Toyota Motor Chairman Akio Toyoda speaks during a news conference in Bangkok, Thailand, on May 8, 2023.Athit Perawongmetha/Reuters
Shareholder backing for Toyota TM-N Chairman Akio Toyoda slid for a second straight year, results from its annual general meeting showed on Wednesday, with his support rate dropping to 72 per cent amid certification scandals and governance concerns.
The result marks the lowest level of backing for Toyoda, the grandson of the company’s founder, since the world’s largest automaker started disclosing the breakdown of shareholder votes in 2010.
It is likely to be seen as an embarrassing rebuke for one of the giants of corporate Japan, where traditionally executives are re-elected to boards with overwhelming support. It is also a testament to the extent U.S.-style corporate governance is taking root across Japan Inc.
The result follows recommendations by proxy advisers to vote against Toyoda’s re-election and comes after an approval rating of 85 per cent last year and 96 per cent in 2022.
Institutional Shareholder Services (ISS) and Glass Lewis both took issue with the way the company has dealt with ongoing certification testing violations, which involve Toyota and group companies such as compact car maker Daihatsu.
Glass Lewis, which had recommended that Toyoda not be re-elected for a second year in a row, also expressed concerns about the board’s independence and return on equity.
Most of the slippage in support is expected to have come from foreign investors which account for a quarter of Toyota’s shareholders. Those that voted against Toyoda included U.S. public pension CalPERS and Canadian pension investor CPP Investments.
Toyota said in a statement it saw the approval ratings as candid feedback from institutional investors and that to enhance the independence of its board, it had clarified the roles and expectations of outside executives and redefined the criteria for assessing independence.
It added that to accelerate its transformation it would sell cross-shareholdings. Critics say the practice of cross-shareholdings between Japanese firms encourages lax governance by ensuring a too-cozy relationship between management and shareholders.
“The governance or holding structure side is where we expect changes to accelerate. Obviously, that has been the focus of the shareholders, and shareholders have been demanding faster changes there,” said James Hong, head of mobility research at Macquarie.
Toyoda was never expected to lose his re-election, given shareholdings in the automaker owned by other Toyota group firms, record business results and his popularity among Japanese retail investors.
Though the automaker has been under fire in recent years for its slow shift to battery electric vehicles, its so-called “multi-pathway” strategy – where it also heavily invests in hybrids and hydrogen fuel cells – now appears prescient.
It benefited from its strong hybrid line-up last year as growth for battery EVs in major markets like the United States slowed on relatively high prices and worries about the lack of charging infrastructure.
Toyota’s shares have fallen 9 per cent since revelations of further certification testing violations came to light in early June, but are still up 20 per cent for the year to date.