HONG KONG (Reuters Breakingviews) - Toshiba is back at the vanguard. The embattled $18 billion conglomerate led the way in Japan on everything from radar to laptop computers. Now it has nominated four non-Japanese directors for an expanded and more independent board. It’s a bold step in a country slowly rethinking corporate governance. Given previous failed experiments with outsiders, the company’s experience will be a litmus test.
The shakeup can be attributed to a group of funds that have been agitating for changes. Toshiba specifically thanked its three largest shareholders – Effissimo Capital Management, Farallon Capital Management and King Street Capital Management – for their “expertise and thoughtful participation” on the board’s composition. Bowing to pushy investors has become more common in Japan: Olympus and bathroom fixtures maker Lixil have done so, too. Opening up to non-Japanese voices is rare, though.
There were only 80 foreign directors at Nikkei 225 companies last year, amounting to about 3% of the total, according to executive recruitment firm Spencer Stuart. And only 34 of them were outsiders and considered independent. By comparison, in Germany, France and Britain, at least a quarter of board members are foreign nationals.
It is a symptom of the insularity of Japanese companies, which has been a serious impediment to making strategic and financial improvements. There also have been some high-profile exceptions, debacles even in the rare instances when foreign influence has been allowed. Nissan Motor is grappling with a scandal involving longtime boss Carlos Ghosn. Howard Stringer’s tenure at Sony was blighted by, among other things, a collapse in the stock price.
Toshiba’s new board members, if approved, will be in the spotlight. CEO Nobuaki Kurumatani’s recently announced five-year turnaround plan, which includes shrinking the workforce and exiting some businesses, has just begun. Rubber-stamping it would hardly justify all the upheaval. The new international members – which include restructuring specialist Paul Brough, who helped liquidate Lehman Brothers’ Asian assets and took over ailing commodities trader Noble Group in May 2017 – may have some ideas of their own. How Toshiba handles the guidance, and fares under it, is bound to determine future foreign experimentation in Japan Inc.
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