Daniel Leussink and Maki Shiraki
TOKYO (Reuters) – Toyota Motor (NYSE:) Chairman Akio Toyoda may be in no danger of not being re-elected at the automaker’s annual general meeting on Tuesday, but any further significant decline in shareholder support could lead to increased action on governance reforms.
This year’s annual general meeting will focus on certification testing scandals at Toyota and its group companies, including compact car maker Daihatsu and truck unit Hino Motors.
Proxy advisory firms Institutional Shareholder Services (ISS) and Glass Lewis recommended against Toyoda’s re-election, citing concerns about governance and board independence. Since then, another scandal involving testing irregularities has surfaced.
Toyoda’s approval rating fell to 85% last year from 96% in 2022, but he needs just a majority to win re-election and scandals aside, things are going well.
The grandson of the automaker’s founder, Toyoda, has served on the board since 2000, making him the company’s longest-serving director. It is expected to receive support from individual investors as well as many suppliers and Toyota group companies among its shareholders.
“I don’t think Akio Toyoda-san won’t be reassigned,” said James Hong, head of mobility research at Macquarie. “Just a decline in approval levels would be a bit of a yellow flag for management.”
Hong said Toyota’s potential moves to counter criticism of corporate governance could include accelerating its efforts to end cross-shareholdings, especially stakes in non-automotive companies such as financial services companies or telecom firm KDDI (OTC:).
The results of the vote will be announced on Tuesday, but the approval rate will not be revealed until Wednesday.
ISS took issue with the automaker’s handling of certification violations within the Toyota group, saying Toyoda should be held “fully responsible” for the errors.
“It is important that the company establishes appropriate compliance mechanisms under the guidance of the board of directors,” the report said. “Now is a good time for change due to the incidents in the group companies.”
Glass Lewis, who is recommending against Toyoda’s re-election for a second year in a row, said he was responsible for the board’s lack of independence and also raised concerns about strategic shareholdings and return on equity.
Asked about recommendations from trusted advisers, Toyota said in a statement to Reuters that self-examination has long been ingrained in its corporate culture and Toyoda will take a leading role in reviving that culture and working with group companies to ensure good governance.
Toyota shares have lost 10% since the latest scandal broke earlier this month. However, the stock is still up 17% year to date, outperforming the broader market and adding to last year’s gain of 43%.
The automaker retained its title as the world’s top-selling automaker for the fourth year in a row in 2023, helped by a weak yen and rising sales of hybrid vehicles. The company posted record profits in its most recent fiscal year, which ended in March.
“Toyoda should be highly regarded as he has delivered results and led Toyota to growth,” said Koji Endo, head of equity research at SBI Securities.