Toshiba: “Beat Them Up”

 

Toshiba Corp and Japan’s Government colluded to bring foreign investors to heel. According to an investigation, they made the Ministry of Economy, Trade and Industry (“METI”) to “beat up” a hedge fund (Reuters, June 11, 2021).

Reuters

The shareholder commissioned report said the current PM encouraged verbally the pressure on investors, although Suga has now denied it. The report exemplifies the battle between Toshiba’s management and foreign shareholders including Harvard University’s endowment fund.

Toshiba has been beset by accounting scandals and near bankruptcy in the past. It is of strategic importance to Japan as maker of nuclear reactors and defence equipment.

The contents of the report describe Toshiba’s management has deep seated paranoia and aggression in fending off changes. The probe found Toshiba had devised a plan to effectively prevent shareholders from exercising their proposal and voting rights.

The company was worried that foreign investors, which own most of its shares would vote out management and appoint their own candidates.

For long-time watchers of Japan, the hands-on involvement in the matter by METI may not come as a shock. Toshiba after all is the organisation credited with the rise of Japanese industry after WW2.

METI coordinated with Toshiba to employ the good cop, bad cop negotiating strategy. METI was to “beat” Effissimo, another investor while Toshiba interacted politely.

METI threatened to use the new Foreign Exchange and Foreign Trade Act (“FEA”) if voting did not go, they wanted. The situation, for some, is that bureaucrats have become too powerful and dangerous. “Can METI do whatever they like?” asked some.

The rise of Japanese corporations has generally been without major incident. But this and some others do show that Japanese corporations have the same mentality of a militarized Japan of the 40s. When things do not go their way, they want change according to their rules – that’s power.

In the early 90s, Japanese banks were on the rise and many Japanese companies/ factories had relocated their business to Malaysia. On one occasion a major local bank was not up to the expectation of a major Japanese bank. The local Japanese bank chief wanted to “dress-down” the local bank at his office in KL. This ambush was not known except to the Japanese desk officer of the local bank. Anyway, the unit head (of the local bank) walked out of the meeting to the dismay of the Japanese CEO when he started his verbal hyperbole. A retro scene from WW2. Wonder where we would be if they had ruled the world? But that goes, in a sense, when someone wants to dominate another!

 

Reference:

1.     Toshiba makes hedge funds look like the good guy, 16 Jun 2021, The Star

2.     ‘Beat them up’: Toshiba and Japan colluded against foreign investors, probe finds, 11 June 2021, Reuters

3.     ‘Deeply disturbing’ Toshiba report points to powerful figures, 16 June 2021, Bloomberg