Proxy adviser Institutional Shareholder Services (ISS) has recommended that Toshiba shareholders support a proposal by Effissimo Capital Management seeking an independent probe into vote counting issues at the last year’s annual meeting.

“Given Toshiba’s governance failure and a highly publicized accounting scandal which came to light in 2015 …, and the 2020 revelation of a fictitious revenue incident at subsidiary Toshiba IT-Services, shareholders have reasons to be concerned about the recent developments pointed out by Effissimo; as they could imply the company has still failed to address governance concerns to date,” ISS said in its report, which was seen by Activist Insight Online.

Effissimo nominated directors at last year’s annual meeting of Toshiba, but reports later surfaced that some ballots did not arrive in time to be counted, blank ballots were counted in favor of management, and a government adviser pressured large shareholder Harvard Management to vote with management. Toshiba said it ran an investigation and found no breaches, but Effissimo argued the probe should be widened.

ISS said there are “doubts” over the legitimacy of Toshiba’s investigation “because the audit committee’s conclusion is based on a one-sided investigation.”

“It will be difficult to escape the impression that Toshiba conducted a perfunctory investigation in response to the allegations by Effissimo,” ISS said.

The proxy adviser also made clear that it received no pressure from Toshiba insiders, as alleged by Effissimo. ISS recommended against the election of nominees advanced by Effissimo last year, including Effissimo director Yoichiro Imai.

ISS recommended against a proposal by Farallon Capital Management seeking a mandatory shareholder vote on the company’s capital allocation strategies. ISS said it found the proposal “overly prescriptive,” but noted that its presence “should further signal to management the urgent need to address the deteriorating trust of its shareholder base.”

Farallon advanced the proposal after Toshiba indicated that it might pursue a growth strategy via M&A, which raised concerns among the shareholders given the company’s long-term poor track record in acquisitions.