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Toyota to face governance challenge at shareholder meeting


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.

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.

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.

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.


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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