At Toyota shareholder meeting, all eyes on level of support for chairman

TOKYO – Toyota Motor 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 big drop in shareholder support could lead to increased action on governance reforms.

This year’s AGM will follow scandals involving violations of certification tests 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 have recommended that Toyoda not be re-elected, citing concerns over governance and the board’s independence. Since then, another scandal over testing violations has also come to light.

Toyoda’s approval rating fell to 85% last year from 96% in 2022 but he only needs a majority to be re-elected and scandals aside, business has been good.

The grandson of the car maker’s founder, Toyoda has been on the board since 2000, making him its longest-serving director. He is expected to have support from individual investors as well as the many suppliers and Toyota group companies among its shareholders.

“I don’t assume Akio Toyoda-san is not being re-appointed,” said James Hong, head of mobility research at Macquarie. “It’s just that the approval rate coming down will be a bit of a yellow flag to management.”

Hong said that potential action from Toyota to counter criticism over governance could include an acceleration of its efforts to unwind cross-shareholdings, particularly shareholdings in non-automotive companies such as finance companies or telecoms firm KDDI.

The outcome of the vote will be announced on Tuesday though the approval rate will not be disclosed until Wednesday.

ISS has taken issue with the way the automaker has dealt with certification irregularities within the Toyota group, saying that Toyoda should be considered “ultimately accountable” for the errors.

“It is important that the company establish appropriate compliance mechanisms under the board’s leadership,” it said in a report. “Now is a good time for change in the face of incidents at its group companies.”

Glass Lewis, which is recommending that Toyoda not be re-elected for a second year in a row, said that he is responsible for the board’s lack of independence and also cited concerns about its strategic shareholdings and return on equity.

Asked about the proxy advisers’ recommendations, Toyota said in a statement to Reuters that taking stock of its mistakes was long rooted in its corporate culture and Toyoda would take the lead in re-instilling that culture and working with group companies to ensure effective governance.

Toyota’s shares have lost 10% since the latest scandal emerged early this month. That said, the stock is still up 17% for the year to date, outperforming the broader market and adding to a gain of 43% last year.

The automaker retained its crown as the world’s top-selling car maker for a fourth consecutive year in 2023, helped by a weak yen and growing hybrid vehicle sales. It booked a record profit for the last business year that ended in March.

“Toyoda should be highly regarded as he delivered results and led Toyota to growth,” said Koji Endo, head of equities research at SBI Securities.

(Reporting by Daniel Leussink and Maki Shiraki; Editing by Edwina Gibbs)