Shareholder votes in focus as big Japan banks sell Toyota shares

TOKYO: Voting at shareholder meetings in Japan may become more consequential if the decision by Japanese megabanks to divest their strategic holdings in Toyota Motor Corp. triggers a broader unwinding of cross-held shares among the country’s biggest companies.

Mitsubishi UFJ Financial Group Inc. and Sumitomo Mitsui Financial Group Inc. will start selling ¥1.32 trillion (RM40bil) of stock in the world’s No. 1 carmaker, people with knowledge of the matter said.

Insurance firms, which have already indicated that they plan to cut their holdings to zero, may also follow suit.

The potential exit of key stakeholders may lead to less stability and predictability for boards and management of listed companies across Japan, and inject more drama into mostly procedural annual meetings.

The government has been pushing for a broader unwinding of cross shareholdings that cemented business relationships for decades, in order to improve corporate governance and bring more dynamism into the corporate sector.

Although the banks will take advantage of Toyota’s plan to buy back its own shares, the divestments will happen over time in order to minimize the impact on the company’s stock price, said the people, who asked not to be identified because the information isn’t public. Given their plan to sell in stages, any ripple effect from divestments probably won’t appear until next year’s general meeting at the earliest.

Toyota’s shareholders will meet later this month, on June 18. Three proposals have been submitted ahead of the meeting at its headquarters in Toyota City, Aichi Prefecture, where 10 board members, including chairman Akio Toyoda, face reappointment.

In May, proxy advisers Institutional Shareholder Services Inc. and Glass Lewis & Co. urged shareholders to vote against Toyoda, citing recent issues with safety certification at a pair of subsidiaries as well as the lack of independence on the board.

A representative for Toyota wasn’t immediately available to comment.

Toyoda, grandson of the company’s founder, stepped aside as chief executive officer to become chairman last year. During his 14-year tenure, he was closely involved in new product development, and helped Toyota overcome the 2011 Great East Japan earthquake and the coronavirus pandemic.

Record vehicle sales of 11.2 million units in 2023 has helped keep Toyota ahead of Volkswagen AG as the world’s top carmaker for four straight years.

Shareholder votes for Toyoda’s re-appointment stood at 98.3% in 2020, but that ratio has since dipped. It was 84.6% last year, the lowest among board members.

The decline in support stems from criticism that Toyota is dragging its feet in the shift to battery electric vehicles, according to Julie Boote, an analyst at London-based research firm Pelham Smithers Associates.

"Given the success of Tesla at the time and strong EV sales growth rates, market participants and investors were convinced that Toyota was definitively betting on the wrong horse,” Boote said.

A recent certification scandal that found that some vehicles weren’t properly tested is becoming more of a focus, she said, but added that "this isn’t reason enough for an overhaul in management and the board.”

"Outdated testing procedures are partly to be blamed for the discrepancies between actual tests and required tests,” Boote said. "This is not reason enough for an overhaul in management and the board.”

While Toyoda will almost certainly secure more than the 50% of votes he needs to keep his seat, recent events could make the board more cautious about future appointments, according to Boote.

The unwinding of cross-held shares within the Toyota group could also become a risk factor: If suppliers and subsidiaries divest, much like with the banks and insurers, that could also lead to the loss of stable shareholders.

Toyoda Industries Corp. holds 7.6% of Toyota, while Denso Corp., Toyoda Gosei Co. and Toyota Boshoku Corp. collectively own more than 10% of the parent company.

That could also boost the presence of individual stockholders, who might choose to invest using a newly introduced tax exemption scheme called the Nippon Individual Savings Account, according to Iwai Cosmo Securities Co. analyst Taku Sugawara.
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