Corporate governance issues are plagued Toshiba …

Corporate governance issues are plagued Toshiba …

Japanese companies weren’t good at dealing with activist shareholders, but Toshiba seems to have fought a few notches by colluding with the government to fend off activist influence.

This time, the industry giant may have gone too far, and the scandal raised important questions about corporate governance.

Currently, Friday’s annual shareholders meeting will be a confrontation between Toshiba’s board of directors, which is promoting the maintenance of chairman Osamu Nagayama, and investors who want him.

Concerns about corporate governance are nothing new to the company.

Toshiba has vowed to renew its governance in response to the shocking accounting error in 2015. From 2009 to 2014, Toshiba made a series of improper accounting entries with a profit of 152 billion yen ($ 1.3 billion). Investigations revealed that the company’s executives, including three former presidents, were involved in the operation and had no internal system in place to thwart them.

Analysts said the recent scandal ended up with Toshiba appointing a CEO from outside and ensuring that the majority of the board consists of outside directors to enhance management oversight. He emphasizes the failure to reform governance.

Yoshiharu Izumi, Senior Analyst at SBI SECURITIES, said: Considering that the root of Toshiba’s internal problems goes back more than 10 years, “it is unrealistic to solve it in just a year or two.”

In 2018, Mr. Nobuaki Kurumatani, a former banker of Sumitomo Mitsui Banking Corporation, vowed to “pour his soul into governance reform” and became the CEO hired from outside the company for the first time in nearly 50 years.

However, Kurumatani “could not radically change or strengthen Toshiba,” Izumi said.

Toshiba Chairman Osamu Nagayama will hold a press conference in Tokyo on June 14th. The company’s annual shareholders’ meeting on Friday will be a confrontation between Toshiba’s board of directors, which promotes the maintenance of Nagayama, and investors who want him. | Toshiba Courtesy / Via Reuters

According to a recent report compiled by an independent lawyer, Kurutani himself was deeply involved in Toshiba and the government’s attempt to shake the voting behavior of foreign investors at the July 2020 Annual Shareholders’ Meeting.

The Corporate Governance Code of Japan states that “Companies should take appropriate steps to fully secure the rights of shareholders and create an environment in which shareholders can exercise their rights appropriately and effectively.”

Kurumatani suddenly resigned in April after a preliminary takeover offer from CVC Capital Partners called for conflicts of interest. Kuriya was the chief of Asia at CVC before assuming the post of president of Toshiba, but he said that it is a move to secure his position because he has lost the support of both investors and Toshiba employees. Speculation has increased. Mr. Kuriya emphasized that he resigned because he was involved in Toshiba’s rehabilitation.

Toshiba was once regarded as a model for corporate governance. In 2003, the company moved to a committee-based governance system. This is believed to have strengthened management oversight. This is a rare move for Japanese companies.

However, the 2015 accounting scandal revealed that Toshiba has been profitable since 2009, so it’s just a façade.

From there, Toshiba’s business experienced a period of financial difficulty.

In 2017, Westinghouse Electric Corporation, a nuclear power plant in the United States at the time, faced a catastrophe with problems. The conglomerate had to sell many businesses, including medical and chip units, and raised 600 billion yen through foreign investors. This brought together activist investors, such as Effissimo Capital Management, who were not satisfied with Toshiba’s performance.

Nobuaki Kurumatani in 2018 | KYODO
Nobuaki Kurumatani in 2018 | KYODO

Kurumatani and other executives sought help from the Ministry of Economy, Trade and Industry for the apparent purpose of fending off their pressure.

According to a report by an independent lawyer, Toshiba’s shareholders’ meeting held in July last year was not held fairly because Toshiba and the Ministry of Economy, Trade and Industry tried to improperly influence foreign investors.

Singapore-based Efficimo Capital Management has made its own proposal to candidates for board, saying that Toshiba, which operates nuclear and defense-related businesses, is an important company, and that Japanese regulators may intervene. It is said that he tried to persuade him not to do so. International security. The report also said an advisor to the Ministry of Economy, Trade and Industry had contacted Harvard University’s fund to influence the vote.

However, Industry Minister Hiroshi Kajiyama told reporters that the ministry was not cheating and that the report contained many false facts.

Mr. Kajiyama said, “It is natural to be interested in the technology and industry that are indispensable to the country, so naturally the staff of the department that supervises such industry is stipulated by the Foreign Exchange and Foreign Trade Law (company). Stay in touch. “

However, Toshiba has virtually admitted that it is included in the report and said it plans to investigate further.

“This is a very embarrassing case from an international perspective …. Toshiba is one of Japan’s leading companies, and the idea of ​​engaging in such an act undermines confidence in Japan’s corporate governance.” Said Takaaki Wakasugi, director of the Japan Corporate Governance Institute.

