Glass Lewis backs activists in Toshiba spat

Proxy adviser Glass Lewis has recommended that Toshiba shareholders vote for the two resolutions separately advanced by activist investors Effissimo Capital Management and Farallon Capital Management. The company’s stock rose 6% on Friday.

Concerned about the fairness of last year’s annual meeting, 10% shareholder Effissimo seeks a vote that would lead to the creation of a special committee tasked with conducting an investigation into the matter. Farallon, a 5.3% shareholder, wants to curb management’s M&A ambitions, arguing investors should have a say on Toshiba’s capital allocation policy.

Glass Lewis sided with Effissimo, saying there was a need for more clarity on the way Toshiba conducted last year’s AGM. The proxy adviser called the company’s own investigation a “half-step, conflicted and circuitous” while arguing the activist’s proposal “reasonably seeks to resolve…still outstanding questions surrounding the valid, unobstructed execution of the shareholder franchise.”

Glass Lewis also backed Farallon’s demand, finding the activist’s case “well-rounded” as well as “comprehensive and analytically persuasive.”

“[T]he company’s shifting representation of central aspects of the TNP [Toshiba Next Plan] demonstrates a troubling lack of consistency and candor at a firm whose legacy failings and tenuous recovery demand unambiguous transparency and clear communication with investors,” said Glass Lewis in a report reviewed by Activist Insight Online.

Farallon claims that Toshiba made a “dramatic shift” in November from its ongoing strategic plan (TNP) that “focused on a disciplined capital policy and targeted growth through organic expansion and small-scale, programmatic M&A” to target large-scale mergers and acquisitions that could cost it about 1 trillion yen ($9.66 billion). The activist argues this is concerning given the company’s long-term poor track record in acquisitions.

“Glass Lewis’s report definitively supports our view that Toshiba modified its capital policy in November 2020 and shareholders should insist on accountability at Toshiba,” said Farallon in a Friday statement. “In the absence of credibility and trust, Toshiba’s stock price will continue to flounder,” the activist added.

Toshiba previously said Farallon’s proposal amounts to “an excessive intervention” as it would limit its ability to achieve “optimal growth.” This seems to have echoed with ISS, which said in a recent report seen by Activist Insight Online that the activist’s resolution was “overly prescriptive” and advised against it.

However, ISS backed Effissimo’s resolution for an independent investigation into the vote last year.

Toshiba shareholders will get the chance to vote on the two matters on March 18 at a special meeting called by the two activists.