversight dysfunction at Toshiba that has persisted despite the installation of new management in 2017.
Vote Delivery & Tabulation
- Inexplicable Delay in Ballot Delivery: Effissimo’s own field tests and review of other Japanese companies’ AGMs confirm Japan Post, in accordance with its own service guidelines, normally takes at most three days to deliver domestic mail. But Toshiba’s vote tabulator insists that it took four days, in breach of Postal Law, for ballots to be delivered.
- Uncounted Ballots: There are still nearly 1,000—but possibly more than 1,600—additionally reported ballots that have yet to be audited by the Audit Committee due to claims they were delivered too late to be counted. These ballots should have ordinarily arrived prior to the vote deadline, absent the inexplicable delay in ballot delivery.
- Treatment of Blank Ballots: Mailed ballots made up more than one-third of Toshiba’s quorum at the AGM – a substantial portion of shareholder participation. Roughly 17% of ballots were blank, which Toshiba treated as favorable to management. While lawful, this is clearly an anti-dissident practice that Toshiba could have abandoned after a shareholder proposal in this regard back in 2015.
- Decline in Shareholder Participation: In a closely contested vote that attracted intense interest and attention, participation at the AGM declined by three percentage points year-over-year, providing grounds for suspicion that voter suppression in fact occurred.
- Multiple Institutional Investors Absent from AGM: Credible media outlets have reported that shareholders were “pressured” and/or “threatened” with a probe if they voted against Toshiba management. Toshiba’s voting records indicate that some institutional shareholders that normally vote as a matter of course did not vote at the AGM. Effissimo’s confidential survey confirmed that multiple shareholders were pressured.
Although it may appear complex, the heart of issue is simple. Effissimo believes there should be an independent investigation as opposed to a self-audit by a conflicted Audit Committee.
The Audit Committee, chaired by a director whose reappointment was opposed by more than 40 percent of shareholders at the AGM, is conflicted and is naturally reticent to conduct an uninhibited investigation of possible wrongdoing at the AGM. This conflict manifests itself in the Audit Committee’s reviews and investigations, which we suspect are deliberately limited in scope at the outset to produce a pre-determined result.
The right to vote is what is at stake. Shareholders must not passively accept the Board’s explanations at face value and allow the status quo of weak governance to persist. Failure to perform a thorough and independent investigation will set a harmful precedent not only for Toshiba but also for corporate Japan as a whole.