Toyota to face governance challenge at shareholder meeting
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[June 13, 2023] By
Makiko Yamazaki and Maki Shiraki
TOKYO (Reuters) - Toyota faces an unprecedented challenge at its annual
shareholder meeting on Wednesday, with some pension funds voting against
Chairman Akio Toyoda on governance issues, while seeking more
disclosures on the Japanese automaker's climate lobbying.
The world's top car maker has become a target in recent years for
activists and green investors, who say it has been slow to roll out
battery electric vehicles (EVs). Now, some investors have taken aim at
the independence of its board.
The two largest U.S. public pension funds - California's CalPERS and
CalSTRS - as well as New York City's pension system and other asset
managers have said they are voting against Toyoda.
Two prominent U.S. proxy advisers have flagged concern about Toyota's
board independence.
The step comes as companies across Japan face more pressure from
investors, especially on environmental, social and governance (ESG)
issues. Shareholders have made a record number of proposals at annual
meetings this year.
Governance code revisions make clear that boards are to provide
oversight, not just advice, but some Japanese companies "seem reluctant
to accept the conclusion" and still regard boards as advisory, said
Kentaro Shibata, a lawyer and corporate governance expert.
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In some ways Toyota is an unlikely target, having long set Japan's
enviable standard for quality and innovation. It has also done well for
investors, returning 62% over the last five years, including dividends,
versus a 57% return in the Nikkei 225.
Its shares got another boost after the company unveiled big plans on
Tuesday for new battery technology and EV innovation.
The strong financial performance has meant concerns about board
independence have largely been shrugged off, said Kazunori Suzuki of
Waseda Business School.
"The question is, which is better, a company with perfect governance and
bad earnings, or one with a governance framework that is imperfect, but
has strong earnings?"
Toyoda, who took over as chair in April after more than a decade as
chief executive of the company his grandfather founded, is unlikely to
lose his seat.
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He enjoys strong support from individual investors and the many
suppliers and Toyota group companies among its shareholders.
Last year he was re-elected to the board with 96% support.
"Based on our principles of corporate governance, we don't think someone
should go directly from being chief executive to being the chair of a
company. It's a matter of the independence of the chair," said Anders
Schelde, chief investment officer of Denmark's AkademikerPension, which
is a shareholder.
"That, combined with the global climate issue, makes us vote against Mr.
Toyoda."
The automaker says Toyoda was nominated to the board for his ability to
drive the transformation from manufacturing to providing a range of
mobility services.
It says its board meets Tokyo Stock Exchange governance standards for
independent oversight.
Toyota is taking a multi-path approach towards clean cars that includes
hybrids and fuel cells, along with standard EVs.
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![](../images/061323PIX/busine18.jpg)
Toyota Motor Corporation President Akio
Toyoda speaks during a press conference over rigging safety tests by
its affiliate Daihatsu that affected 88,000 vehicles, in Bangkok,
Thailand, May 8, 2023. REUTERS/Athit Perawongmetha
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It says this strategy is better for reducing carbon emissions and
more practical, since customer needs, EV infrastructure and clean
energy supplies differ by country.
ENGAGEMENT
Denmark's AkademikerPension has been engaging with Toyota over EV
strategy for 2-1/2 years. This year it and two other European asset
managers submitted a proposal for greater disclosure by Toyota about
lobbying around climate change.
Toyota's board has recommended that shareholders vote against the
resolution.
A Toyota spokesperson said the company believed it had the support
of the proposing shareholders for its multi-pathway strategy.
AkademikerPension's Schelde said he agreed there could be markets
where hybrids may have a bigger role to play.
Toyota views the shareholder proposal as an opportunity to eliminate
misunderstanding about its strategy, which is also in shareholders'
interest, the spokesperson added.
Last month, proxy adviser Institutional Shareholders Services (ISS)
said it viewed three of Toyota's four outside directors as not
independent, citing ties to groups such as the International
Paralympic Committee, a Toyota mobility partner, and Sumitomo Mitsui
Financial Group, its main bank.
Toyota does not disclose the size of its business ties with board
nominees' organisations, preventing shareholders from assessing the
"materiality" of those relationships, ISS said.
Toyota's transactions with those organisations are not material, the
automaker said.
Many Japanese companies classify some board members as independent
despite existing or past affiliations with the company.
Japan's non-binding Corporate Governance Code says boards should set
up and disclose their own independence standards, which Toyota does
not appear to have done, said Nicholas Benes, a governance expert at
the Board Director Training Institute of Japan.
The automaker appears to have decided that certain candidates are
independent without any yardstick, Benes said.
Rival automakers Nissan Motor and Honda Motor both have detailed
independence guidelines for their directors.
These include limiting their firms' transactions with the company
and excluding people who conduct business for the company's major
creditors.
Speaking to Reuters before Tuesday's announcement,
AkademikerPension's Schelde said there were also causes for
optimism.
"They have a lot of potential if they make the right changes. And
that's also why we remain invested."
(Reporting by Makiko Yamazaki and Maki Shiraki; Additional reporting
by Daniel Leussink; Editing by David Dolan, William Mallard and
Clarence Fernandez)
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