Makiko Yamazaki

TOKYO (Reuters) – Toshiba (OTC) Corp’s proposal to seperate itself into three companies will not solve the company’s governance issues. According to a top executive of one of Japan’s largest pension funds, it should focus on reorganizing its board and management.

Ken Hokugo from the Pension Fund Association (PFA) said that the interests of shareholders and Toshiba management “are not aligned”.

In written answers to Reuters inquiries, he stated: “The best and most orthodox way to solve the discrepancy in the board is to have someone on the board who can supervise and discipline management”

Hokugo refused to discuss how the PFA (which holds an undisclosed number of Toshiba shares) would vote regarding the plan for Toshiba to be broken up into three companies. One for energy and infrastructure and one for electronic devices. The third company will house flash memory chips assets.

However, his remarks highlight widespread shareholder concern regarding Toshiba. It is a rare public statement by an influential Japanese pension fund. The industry tends not to speak out about the companies they invest in.

With 12.5 trillion yen (108 billion dollars) of assets, the PFA provides pension benefits for people who have retired from their pension programs.

Foreign shareholders have, however, been more vocal about their concern, with several of them having a tense relationship with Toshiba management after it was found by a shareholder-commissioned investigation last year to have colluded with the trade ministry to blunt their influence.

Toshiba argues that its plan to dissolve is designed to maximize shareholder value. Toshiba didn’t immediately reply to Hokugo’s request for comment.

Hokugo noted successful turnarounds at Olympus Corp and chip materials maker JSR Corp, which both invited shareholder ValueAct Capital to take a board seat https://www.reuters.com/business/finance/japan-inc-activist-investors-come-cold-2021-04-21. He said that the ValueAct partners helped to improve their corporate values.

Reuters was informed by Toshiba shareholders who said they were pushing for a deeper review of the company that would consider private-equity offers.

Hokugo claimed that Toshiba didn’t solicit any buyout bids during the five-month strategic evaluation before it decided to end the partnership. It gave the impression that the management knew what was best for the company.

Also, he said that shareholders may want to see private equity deals because taking Toshiba private might allow for dramatic measures that are not possible for listed companies.

Hokugo also stated that shareholders should decide what is the best way to grow corporate value.

Toshiba plans to hold an extraordinary shareholder meeting https://www.reuters.com/business/toshiba-shareholder-calls-extraordinary-meeting-vote-break-up-plan-2022-01-06 in March to gauge shareholder support for the break-up plan, but the exact date and what the bar will be for shareholder approval have yet to be decided.

Toshiba’s market valuation has been reduced by more than half since 2000, when it was at its highest point.

($1 = 115.4500 yen)