The group of lawyers released a report on Toshiba's shareholders' meeting held in Tokyo on June 10. | Kyodo News
The group of lawyers released a report on Toshiba’s shareholders’ meeting held in Tokyo on June 10. | Kyodo News

Foreign investors are often referred to as “activists” and get a lot of attention when they are in conflict with Japanese companies, he said, but they do so to improve the company’s performance.

“They are critical because Japanese companies are doing something wrong. If they do it right, they won’t care,” Wakasugi said.

Further turmoil is expected at Toshiba’s annual shareholders meeting on Friday as a new scandal burns. The focus is on whether shareholders will approve other board candidates proposed by current chairman Nagayama and Toshiba, with some shareholders blocking attempts to collude with the government. The board sees responsibility for not being able to do so.

Toshiba’s second-largest shareholder, 3D Investment Partners, reportedly demanded that Nagayama resign earlier this month.

Institutional Shareholder Services Inc., a US-based corporate governance consultancy, has advised shareholders to reject the proposal for Toshiba to reappoint its four directors and Nagayama as chairman, according to media reports.

Citing two anonymous sources familiar with the matter, Reuters reported that Nagayama was likely to secure a reappointment by a small margin.

Nagayama said he wants to fulfill his responsibilities by helping the company overcome difficult times.

Mr. Izumi of SBI SECURITIES said that even if Toshiba successfully overcomes the conflict with investors on Friday, it will continue to take a difficult path, and the biggest challenge is to formulate a medium-term business plan that the company will announce in October. I said that.

“Toshiba needs to come up with a plan that can convince both employees and investors,” he said.

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Partnerships support efforts to address global water issues

Partnerships support efforts to address global water issues

From public health and environmental issues to socio-economic and technical solutions, it’s not easy to get a complete picture of water issues.

Professor Satoshi Takizawa, Director of the Center for Water and Environmental Engineering, Graduate School of Engineering, the University of Tokyo, also teaches at the Faculty of Urban Engineering of the same university, and has been studying the engineering and management of urban water systems in Japan and developing countries. .. He taught at the Asian Institute of Technology in Bangkok from 1997 to 1999 and has participated in many international research projects.

Professor Takizawa led the Ministry of Economy, Trade and Industry’s panel on overseas expansion of the Japanese fisheries industry for more than 10 years, sharing his thoughts on water with The Japan Times.

JT: What made you study the urban water system?

Takizawa: As a student in the 1980s, I became aware of water pollution at home and abroad and diseases caused by unsafe water in developing countries. Therefore, I thought of a solution that utilizes water supply engineering instead of products. It’s been almost 40 years.

JT: What are the main challenges?

Takizawa: Water is unevenly distributed over the entire surface of the earth. The average annual rainfall in Japan is about 1,700 millimeters, but the rainfall in the countries of the Middle East is negligible, less than 50 millimeters per year. There is no point in discussing the world average. That is one of the difficulties of water resources.

Another issue is water shortage due to population growth. In particular, urban population growth and industrialization are causing serious water shortages. How to manage a city’s water system has become a major issue for the industry.

JT: Do you think companies can contribute to the solution, or do they basically need to address their challenges through Official Development Assistance (ODA)?

Takizawa: Water is an integral part of our lives, but there are many aspects to water problems. On the other hand, in order to maintain the minimum standards of healthy and cultural life, all people should have access to safe water. To address challenges in this area, Japan has built wells in rural areas of developing countries as part of ODA. This is not a business.

On the other hand, advanced urban water and sewerage systems should be supported by the inhabitants who benefit from them. And it is not surprising that those who pay for such services demand that they be operated economically and efficiently. Now you need to look at the problem from a business perspective.

JT: How has the Japanese fishing industry been involved in overseas projects?

Takizawa: In Japan, the operation and maintenance (O & M) of water supply systems is basically carried out by local governments. As seen in Kitakyushu’s activities in Cambodia (since 1999) and Yokohama’s activities in Vietnam (since 2003), some have started supporting water projects in developing countries around 2000.

These activities were carried out at the request of the Japan International Cooperation Agency, a government agency that provides much of Japan’s ODA. However, it is not easy for local governments to further increase their overseas investment, as local governments need to obtain parliamentary approval and such business activities do not benefit local residents.

JT: How about Japanese companies?

Takizawa: Some companies export water system equipment and components, but Japanese companies like the so-called water majors that carry out comprehensive projects such as O & M, such as the French-based Veolia and Suez groups. There is none. Therefore, a panel of the Ministry of Economy, Trade and Industry 10 years ago discussed this and suggested that local governments and private companies should cooperate.

JT: How do you think this development of public-private partnership has evolved over the past decade?

Takizawa: I have tried as hard as I can. For example, Kitakyushu has succeeded in involving a local Japanese company in Cambodia’s water system, but thanks to research funding from JICA, Kitakyushu will continue to send experts to the country for local water supply O & M. We are cooperating with private companies. .. The Government of Japan will further encourage such practices in public-private partnerships where local governments are expected to support private companies and cooperate in overseas water projects.

Another potential area of ​​business is concessions, which gives private companies the exclusive right to operate, maintain, and make investments in water systems while the municipality retains ownership of the property. ..

Miyagi Prefecture plans to conclude a concession contract for water, sewerage and industrial water systems in 2022, which will be the first water concession case in Japan. In March, prefectures chose a corporate group as a contractor. This group reserves the right to carry out all O & M activities of the three water projects for 20 years.

JT: How do concession contracts benefit a company?

Takizawa: Experience in concessions allows companies to qualify for comprehensive international water projects. Long-term and large-scale O & M expertise allows Japanese companies to independently apply for overseas water projects without the involvement of local governments.

JT: In addition to public-private partnerships, are partnerships between Japanese and foreign companies expanding?

Takizawa: There are many examples. For example, one member of the above group is a Japanese subsidiary of France-based water giant Veolia. Japanese companies may be able to absorb efficient O & M expertise by working with Veolia, who has extensive experience in the water business.

JT: Can Japanese companies further expand their overseas business by promoting advanced products with technological advantages?

Takizawa: Again, it’s better to design, build, operate and transfer contracts with client countries rather than just selling products. For example, for most seawater desalination plants, Japanese companies are appointed to operate the plant on behalf of the client’s country for 20 years, in addition to designing and constructing the O & M before returning it to the client. This is a very stable way of doing business to recover your investment through operating costs at a long fixed rate.

JT: Please tell us about the University of Tokyo’s training for future leaders in hydraulic engineering and utility management.

Takizawa: This is a master’s program offered jointly by the Department of Urban Engineering with JICA. From 2018, we started accepting 5 students a year from Asian countries. They are young executives of government agencies responsible for water systems.

The program is designed to develop problem-solving skills so that students can lead the water supply departments of their respective countries to achieve better water supply services and water management. We encourage you to discuss your country’s challenges with other students, logically analyze complex issues, and identify the root cause. Once the student has identified the root cause, they begin to work on the problem through field research, hypothesize and test, and finally propose a solution.

In Japan, there were many international students who had difficulty returning or returning to Japan due to the COVID-19 pandemic from the beginning of 2020, but thanks to JICA who cooperated in providing charter flights, we were able to continue the field survey. ..

Indonesian students have discovered that the seawater desalination plant provided by the Indonesian government for isolated islands without water sources is not functioning properly because the inhabitants do not know how to operate the plant. As a result, islanders continue to buy expensive water tanks from merchants.

Also, have students analyze the cost and return of the project and the time it takes to recover the initial investment. A project is not sustainable if it cannot generate enough income to offset the costs.

Myanmar students found that 80% of Yangon’s water meters were broken. As a result, the receipt of the fee has been reduced to one-fifth of the amount considered reasonable for the amount of water actually used by the residents. Students suggested replacing the broken meter with a new one, proving that the replacement helped achieve a reasonable income increase and that the cost of replacing the meter would be recovered in eight months.

In their project proposals to address water issues, we may find some areas where Japanese technology may be useful, and they may develop into collaboration with Japanese companies. You can collect 25 widely applicable case studies in the 5-year program planned by JICA.

JT: Finally, please tell us your thoughts on the future direction of the water problem.

Takizawa: Water, on the other hand, is a fundamental need for life and health. On the other hand, managing and operating today’s complex water systems requires economic rationality and advanced technology. It is important to understand both aspects. We need to not only focus on either business or support, but also consider which method is more appropriate on a case-by-case basis. Japan’s international cooperation and Japan’s fisheries are expected to further expand their overseas projects and businesses while building constructive partnerships over the next decade.

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China fines Alibaba Group for $ 2.8 billion in monopoly issues …

China fines Alibaba Group for $ 2.8 billion in monopoly issues …

China fined Alibaba Group 18.2 billion yuan ($ 2.8 billion) after an antitrust investigation. This is part of a regulatory crackdown that has raised concerns about the future of Jack Ma’s tech empire.

The penalty is equivalent to 4% of Alibaba’s domestic sales in 2019, the Chinese market regulator said in a statement on Saturday.

Regulators also said Alibaba needed to implement “comprehensive remediations” such as strengthening internal controls, maintaining fair competition, protecting businesses on the platform, and consumer rights. The company must submit a self-regulatory report to the authorities for the third consecutive year.

Alibaba has been under increasing pressure from Chinese authorities since its founder, Ma, spoke in October against a regulatory approach to China’s financial sector. These comments led to unprecedented regulatory breaches, including reducing Ma’s Ant Group Co.’s $ 35 billion initial public offering plan.

The company said it would accept and comply with the penalties “in good faith.”

“We will strengthen our operations in accordance with the law, further strengthen the construction of compliance systems based on innovation and development, and fulfill our social responsibilities better,” Alibaba said on Saturday.

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